Sweeping
reforms to Australia’s A$1.3trn ($1.3trn) superannuation (super)
market are on the way, following the government’s acceptance in
large measure of recommendations made by a committee chaired by a
former deputy chairman of the Australian Securities and Investments
Commission (ASIC) Jeremy Cooper. Reforms are due to come into
effect in July 2013.
“The government is acting to
reduce the unnecessary fees and charges on working Australians’
retirement savings, and to remove barriers to a low cost and
efficient superannuation system,” commented Federal assistant
treasurer and minister for financial services and superannuation
Bill Shorten.
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As an example of reform
benefits, a worker aged 30 can expect up to A$40,000 more in
retirement, according to the government.
The reforms, dubbed “Stronger
Super reforms” by the government, include the introduction of a
low-cost workplace default super product called MySuper. Through
the proposed “SuperStream” package of measures, it is also intended
to slash costs of processing of super transactions.
“The superannuation industry
processes an estimated 100m transactions a year at a total cost of
A$3.5bn,” said Shorten. He added: “Contributing to this
inefficiency, each working Australian has, on average, three
superannuation accounts.”
Another key feature of
proposed reform is the banning of fees charged to super fund
members for compulsory financial advice which a large proportion of
members never use.
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By GlobalDataSupporting its aim to cut
super fund members’ costs, the government proposes to increase
surveillance of trustees with additional powers, in this respect,
to be given to the ASIC, the Australian Prudential Regulatory
Authority and the Australian Taxation Office.
The government estimates that
efficiency improvements will eventually save super members A$2.7bn
a year in fees, while overall, it predicts that supers will have
total assets of A$6.2trn by 2036, of which A$550bn will result
directly from reforms.
Commenting on reforms, the
Institute of Chartered Accountants’ head of superannuation Liz
Westover said changes to the super system over the last 20 years
have unsettled fund members and eroded confidence in the super
system.
“What we have now is a firm
commitment to superannuation reform in the best interests of
Australians saving for their retirement,” she said.
Also enthusiastic was super
industry body Industry Super Network CEO David Whiteley.
He commented: “MySuper
prohibits some of the most inappropriate practices in our
compulsory system, such as payment of commissions to financial
planners where no advice is provided, flipping, and the payment of
commissions by members for financial advice given to
employers.”
Flipping refers to a practice
by corporates of shifting people into personal super accounts with
higher fees when they leave their jobs.
However, Westover stressed
that while super reforms are a good start, serious tax issues must
be resolved. The government acknowledged this in its reform
proposal report, noting that more than 3m low- and middle-income
earners obtain no tax concession on their mandatory super
contributions, with some of the lowest income earners paying more
tax on their contributions than on their ordinary
income.
The report added that under
the existing regime, the largest tax concessions typically accrue
to the highest income earners.
However, reform is just one
aspect of the super system that is attracting attention in
Australia. Also under the spotlight is the use to which super
members, particularly the less affluent, are putting funds obtained
from their super investments. Regrettably, the picture is bleak,
according to a study by Industry Super Network.
Specifically, Super Network found that only about 12% of
households with less than A$100,000 in super-derived retirement
savings make any allocation to pension products, and in this
savings range the allocation represented around 5% of savings on
average.
