The Federal Government has opened the way for key changes to be made to insurance within superannuation, fees charged by superannuation funds and the comparability of superannuation fund returns under a new reference to the Productivity Commission (PC).
The Federal Treasurer, Scott Morrison has announced the terms of reference for what he describes as the third and final stage of the PC’s review of the efficiency and competitiveness of the superannuation system and, in doing so, has given a clear insight into the Government’s policy intentions.
Front and centre of the terms of reference is investment return comparability and fee disclosure, alongside default fund arrangements and insurance within superannuation.
With respect to comparability, the terms of reference specifically ask whether disclosure practices are resulting in a consistent and comparable basis for meaningful comparisons to be made between products and also canvasses whether tailoring costs and fees for different member segments would be appropriate.
On the controversial issue of default fund members, the PC has been asked to consider whether the current default settings in the system are appropriate, or whether policy changes would be desirable; and whether an alternative default fund allocation mechanism should be introduced that would deliver net benefits.
However it is on the question of insurance inside superannuation that the PC has been given most scope to make change, being asked to consider not only the cost of premiums of both default cover and individually underwritten cover funded inside super but whether policy changes could improve default cover through superannuation, so that default cover provides:
- Did not inappropriately erode the retirement savings of members of all ages;
- Delivered consistent outcomes across the system; and
- Whether policy changes were needed to ensure that insurance is not a barrier to account consolidation.
The Government has also tasked the PC with undertaking a review of competition in the financial sector in the context of the objective of the 2015 Financial System Inquiry (FSI).