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7/31/2019 Part 1 Overview Recommendations
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SUPERSYSTEMREVIEW
FINALREPORT
PARTONE
Overviewand
Recommendations
www.SuperSystemReview.gov.au
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Pageii
CommonwealthofAustralia2010
ISBN9780642746214
Thisworkiscopyright. ApartfromanyuseaspermittedundertheCopyrightAct1968,nopartmay
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AttorneyGeneral'sDepartment
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ThispublicationandotherrelatedinformationabouttheSuperSystemReviewisavailableat:
www.supersystemreview.gov.au
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www.SuperSystemReview.gov.au
30June2010
TheHonChrisBowenMP
MinisterforFinancialServices,SuperannuationandCorporateLaw
ParliamentHouse
CANBERRA ACT 2600
DearMinister
ReviewoftheGovernance,Efficiency,StructureandOperationofAustraliasSuperannuation
System
WearepleasedtopresentthefinalreportoftheSuperSystemReview.
Wehavedevelopedtenrecommendationpackagesaimedatbenefitingmembers.
MySupersitsattheheartofourrecommendations. Itisdesignedtofocusfundsonthecorepurpose
forwhichtheyexist:optimisingretirementincomesformembers.
SuperStreamisarecognitionthatbringingthebackofficeofsuperintothe21stcenturyiscriticalto
theoverallfunctioningofthesupersystem.
WeareconfidentthatallofourrecommendationswillenhanceAustraliasworldclassretirement
savingssystemandwecommendthemtoyou.
Yourssincerely
JeremyCooper
Chair
KevinCasey GregEvans SandyGrant
DavidGruen MegHeffron IanMartin
BrianWilson
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TERMSOFREFERENCE
ThethenMinisterforSuperannuationandCorporateLaw,SenatortheHonNickSherry,announced
theSuper
System
Review
(Review)
on
29
May
2009.
1
The
Review
was
initiated
with
the
support
of
thesuperannuationindustry.2 Thetermsofreferenceareasfollows:
Reviewintothegovernance,efficiency,structureandoperationofAustraliassuperannuation
system.
Scope
1. TheReviewwillcomprehensivelyexamineandanalysethegovernance,efficiency,structureandoperationofAustraliassuperannuationsystem,includingbothcompulsoryandvoluntaryaspects,
addressing,butnotlimitedto,thefollowingissues:
1.1Governance:
examining
the
legal
and
regulatory
framework
of
the
superannuation
system,
includingissuesoftrusteeknowledge,skillsandtraining;andthoroughlyassesstherisksinvolvedin
theuseofdebtandleverageandthedevelopmentofinvestmentoptionsthatleadtoaweakeningof
thediversificationprincipleinthesuperannuationsystem;
1.2Efficiency:ensuringthemostefficientoperationofthesuperannuationsystemforallmembers,
whetheractiveorpassivemembersandwhethermakingcompulsoryorvoluntarycontributions,
includingremovingunnecessarycomplexitiesfromthesystemandensuring,inlightofitscompulsory
nature,thatitoperatesinthemostcosteffectivemannerandinthebestinterestsofmembers;
1.3Structure:promotingeffectivecompetitioninthesuperannuationsystemthatleadstodownward
pressureon
system
costs,
examining
current
add
on
features
of
the
superannuation
system;
and,
examiningotherstructurallegacyfeaturesofthesystem;and
1.4Operation:maximisingreturnstomembers,includingthroughminimisingcosts,coveringboth
passivedefaultingmembers,whoshouldreceivemaximumreturnsandvalueformoneythrough
soundlyregulateddefaultproducts,andactiveselectingmembers,whoshouldnotbenegatively
impactedbyconflictsofinterestthatmayinhibitadvicebeinginthebestinterestsofmembers.
2. TheReviewtobeconductedaroundtheconceptsofthebestinterestsofthememberandthemaximisingofretirementincomesforAustralians.
3. TheReviewtobeconductedwithreferencetoimprovingtheregulationofthesuperannuationsystem,whilstalsoreducingbusinesscostswithinthesystem.
4. TheReviewwillbeasystemicexamination,includingallsuperannuationfundsectors.5. Inconductingitswork,andindeterminingitsrecommendations,theReviewwillhaveregardtothe
CommuniquofPrinciples(seeseparateattachmenttothisrelease).
