Industry bodies have agreed with the Government’s response to the Financial System Inquiry (FSI) on developing alternative models for default contributions and enshrining superannuation objectives in legislation.
The Government today also committed to improve super governance, and remove impediments to the development of retirement income product improvements.
The Association of Superannuation Funds of Australia (ASFA) chief executive, Pauline Vamos, said the choice and selection of default super funds was a complex issue that required a thoughtful and considered approach.
“The proposed review of selection of default superannuation needs to consider the effectiveness and potential of all options including tweaks to the existing arrangements,” she said.
“In the context of our ageing population, the superannuation industry and the Government must prioritise establishing an appropriate framework for managing people’s superannuation not just in the accumulation phase but also after they retire.
“It is good to see the Government’s focus on retirement income products — this will help us to finish building the superannuation system.”
The Financial Services Council (FSC) said the commitment to allow Australians to choose the super fund would inject much needed competition in the industry and would lead to lower fees.
FSC chief executive, Sally Loane, said the allowance of all MySuper providers to compete in the default superannuation market supported the recommendations outlined in the 2010 Cooper review.
“Consumers are not able to benefit from these competitive options under the current rules,” Loane said.
“We broadly support the Government’s intention to put choice and competition at the centre of superannuation reforms.”
Industry Super Australia (ISA) said any changes to the default fund selection would need to be evidence based and the Government had two opportunities at hand.
The opportunities were re-starting the stalled Fair Work Commission merit based selection process for default funds the banks had opposed, and using the findings of the 2012 Productivity Commission review into choice in the super system instead of re-inventing the wheel.
ISA chief executive, David Whiteley, said “The continued postponement of the current process means consumers may be missing out on benefits of high performing funds, and leaving the door ajar for the banks to distribute sub-standard default products.”
ISA said it welcomed the emphasis on transforming the industry from being accumulation focused to one of retirement incomes, the intention to implement product intervention power for the Australian Securities and Investments Commission (ASIC), product suitability obligation for product issuers, and raised educational and professional standards for financial advisers.
However, ISA was disappointed the Government was not going further and extending the future of financial advice (FOFA) ban to life insurance commissions.
The Actuaries Institute welcomed the enshrining objective of the super system in legislation and said current and future Australian retirees could be confident they would be treated equitably and efficiently.
President of the institute, Estelle Pearson, said actuaries working alongside trustees would play a significant role in the development of ‘intelligent default’ products to provide retirees with more choice and better protection against longevity risk.
Similarly, Dixon Advisory’s managing director of financial advice, Nerida Cole, said it was smart to focus on building consumer confidence through enshrining the super objective, lifting adviser qualifications, and driving more efficiency and competitiveness in the sector.
Dixon Advisory also supported the review of borrowing in superannuation.
“Limited recourse SMSF [self-managed super fund] borrowing is very tightly regulated by lenders. Professional financial advice providers are already required to undertake strict due diligence before advising on these type of arrangements — as they should be, because it is a risky strategy. But for a small number of people it is a valid strategy,” Cole said.
