Workers will stay connected to underperforming super funds and retail funds will be protected from scrutiny, but the Coalition was forced to abandon another of its plans to control industry super funds in order to secure passage yesterday of its Your Super, Your Future legislation.
The government was forced to ditch two of its planned attacks on industry super in the package before its bills even got to the Senate, with a proposal to keep administration fees out of the proposed performance test, and a power for treasurers to directly veto investment decisions, abandoned to placate crossbenchers and its own backbench in the House of Representatives.
However, the government pinned its hope on getting some control of super fund decisions via regulation rather than legislation, with a proposed rule-making power to impose requirements on super funds to ensure they complied with the best financial interests duty they operate under. That would have enabled the Coalition to give itself a power to impose restrictions on super funds, particularly industry super funds, such as to prevent them investing in renewable energy, funding advertising campaigns or researching the companies they invested in.
This rule-making power had to be dumped to secure the agreement of Centre Alliance’s Stirling Griff, depriving the government of its planned power to control industry super — which was the primary goal of the legislation all along.
Nonetheless, in securing passage, the government has implemented reforms that will mean workers remain “stapled” to their existing funds unless they actively choose to switch funds when moving to a new job. There’s broad support for stapling, but only once underperforming funds have been weeded out of the system. The government’s sole concession to this problem was to delay stapling until November 1 this year, which is nowhere near enough time for the Australian Prudential Regulation Authority (APRA) to serve notice on underperforming funds.
As a result, workers unlucky enough to start off in an underperforming fund — which are usually retail super funds — will remain stuck with the dud unless they actively engage and move funds, something decades of experience has shown doesn’t happen. The result will be future retirees with tens of thousands of dollars less super.
The APRA benchmarking test and online comparison mechanism will still exclude “choice” super products — about a third of super fund monies — which perform more poorly than the MySuper products that the benchmarking tool will cover, and which are usually run by retail funds. Again, the government gestured vaguely toward the issue by promising to have a look at including choice products. Don’t hold your breath.
Pauline Hanson’s proposal to lift the excess contributions cap for people 67 years or older, which would enable Hanson (who recently turned 67, though she doesn’t appear to know her own birthday) to make extra concessionally taxed contributions, ended up failing.
Many of the Coalition’s previous attacks on industry super haven’t merely failed, they’ve ended up backfiring spectacularly (think Scott Morrison including superannuation in the banking royal commission, hoping it would hurt industry super; instead it was the nail in the coffin for bank-run retail funds). There’s some potential for the same to occur here. Some have already pointed out that stapling workers to their first fund will favour the giant industry super funds REST and Hostplus, in the retail and hospitality industries respectively, where hundreds of thousands of young people get their first jobs.
And once the APRA performance test and comparison tools are up and running, the pressure to remove underperforming funds — which tend to be retail funds — will grow, as will the pressure to extend the tools to choice products. If such tools are good enough for MySuper accounts, why shouldn’t all workers benefit from them?
Still, there will always be a next time. The Coalition’s war on industry super is a forever war.