6. TheReviewwillcomparativelyexamineinternationaljurisdictionsandwillconsultwithexpertsasneededfromotherjurisdictions.
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7. TheReviewisexcludedfromconsideringtheissuesbeforetheAustraliasFutureTaxSystemreviewconcerningsysteminputssuchasthelevelofsuperannuationcontributions,taxationincluding
taxationconcessionsandotherincentives.
8. TheReviewisexcludedfromconsideringthedevelopmentofasuperannuationclearinghouseortheproject
addressing
the
consolidation
of
lost
accounts,
as
these
are
the
subject
of
separate
and
already
commencedprocesses.
CompositionandConsultation
9. TheReviewtobeledbyanexpertpanelmadeupofafulltimeChairandfive3parttimemembers,supportedbyasecretariatdrawingontheskillsofthekeypolicyandregulatoryagenciesofthe
Commonwealth,aswellasmarketexpertise.TheReviewmayalsodrawonexternalexpertisewhere
necessary.
10. TheReviewwillconsultthesuperannuationindustry,otherstakeholdersandthebroaderpublic.Timing
11. TheReviewwillmakerecommendationstotheGovernmentby30June2010onpossibleoptionsforreform,includingappropriatetransitionalarrangements.TheReviewmayreportonparticularissues
priortothefinalisationofthefinalreport.
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CONTENTS
TERMSOFREFERENCE V
CHAPTER1: REVIEWHIGHLIGHTS 1
CHAPTER2: THEPANELS10SUPERPOLICYPRINCIPLES 4
CHAPTER3: THECASEFORREFORM 5
CHAPTER4: THESUPERFUNDMEMBER 8
CHAPTER5: INTRODUCTIONTOTHERECOMMENDATIONPACKAGES 10
CHAPTER6: HOWTHERECOMMENDATIONSBENEFITMEMBERS 18
CHAPTER7: IMPLEMENTATION 22
CHAPTER8: OUTSTANDINGISSUES 23
CHAPTER9: ACKNOWLEDGEMENTS 23
CHAPTER10: LISTOFRECOMMENDATIONS 24
APPENDICES
APPENDIXA:
THESUPERSYSTEMREVIEWPANEL
64APPENDIXB: OVERVIEWOFTHESUPERANNUATIONSYSTEM 69APPENDIXC: TREASURYASSUMPTIONSFORMODELLING 72APPENDIXD: DELOITTEREPORT 76APPENDIXE: SECRETARIAT 107APPENDIXF: ABBREVIATIONSANDACRONYMS 108APPENDIXG: GLOSSARY 111APPENDIXH: BIBLIOGRAPHYANDREFERENCEMATERIAL 118APPENDIXI: SUBMISSIONS 142APPENDIXJ:
PUBLISHEDSPEECHES
155
APPENDIXK: OTHERSUPERANNUATIONRELATEDREVIEWS 156
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1 REVIEWHIGHLIGHTS1.1 EngagementAustralianshavecontributionsmadetotheirsuperfundswhethertheylikeitornot. Members
shouldnothavetobeinterested,financiallyliterate,orinvestmentexpertstogetthemostoutof
theirsuper. Ifmemberswanttoengageandmakechoices,thenthesystemoughttoencourage
andfacilitatethemdoingso. Ifmembersarenotinterested,thenthesystemshouldstillworkto
provideoptimaloutcomesforthem. Thesupersystemshouldworkforitsmembers,notvice
versa. ThisisthebasisofthePanelsnewchoicearchitecture.
1.2 MySuperMySuper
is
asimple,
well
designed
product
suitable
for
the
majority
of
members.
The
MySuper
conceptisaimedatloweringoverallcostswhilemaintainingacompetitivemarketbased,private
sectorinfrastructureforsuper. Theconceptdrawsonandenhancesanexistingandwellknown
product(thedefaultinvestmentoption). MySupertakesthisproduct,simplifiesit,addsscale,
transparencyandcomparability,allaimedatachievingbettermemberoutcomes.
1.3 SuperStreamSuperStreamisapackageofmeasuresdesignedtobringthebackofficeofsuperannuationinto
the21stcentury. Itskeycomponentsaretheincreaseduseoftechnology,uniformdatastandards,
use
of
the
tax
file
number
as
a
key
identifier
and
the
straight
through
processing
of
superannuationtransactions.
