The Federal Government has been warned that its proposed new regime involving stapling people to a single superannuation product for life is likely to give rise to “hawking” by the representatives of unscrupulous providers, even targeting those who have not even left school.
What is more, Australia’s largest superannuation fund, AustralianSuper has warned against creating a situation where the funds most accessible to young, entry-level worker become their default superannuation funds for the duration.
“It is clear that a regulatory shift to ‘first-timer default’ will incentivise superannuation funds to target new job entrants and younger Australians. It may encourage providers to sell members into products early, regardless of the suitability of the product for that member’s life stage, the performance of the fund, suitability of insurance offer or the member’s financial risk profile,” AustralianSuper has told the Senate Economics Legislation Committee.
“Providers may also be incentivised to use a ‘Dollarmites’ type approach aimed at securing members prior to them starting their first job,” it said.
“We note this activity was explicitly rejected by the Royal Commission into the Financial Services Industry. The provisions as drafted do not appear to contemplate protections for younger Australians from these practices, in addition to the risks outlined above of them being placed into an underperforming fund,” the AustralianSuper submission said.
Elsewhere in its submission, AustralianSuper raises serious questions about those elements of the legislation that hand a regulation-making power that would allow the Parliament to prohibit expenditure that would otherwise be in members’ best financial interests.
“It also provides for specific record-keeping obligations supporting payments a strict liability offence,” it said.
“We understand that this seemingly bizarre provision is actually intended to ensure that when superannuation funds spend money, that the products or services they are paying for are in fact provided. If this is the sole purpose of the provision it should be more clearly stated as such,” the submission said.
“Of particular concern to us is that regulations may prohibit or restrict Trustees from making certain investments on behalf of members, even if they are in the best financial interests of members.”
“The exercise of such a power directly contradicts existing law and prudential standards. Section 52 of the Superannuation Industry (Supervision) Act 1993 (SIS) and prudential standards made under that Act (e.g. APRA Prudential Standard SPS 530) dictate that the formulation of investment strategy and selection of specific investments is the sole responsibility of the Trustee of the fund.”
“Further, APRA-regulated superannuation fund Trustees already have a fiduciary duty to act in members’ best (financial) interests. This includes that Trustees are responsible for determining an appropriate level of diversification for each investment strategy.”
“The notion that excluding assets from a Trustee’s investment universe will improve outcomes is flawed. Further, that such a decision would be made by Parliament via Regulation, to apply to all Trustees regardless of their investment strategy or members’ investment choices, is not in members’ interests. The legislation also does not provide for any transitional provisions to ensure members’ existing investments aren’t adversely impacted as a result of the implementation of the provisions.”