By Darin Tyson-Chan, Editor of selfmanagedsuper
Assistant Treasurer and Minster for Financial Services Daniel Mulino made a speech at the National Press Club last month announcing a range of reforms to the current superannuation system basically in response to the collapse of the Shield and First Guardian master funds. And I have to say, not before time. But while I will throw the government bouquets for the move, it still deserves some criticism because in my humble opinion the measures do not go far enough.
One of the key pillars of the reforms is to make superannuation trustees more accountable for the investments they make on behalf of their members. In the Minister’s own words, he will be introducing “a new framework to enable ASIC (Australian Securities and Investments Commission) to direct superannuation trustees to commence a remediation process where an investment option fails and there is reasonable suspicion trustees have failed to meet their obligations. Trustees would be required to compensate their members’ full capital losses where the trustee has breached its obligations.”
In conjunction with this measure, the government will also be giving the Australian Prudential Regulation Authority (APRA) the power to set capital requirements for superannuation funds to make sure trustees offering investment selections that incorporate a higher level of risk have the liquidity to satisfy any compensation obligations for members who have suffered losses as a result of the products associated with these options.
During his speech, Mulino noted: “If a prudentially regulated superannuation platform places a product before consumers and the trustee of that platform fails to discharge its responsibilities, consumers should not be left facing years of uncertainty while they pursue redress through multiple avenues. They should have a clear and practical pathway to meaningful compensation.”
This is a real positive for all superannuants as it assigns accountability to the officeholders who, through their investment choice actions, have been responsible for member losses without the individual victims having to pursue their own avenue of recompense, such as accessing the Compensation Scheme of Last Resort.
Assigning responsibility in this way is great and no doubt is an attempt to begin to address any issues arising from superannuation fund portfolio allocations at the source. But to this end, I don’t think the reforms go far enough.
Readers of my previous columns will know I have been calling for a reassessment of the retirement savings system parameters, in particular, applying greater scrutiny to the trustees who make up the investment committees of super funds.
While we still refer to some of the largest superannuation funds as ‘industry funds’, it is inaccurate. Just about all of them now are public offer funds, which means they no longer specifically cater for a particular employment sector. For example, Cbus Super does not exist just for the building and construction industries. The reality is any of us has the opportunity to be a Cbus Super member.
However, continuing to use Cbus as an example, it could be argued that four out of six people on its investment committee have a lot of experience with relevant industries, and more so unions, related to the origins of the fund, but on face value exhibit less evidence of financial or investment acumen. It must be pondered if this type of structure is fit for purpose anymore and if it stacks up against what would be considered best practice.
If all of Cbus’s members were involved in the building and construction industries, I would concede the nature of the committee is fine because the individuals involved would have a much better understanding of what would constitute an appropriate array of investments for these employees.
But this is no longer the case. I have as much right to choose to be a member of Cbus Super as the next man, but, being a journalist, I fail to see how the skill sets of that investment committee are suitable for my needs. And to be clear, I’m not disrespecting their skills, I acknowledge them. I’m just questioning if they are apt for the office they hold, given the current superannuation fund environment.
A separate part of the reforms will see the government proceed with the introduction of a new class of financial adviser initially limited to APRA‑regulated superannuation funds and life insurers. This is part of the implementation of the Driving Better Financial Outcomes package.
We’re still not sure how it will all work and concerns continue to exist whether this move will confuse consumers over the difference between this new class of advisers and the services they are able to offer versus specialist financial advice practitioners.
I recognise these advisers will provide some services that will be beneficial for members, but it does puzzle me exactly how they will operate within the bounds of the best interest obligation. One glaring question has to be whether one of the new class of financial adviser working for an ARPA-regulated fund will ever recommend the establishment of a self-managed super fund should it be more beneficial for the member to do so. This would result in an outflow for the incumbent fund and, call me cynical, I doubt the relevant powers that be would be too supportive of this scenario.
Still, when all is said and done, these reforms are much needed, but should only represent the first small steps in allowing the superannuation system to evolve as required.
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