1.4 RegulatingforefficiencyAPRAwouldhaveanincreasedmandatetooverseeandpromotetheoverallefficiencyand
transparencyofthesuperannuationsystem. Tothisend,APRAwouldbegivenastandardsmaking
powerinsuperannuationasatoolfordrivingtransparencyandcomparabilityofmember
outcomes.
1.5 SMSFsTheSMSFsectorislargelysuccessfulandwellfunctioning. Significantchangesarenotrequired,
butmeasuresrelatingtoserviceproviders,auditorsandtheregulatoryframeworkare
recommended.
1.6 ScalemattersTherearesubstantialbenefitsformembersarisingoutofincreasedscaleinthesuperannuation
industry. MySuperproviderswouldbeexposedtoscrutinyandpressureonthisissueandwould
berequiredtoconsidereachyearwhethertheyhadsufficientscaletooptimiseoutcomesfor
members.
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1.7 GovernanceNearlyalltheissueslookedatintheReviewlinkbacktotrusteegovernanceinsomewayorother.
Improvinggovernancepracticesandstructuresiskeytoimprovingmemberoutcomes. ACodeof
Trustee
Governance
is
proposed.
1.8 HelpingmemberscompareInordertomakemeaningfulchoices(ortounderstandtheirpersonalsituation)membersneedto
beabletomakelikewithlikecomparisonsbetweencompetingsuperannuationproducts.
Standardproductdashboardsandstandardisedinvestmentperformancereportingwouldliftthe
fogthathascloudedthisareasofar.
1.9 InsuranceinsuperCommissionsshouldbebannedonallinsuranceproductsinsuper,includinggroupriskand
personalinsurance. Trusteeswillcontinuetobeabletoofferlife,TPDandincomeprotection
insuranceinMySuperandchoiceinvestmentoptions.
1.10 SystemictransparencyEachfundwouldberequiredtoprovidefreeofchargeonitswebsite,detailedfinancialand
operationalinformationaboutthefund(includingitsportfolioholdings)andaboutthefunds
managementtogreatlyincreaseaccountabilityandavailabilityofinformationtothosewhoare
interested.
1.11 WholeoflifefocusThesupersystemexiststoenhanceretirementincomesforworkingAustralians,notsimplyto
accumulateassets. MySupershouldbeawholeoflifeproductandincludeasingletypeof
retirementincomestreamproductchosenbythetrusteeandnotjustcaterformembersinthe
preretirementphase. Trusteeswouldhaveadutytoaddresslongevity,inflationandinvestment
risksforretirementphasemembersindevelopingtheirstrategies.
1.12 DataImprovingthequalityandavailabilityofdataandresearchonthesuperannuationindustry
facilitatesdecisionmaking,ensuresparticipantsintheindustryareheldtoaccountbymembers,
regulatorsandpeersandgivesconfidenceintheintegrityofthesystem. Theimportanceofthis
issuejustifiesregulatoryinterventionsoAPRAwouldhaveanincreasedroleinthisarea.
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1.13 DollarsavingsforthesystemTreasuryestimatesshorttermannualsystemsavingsofabout$1.55Bandlongtermannual
systemsavingsofaround$2.7BasaresultofMySuperandSuperStream.
1.14 DollarsavingsformembersTreasuryestimatesthattheMySuperandSuperStreamproposalswould,inthelongrun,seeacut
ofaround40percentinfeesfortheaveragemember. Thiswouldlifttheirfinalsuperannuation
balancebyaround$40,000or7percentafter37yearsintheworkforce.
Aboutthisfinalreport
Thisfinal
report
supersedes
all
of
the
Panels
preliminary
reports.
The
final
report
of
the
Super
SystemReviewcomprisesthefollowing:
PartOne:OverviewoftheReview,includingaconsolidatedlistofallthePanelsrecommendationsandasummaryofhowtheyimpactmembers; and
PartTwo:ThePanels10recommendationpackages,eachinitsownchapter.
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2 THEPANELS10SUPERPOLICYPRINCIPLESThePanelrecognisesthewidergovernmentpolicyconcernsthataffectthesuperannuationsystem:
overallfiscalsustainability,broaderretirementpolicyandtaxationpolicyamongthem. However,in
shapingitsrecommendations,thePanelhasformulated10principlesaboutsuperannuation,which
haveunderpinned
its
decision
making
process.
ThePanelbelievesthattheseprincipleshavebroaderapplicationthanjustthisReview. Theyshould
betheguidingprinciplesbywhichpolicyisdevelopedinrelationtosuperannuationgenerally,to
ensureconsistencyofapproachtosuperannuationpolicybysuccessiveAustraliangovernments.
