Underperformers will be sent to the sin bin

The federal government has proposed a MySuper reform package scheduled to launch in July, 2021, claiming it will save Australians $17.9 billion over 10 years.

It has four key elements:

1. Your super account will be “stapled” to you via the ATO site and follow you when you change jobs. This will end the creation of unintended multiple accounts and the plethora of fees it generates. The government estimates multiple accounts drain $450 million from fund members each year.

2. The government will set up an interactive online comparison tool, ranking funds by performance and fees. Performance will be measured over eight years. Moving to a better-performing fund could leave someone entering the workforce $87,000 better off in retirement.

3. Underperforming funds will have to advise their members of this in October following the end of that financial year. If they underperform two years running they won’t be permitted to accept new members and will be listed as underperforming on a YourSuper site.

4. Super trustees will be required to act in the best interests of their members and provide members with information regarding how they spend their money.

Actuarial consultants Rice Warner says the legislation is likely to speed up industry consolidation, with “stapling” leading to higher retention rates and improved member engagement. It expects new lowcost indexed MySuper products to enter the market – “many offered by today’s underperforming funds”.

On a more negative note, it says the increased regulation will likely encourage financial advisers and accountants to recommend SMSFs for their clients. “Of course, fees and performance will not then be benchmarked at all,” it warns.

Rainmaker’s Alex Dunnin says the core aspect of the package is the performance benchmarking test, but “there should be nothing new or radical in what’s being proposed here.

“What is new is that if products fail the test two years running they effectively get sin-binned. It’s heavy-handed but likely to be welcomed by many fund members,” he says.

Expecting the super fund regulator, which is used to looking at the prudential soundness of funds, to now flick the switch to become a market regulator with the power to shut down poorly performing products, is a big policy shift.

“How they make this transition and change their mindset as they go about doing this will be as interesting to watch as how the super funds deal with it.”

So watch this space.