New rules 'will rebuild super trust'

PLANNED new rules that are set to eliminate commissions among financial planners and overhaul the way superannuation funds operate will help rebuild trust in the nation's $1 trillion-plus retirement savings industry, key players said yesterday.

By InvestSMART · 22 Sep 2011

By InvestSMART ·
22 Sep 2011

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Among reforms detailed yesterday, oversight powers for regulators in the superannuation sector will be boosted, while fees, transactions and administration processes will be streamlined.

The head of the National Australia Bank-backed MLC fund, Steve Tucker, said the landmark reforms will bring to an end the long-running battle between retail and industry funds, particularly when it comes to the fierce debate around fees.

"Whilst industry funds are a relevant and viable option for many Australians, their contribution to the super debate has, at times, been unhelpful and divisive and serves to undermine trust in a system which is largely operating well," Mr Tucker said at a Committee for Economic Development of Australia forum.

"With the removal of commissions and the introduction of a best-interest duty and two-year opt-in process, the campaign the industry funds have run against retail superannuation and financial advice can no longer exist."

He said the division in the ranks of the superannuation industry had led to rapid growth in self-managed super funds in recent years.

The Association of Superannuation Funds of Australia said yesterday the changes would deliver increased confidence in the industry. For consumers this means greater oversight of the provider and a greater focus on costs, commissions and after-tax returns, the association's chief executive, Pauline Vamos, said.

"These reforms protect the financial interests of those who are not engaged with their super, as well as respond to the overarching need for the industry to be set up to deal with the growing pool of retirees."

Damian Hill, the head of REST industry super, one of the nation's biggest industry funds, said the package of reforms will improve the infrastructure supporting the superannuation system.

"This should ultimately lead to lower costs and better outcomes for members," Mr Hill, also speaking at the forum, said.

Detailed in reforms were plans to roll out MySuper, a low-cost default superannuation product. This would make it mandatory for employers to contribute into a fund offering a MySuper product if an employee has not chosen their own fund.

Retail funds initially resisted low-cost superannuation funds, although Mr Tucker yesterday said he supported the intent behind such a fund. However, he said it was important to ensure the introduction of MySuper wasn't at the expense of innovation and competition in the industry.

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Frequently Asked Questions about this Article…

What are the key superannuation reforms being introduced and how will they affect everyday investors?

The planned reforms include removing commissions paid to financial planners, boosting regulator oversight in the superannuation sector, streamlining fees, transactions and administration, and introducing a best-interest duty plus a two-year opt-in process for advice. For everyday investors, these changes are intended to increase transparency, reduce conflict-of-interest from commissions and strengthen protections around your retirement savings.

How will removing commissions from financial planners rebuild trust in the superannuation system?

According to industry leaders, removing commissions will reduce incentives that can influence advice and help restore confidence in the $1 trillion-plus retirement savings industry. Steve Tucker of NAB-backed MLC said the removal of commissions — combined with a best-interest duty and a two-year opt-in process — should end divisive fee fights between retail and industry funds and rebuild trust.

What is MySuper and what does the new mandatory MySuper rule mean for employees?

MySuper is a low-cost default superannuation product proposed under the reforms. The rules would make it mandatory for employers to contribute to a fund offering a MySuper product when an employee has not chosen their own fund, ensuring default contributions go into a simpler, lower-cost option for people who don’t actively pick a super fund.

Will the reforms change regulator powers and oversight of super funds?

Yes. The reforms boost oversight powers for regulators in the superannuation sector. Industry groups like the Association of Superannuation Funds of Australia say this increased oversight should give consumers greater confidence by focusing more on provider conduct, costs, commissions and after-tax returns.

How might the reforms affect fees, administration and member outcomes?

The package aims to streamline fees, transactions and administration processes, which industry leaders expect will lower operating costs. Damian Hill of REST said improved infrastructure from the reforms should ultimately lead to lower costs and better outcomes for members.

What impact could these reforms have on the rivalry between retail super funds and industry funds?

Steve Tucker of MLC argued the reforms — especially commission removal and the best-interest duty — will end the long-running battle between retail and industry funds over fees. He said the changes will remove the basis for much of the divisive campaigning and promote a more level playing field.

Do the reforms address the growth of self-managed super funds (SMSFs)?

The article notes that division in the super industry contributed to rapid growth in self-managed super funds in recent years. While the reforms don’t target SMSFs specifically, leaders suggest that clearer rules, better oversight and simpler default options like MySuper may influence members’ decisions about managing their own super.

How will everyday super members benefit from the reforms, according to industry voices?

Industry representatives say everyday members will gain greater protection and confidence. Pauline Vamos of the Association of Superannuation Funds of Australia said the changes protect those not actively engaged with their super by increasing oversight and focusing on costs and after-tax returns, while other leaders expect infrastructure improvements to deliver lower costs and better member outcomes.