1. Superannuationmustalwaysbeforthebenefitofmembers. Thesuperannuationsystemdoesnotexisttosupportintermediaries. Trusteesmustberelentlessinseekingbenefitsfor
members.
2. Thesuperannuationsystemneedstobewellregulatedtoaddressprudentialandotherrisksso
that
members
can
have
the
confidence
to
invest
their
retirement
savings
for
their
long
term
financialbenefit.
3. Transparencyanddisclosureareessentialfortheeffectiveoperationofthesystem,butarenotsubstitutesforwelldesignedproductsthatworkinmembersinterests. Disclosureisa
necessary,butnotasufficient,conditionforensuringthatmemberinterestsprevail.
4. Individualchoicesformembersshouldbeavailableandrespected,butmembersmustrecogniseandaccepttheincreasedresponsibilitythatcomeswithmakingthosechoices.
5. Thesuperannuationsystemmustbesupportedbyhighqualityresearchanddata,aswellasbyintermediaries
with
high
professional
standards.
6. Financialliteracyisanimportantlongtermgoal,butacompulsorysuperannuationsystemcannotdependonallitsparticipantshavingtheskillsnecessarytocomprehendcomplex
financialinformationorbeinginvestmentexperts.
7. Feesandcostsmatter;theydetractfrommembersretirementsavingsandneedtobemanagedasdiligentlyasthegenerationofinvestmentreturns. Technologicalimprovements,
andinnovationgenerally,shouldbeencouragedtohelplowercostsandbenefitmembers.
8. Superannuationisalargeandcomplexsystemwithanincreasinglyimportantsocialandmacroeconomic
dimension.
It
must
be
regulated
and
administered
coherently
and
rule
changes,includingtotaxationrules,shouldbemadesparinglyandinawaythatengenders
memberconfidence.
9. Thesystemmusthavesufficientflexibilitytoaccommodateitsinherentgrowthpathandshouldstriveforcontinualimprovement,ratherthanabruptchanges. Wherepossible,
governmentandtrusteedecisionsaboutsuperannuationshouldbetakenwithalongterm
perspective.
10. Governmentsshouldnotseektodirectsuperfundtrusteestoinvestinparticularassetsorassetclasses,nortopreventinvestmentsincertaintypesofassetsorassetclassesunlessthere
areprudential
or
regulatory
reasons
for
doing
so.
This
is
regardless
of
how
much
it
might
seeminthenationalinteresttodoso.
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3 THECASEFORREFORM3.1 Thesuperannuationsystemin2035Australianshaveoveratrilliondollars4insuperannuationsavings.5 Thecompulsorynatureofsuper
contributionsmeans
that
by
2035,
Australians
are
projected
to
have
increased
their
collective
super
savingsto$6.1T.6
ThisReviewprovidesavaluableopportunitytotakestockofthecurrentsysteminlightofhowit
mightdevelopandtomakerecommendationsdesignedtoenhanceitssimplicity,efficiencyand
equity.
Justasin1993,whenthecurrentarchitectureofthesystemwasestablished,itishardtoenvisage
exactlythecoursethosechangeswilltake. In1993,totalsuperannuationassetsamountedto
$183B,7andtheindustrywasdominatedbycorporatefundsandbylarge,partlyfundedpublicsector
schemes. TheSMSFsector,asweknowittoday,didnotexist.
Foranoverviewofthesuperannuationsystemtoday,seeappendixB.
Forecastingthesizeandstructureofthesuperannuationsystemoverthecoming25yearsisnotan
easytask,giventhesystemsdynamismandcomplexity. However,Treasuryprojectionsshowaquite
dramaticdecreaseinthenumberoffundssothatthelargeAPRAfundsectorisdominatedbyfewer,
largersuperfunds.
Table1: TheAustraliansuperannuationindustryin2035(includingSMSFs)
1996 June
2009
2035
(nominal)8
2035
(current)
Overallindustryscale $245b $1.1t $6.1t $3.2t
Ratioofaccumulationtopostretirementassets 4:1 3:1 3:1
Biggestfund $41.5b $350b $187b
NumberoflargeAPRAfunds(excludingERFs) 4734 447 74 74
AveragelargeAPRAfundsize $40m $1.5b $53b $28b
Averageaccumulationmemberbalance $15,000 $70,000 $335,000 $180,000
Totalsuperassets proportionofGDP 47% 90% 130% 130%
3.2 ThekeychallengesTheprojectedfiguresintable1arebasedonTreasurymodellingandaresubjecttoanumberof
assumptions(explainedinappendixC). Theydo,however,throwintosharpreliefthesortsofissues
thatthePanelbelievesthatgovernmentandcommunityneedtobethinkingaboutandaddressing
now,topositionthesupersystemtorespondthechallengesofthefuture.
