The Federal Government’s newly-gazetted superannuation portability regulations appeared set to be disallowed in the Senate even though the Senate Select Committee on Superannuation is expected to strongly endorse facilitating portability.
The Senate must move for disallowance of the regulations within 15 sitting days of their gazettal. That means that the disallowance motion is likely to be put to the Senate almost at the same time as the Select Committee is ready to deliver its report.
And what is likely to prove particularly vexing for the Government is that while the Senate Committee’s report will endorse key elements of its superannuation portability regulations, it will only do so in the context of choice-of-funds.
Both the Australian Labor Party and the Australian Democrats have endorsed portability of superannuation, but both parties have also pointed to the shortcomings in the regulations gazetted by the Government on July 31, particularly the impact of entry and exit fees.
Shadow minister for retirement incomes and savings, Nick Sherry, describes the regulations as both “phoney” and “unsafe”. The Government, he believes, should ban entry and exit fees and allow for automatic consolidation of superannuation accounts.
In a similar tone, the Australian Democrats spokesman on superannuation, Senator John Cherry, says the regulations gazetted by the Government don’t encourage portability between inactive accounts and are an attack on members’ current employer-sponsored funds.
“The regulation does nothing to encourage portability between inactive accounts because the key constraints to that — which are high exit fees [and] transfer protocols that aren’t consistent between funds — are not addressed in the legislation,” he says. “All this regulation does is allow you to take money out of an active account and put it all into another account.”
A good deal of lobbying has taken place recently with a number of major industry organisations urging ALP, Democrat and independent senators to move for disallowance.
The Association of Superannuation Funds of Australia has said it is pressing for the regulations to be disallowed with CEO Philippa Smith urging that portability be considered with choice-of-fund.
“Portability and choice need to be considered together,” she says.
Smith notes that as the regulations currently stand, they will defeat the Government’s objective of reducing the number of superannuation accounts.
“It will increase the number of accounts as people are persuaded to shift to a new, retail fund yet are obliged to leave a minimum $5000 in their old account while employer contributions continue,” she says. “And all of this will generate a considerable paperwork burden.”
The Australian Institute for Superannuation Trustees (AIST) has also called on non-government senators to disallow the portability regulations.
AIST president Susan Ryan says the new regulations will encourage fund members to switch their money from fund to fund in a manner that could jeopardise their savings.
“The Government’s aim of encouraging people to move their savings from well run not-for-profit funds into high fee commercial funds is not supported by recent data on performance,” she says. “The whole purpose of the newly gazetted portability regulations is to expose fund members to marketing aimed at getting them to switch their savings into retail funds.”
Ryan adds: “Choice for consumers is good in principle but in the current climate where consumer protection is weak, and not-for-profit funds are outperforming other funds, the portability regulations have the potential to confuse people and destabilise their super savings.”
The points raised by Senators Cherry and Sherry represent road signs to what will differentiate the thrust of the recommendations contained in the Senate Committee’s report of the regulations gazetted on July 31.
The points being made by the senators are also reflected in the submissions received by the Senate Committee which, with the exception of those of the Australian Bankers’ Association and the Investment and Financial Services Association, reinforce the need for portability to be dealt with at the same time as choice-of-fund.
Federal Parliament has been on a two-week recess and resumed on September 8. The time for the Senate Select Committee to present its report on portability was extended to September 10.