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3.2.1 IssuesforthefutureFundswillbemuchlarger: Theaveragefundwillbemuchlargerinreal(2010dollar)terms. This,in
turn,willhaveimplicationsforfundgovernance,forinvestmentandprudentialregulation. The
largestfundswillbeverylargebycurrentstandards,thougheventheywillremainrelativelymodest
byglobalstandards.
Assetbasedfeeswillgrow: Assetbasedfeeswillgrowwiththesizeoftheassetpoolandwill
requirecontinuedvigilancetoensurethattotaldollarfeelevelsremainappropriate,ratherthan
merelyfocusingonpercentagesnotincreasingortrendingslightlydownwards.
Memberaccountbalanceswillbelarger: Memberaccountbalanceswillbesubstantiallylargerin
realterms,thanatanytimeinthehistoryofsuperannuation. Thiswillputpressureonmember
transferandremediationprocessesacrossthesystemandwillincreaseconcernsaroundidentity
theftandfraudandtrusteeaccountabilitytomembers. Itmightalsoencouragegreatermember
engagementassuperannuationbalancesmakeamorematerialcontributiontotheretirement
incomesofmoreAustralians.
Economicallysignificant: Thesuperannuationsystemwillcontinuetobeanimportantfactorinthe
Australianeconomyandfinancialmarkets. Theefficiencyofthesectorwillhavemacroeconomic
effects.
Competingintheglobalmarketplace: Localfundswillincreasinglyfindthemselvescompetingwith
largeglobalfunds,notjustinmarketsforlistedsecurities,butalsoforspecificassets,suchas
infrastructure,privateequityanddirectproperty.
3.2.2 IssuesthatneedtobeaddressednowThe
future
growth
of
the
industry
sets
the
current
issues
in
their
broader
context
and
highlights
the
needforreform.
Memberinterestsarenotalwaysparamount: Superannuationiscompulsoryandfullyoutsourced
totheprivatesector. Systemdesignandregulatorysettingshaveperhapsnottakenthisinto
accountsufficiently. Memberinterestsarenotalwaysparamount.
Immaturesystemforitssize: Overall,itisasystemthathasnotyetreachedalevelofmaturity
commensuratewithitsmonetaryscale.
Efficiencyisoutsidetheregulatorynet: Theregulatorymodelhasfocusedmainlyonprudential
safetywhich,
while
important,
has
left
the
efficiency
of
the
system
for
members
in
the
hands
of
marketparticipants.
Toomuchcomplexity: Membersperceivesuperannuationastoocomplexandopaqueandthereis
anoveralllackoftransparencyandcomparabilityofsuperannuationproducts.
Disclosuretomembershasfailedtoachieveitsobjectives: Whatevertheactuallevelof
engagementandliteracyamongmembers,aregulatorymodellargelybuiltarounddetailed
disclosureandmemberchoicehasnotworkedforasubstantialportionofthememberpopulation.
Ambiguityabouttrusteerolewhenmembersmakeactivechoices: Wheremembersdomake
choicesabout
their
superannuation
in
alarge
APRA
fund,
there
is
alack
of
clarity
about
how
much
responsibilitytheyaretakingandhowmuchthetrusteeislookingafterthem.
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Pastperformancedatagiventoomuchprominencesometimesatmemberexpense: Muchofthe
explicitandimplicitmarketingthatoccursinsuperannuationisbasedonpastinvestmentreturn
performance,oftenpretaxandunauditedandalmostalwayswithoutreferencetovolatility.
Antiquateddivisionofindustryalongretailandindustrylinespersists: Thesectoral
classifications
such
as
industry
and
retail
are
redundant
and
in
some
cases
obscure
clear
identificationoftheissues.
Inadequateaccountingandfinancialreportingstandards: Theaccountingandfinancialreporting
standardsapplyingtosuperareinadequatebecausetheyaredirectedtoentityreporting;a
perspectiveinwhichonlyafractionofparticipantsareinterested.
Backofficedominatedbymanualtransactions: Thebackofficeofsuperisinurgentneedofan
upgradeandannuallycostsmembershundredsofmillionsofdollarsmorethanitshould.
Lackofscale: Manyfundslackthescalenecessarytoprovideoptimaloutcomestotheirmembers
and,
in
some
cases,
trustee
self
interest
has
hindered
rationalisations
that
are
clearly
in
members
interests.
Feestoohigh: Feesinsuperannuationhavenotreducedinlinewithwhatcouldhavebeenexpected
giveneconomiesofscalethatareclearlypresentoravailable.
Toomuchtinkering: Thefrequencyofchangestorulesaboutsupercanunderminemember
confidenceinthesystem.
3.3 Whyhasntcompetitiondeliveredoptimaloutcomesalready?In
classical
economic
theory,
markets
efficiently
allocate
resources,
shape
products
and
determine
prices. Insuperannuation,competitioninthemarketforsuperattheconsumerlevel(iebetween
fundscompetingforthebusinessofanewmember)hassofarbeenrelativelyweak.
Thisisbecausesuperannuationisdifferent. Inadditiontothefactthatsuperiscompulsory,normal
consumerdemandledcompetitionismademoredifficultbecause:
Failuretoexercisechoice: Oftenamemberdoesntchoosethefundtowhichtheybelong. New
employeestypicallysimplybecomeamemberoftheiremployersdefaultfund;
Lackofpriceawareness: Compulsorycontributionsdontcomedirectlyoutofmembers'pockets,
nordo
the
fees
and
other
costs
charged
by
the
fund
(at
least
not
until
they
retire).
This
makes
peoplemuchlesspriceawareandmuchlesslikelytomakeadecisionbasedonpriceorcost;
Lackofinterest: Membersareoftennotengagedwiththeirsuperuntilclosertoretirementandso
willnotbesufficientlyinterestedtorespondtocompetitivebehaviouronthepartoffundsuntilthat
time(ifatall);
Agencyandstructuralissues: Therearelimitedopportunitiesformembervigilance,ontheone
hand,orincentivesforagencyvigilance,ontheother,toreduceprices;
Complexity: Superisinherentlycomplexandmanyconsumersdonotfeelconfidentmaking
decisionsabout
it;
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Lackofcomparability: Evenifmembersareengageduptoapoint,thereisalackofcontestabilityat
consumerlevelbecauseofproductcomplexityandlackofinformationandtransparencyaboutfees
andperformance; and
Frictions: Lastly,evenifsomeoneisinterestedinswitchingfunds,oftenthepaperworkandother
frictions
in
changing
funds
become
too
big
a
disincentive
and
they
give
up.
Ithastobesaidthattheoriginalsuperannuationarchitecturewassomewhatoptimisticinthatit
reliedonnotionsofmarketforces,disclosureandcompetition(alongwithtrustconcepts)toresolve
consumerissuessurroundingcomplexproducts,structuresandconflicts.
ThePanelthereforeacceptsthatthemodelofmemberdrivencompetitionthroughchoiceoffund
(intheformofSGActchoiceandconsequentportability)hasstruggledtodeliveracompetitive
marketthatreducescostsformembers.
ThePanelalsobelievesthatthefailureofcompetitiontodeliverdesirableoutcomesformembers
encapsulates
the
broader
issue
in
the
industry
as
it
currently
operates:
it
is
remote
from
the
member. ThePanelrecognisedearlyonthat,forrealbenefitstoflowtomembersasaconsequence
ofthisReview,thesuperannuationsystemmustoperatefromthememberperspective.
4 THESUPERFUNDMEMBER4.1 ThetheoryofrationalandinformedinvestorsvsreallifeexperienceA
key
tenet
of
the
1997
Wallis
Report
was
that
super
fund
members
should
be
treated
as
rational
andinformedinvestors,withdisclosureandmarketconductcontrolsbeingthemainregulatory
instrumentswithwhichtooverseetheindustry.9
Morespecifically,thesesettingsassumethatmembershavethetoolsattheirdisposal,andthe
necessaryregulatoryprotectionsinthemarketplace,toenablethemtomakeoptimaldecisions
abouttheirinvestmentstrategies,aboutwhentoenterandexitthemarket,andaboutwhattodo
withtheirsuperonreachingretirement. Inacompulsorysystem,italsoassumesthatmembershave
therequisitedegreeofinterest.
But,formanymembers,thisisnotthecase.
The2006AdultLiteracyandLifeSkillsSurveyofAustralianspublishedbytheAustralianBureauof
Statistics(ABS)inJanuary2008,foundthat46percentof1574yearolds,orsomesevenmillion
people,wouldstruggletounderstanddocumentationsuchasjobapplications,mapsandpayroll
forms. FiftythreepercentofsurveyedAustraliansreachedjustthesecondoffivelevelsina
practicalnumeracytest,while70percent(about10.6Mpeople)managedonlytoprogresstolevel2
inaseriesofproblemsolvingexercises. Level3isregardedbythesurveydevelopersasthe
minimumrequiredforindividualstomeetthecomplexdemandsofeverydaylifeandworkinthe
emergingknowledgebasedeconomy.10
Whilethesefinancialliteracystatisticsarestark,thefactremainsthatacompulsorysystembasedon
informedinvestors
making
rational
choices
fails
to
confront
this
reality.
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4.2 EngagementwithsuperThefinancialliteracyissueshighlightoneoftheongoingtensionsanddebatesforthisReview:whatit
meanstobeanengagedsupermemberandhowengagementshouldbepursued,facilitatedor
encouraged. ThePanelskeyconcernhasbeenthesuggestionthatacertainlevelofengagement
andfinancialliteracyisnecessaryforthesystemtoworkproperly.
SincetheintroductionoftheChoiceofSuperlegislation,switchingratesbetweenfundshave
actuallydeclinedfromaround5percentin2005to2percentbytheendof2009.11 ARoyMorgan
Researchreport,basedonover50,000interviewsconductedannually,indicatesthatapproximately
80percentofsuperfundswitchescomeasaresultofmemberschangingemployersoremployers
changingdefaultfundproviders.12
Ofthosewhodefaultintoasuperfundchosenbytheiremployer,oraward,roughly80percentare
inthedefaultinvestmentoption.13 Ofthat80percent,anecdotalevidencesuggeststhat
approximately20percentofdefaultinvestmentoptionmembersdochoosetobeinthedefault
investmentoption. Thissuggeststhatapproximately60percentofmembersdonotmakeactive
choices.
However,thePanelisconsciousnottooverstatethelevelofmemberdisengagement. ThePanel
recognisesthattherearesegmentsofthecommunityverymuchengagedwiththeirsuperandwho
spendtimethinkingandmakingactivedecisionsaboutsuperannuation.
Onethingisclear:thelevelofengagementofanyindividualmemberwilldependonarangeof
factors,forexamplethemembersage,accountbalance,andbroaderfinancialandlife
circumstances. ThekeypointfromthePanelsperspectiveisthatacompulsorysystemneedstobe
abletocaterforthesedifferentdegreesofengagement:thesignificantproportionofmemberswho
arenotengagedwiththeirsuper,orinapositiontomakethesortsofdecisionsrequiredofthem;
andtheinformed,financiallyliterate,orwelladvisedmembers.
4.3 PhilosophicalframeworkofMySuperandthechoicearchitecturemodelTheserealisationsaboutfinancialliteracyandengagementhaveledthePaneltoproposethenew
choicearchitectureframeworkfortheAustraliansuperannuationsystemthatisdetailedinthis
report. Thisframeworkisanadaptationofcontemporarythinkinginthefieldofbehavioural
economics. Thisfieldiscurrentlybeingappliedoverseastoavarietyofcomplexpublicpolicy
challengesinvolvingconsumers forexample,inthefieldsofhealthcare,childnutrition,roadsafety
andsustainability,aswellasretirementsavings.14
Thekey
tenet
of
this
approach
is
the
concept
of
libertarian
paternalism
the
idea
that
the
outcomesexperiencedbyinertordisengagedconsumersshouldhaveinbuiltsettingsthatmost
closelysuitthoseconsumersobjectiveneeds,asassessedbytheexpertprovidersoftheproductor
serviceinquestion.15
Importantly,thisdoesnotamounttoacentrallydeterminedboilerplateoptionforeverybody,asit
mustatalltimeshaveregardtothecollectivecharacteristicsoftheparticularconsumersaffected,
anyofwhomcanatanytimeoptoutiftheywanttotakemorecontrolforthemselves. Norisita
completelylaissezfairesystemofunimpededchoiceswhereproviderscanbeindifferenttothe
selectiondecisionsmade(ornotmade)byindividuals. Thisisbecausethedefaultsettingmust
alwaysbeonethatreflectsapositivejudgmentaboutthemostappropriateoutcomeforthe
consumer(member)intheeyesoftheproductprovider(beingthetrusteeinthecaseofa
superannuationfund).
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5 INTRODUCTIONTOTHERECOMMENDATIONPACKAGESThePanelhasframeditsrecommendationsin10packages,eachbeingachapterinPartTwoofthis
report,makingupacomprehensiveblueprintforreform. Earlierversionsofsomeofthesepackages
havebeenreleasedaspreliminaryreportsduringthecourseoftheReview(seeappendixAforafull
listingof
these
preliminary
reports).
Whereverpossible,thePanelhaspitcheditsrecommendations,anditsanalysis,atwhatitregardsas
thekeyconceptualissuesandnotmattersoflegislativeoroperationaldetail. Giventhetimeand
resourcesavailabletoit,thePanelnecessarilyhadtorefrainfromengaginginamoregranulated
reviewofthecomplicatedlegislativeandregulatoryenvironmentthathasbuiltuparoundthe
superannuationsystem.
5.1 Chapter1:MySuperandthechoicearchitectureThe
Panel
has
re
cast
the
architecture
of
the
superannuation
industry
to
amember
oriented,
rather
thananindustryoriented,perspective. Itbelievesthatthesystemshouldfacilitate,butnotbebased
on,choice. Thatis,thedegreeofengagementamemberwantstoexerciseinrelationtotheir
superannuationshoulddictatetheregulatorysettingsandthenatureoftheproductsavailable.
Figure1: AchoicearchitecturemodelforAustraliassuperannuationsystem
MySuper Choice SMSF
Thesuperannuationsystemoughttofacilitate,butnotimpose,choice...
ERFs/Lost MySuper Choice SMSF
Thesuperannuationsystemoughttofacilitate,butnotimpose,choice...
ERFs/Lost
Broadlyspeaking,thearchitecturerecognisesfourtypesofmembers.
Therearesomememberswhosimplywantsomeoneelsetotakecareofitallforthem. MySuperis
particularly
designed
to
cater
to
these
members.
Therearesomememberswhowanttoexercisechoiceovertheinvestmentstrategiesappliedtotheirsuperannuationbalances,butwanttohavetheiraccountsadministeredforthem. These
memberscanelecttobeinthechoicesegment,thoughtheymightdecidethataMySuper
productmeetstheirneedsandelecttohavetheirmoneyinvestedthere(orinacombinationof
MySuperandchoiceproducts).
Therearesome,andthenumberhasincreasedsharplyinrecentyears,whochoosetobefullyresponsiblefortheinvestmentandadministrationoftheirsuperannuationarrangements. These
memberscanchoosetooperateanSMSF.
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Thesystemalsohastocaterformemberswhohavelosttheirsuperannuationaccount. Theobjectivehereistoreconnectmembersandtheiraccountsquicklyandefficientlyandto
introducemeasuresthatmakethislesslikelytooccurinfuture.
Figure2: Increasedchoice,increasedmemberresponsibility
...butwithincreasedchoicecomesindividualresponsibility.
increasedchoice
MySuper Choice SMSFERFs/Lost
...butwithincreasedchoicecomesindividualresponsibility.
increasedchoice
MySuper Choice SMSFMySuper Choice SMSFERFs/Lost
5.1.1 MySuperTheMySupercomponentofthechoicearchitecturemodelaimstoprovideasimple,costeffective
productwithasingle,diversifiedportfolioofinvestmentsforthevastmajorityofAustralianworkers
(roughly80percentofmembers)whoareinthedefaultoptionintheircurrentfund.
MySuperisdesignedwithtwolargegroupsofmembersinmind:thosewhotakenorealinterestin
theirsuper(atleastnotinitially)andthosewhochoosetobeinalarge,lowcostandwellmanaged
productwhere
the
investment
strategy
is
designed
and
implemented
by
the
trustee.
MySuperwouldhaveanumberoffeaturesdesignedsolelywiththememberinmind:specifictrustee
dutiesdesignedtodeliverlowercostoutcomesformembers;increasedtransparencyleadingto
bettercomparability,especiallyofcostsandlongtermnetperformance;provisionofintrafund
advice;simplercommunications;andanembeddedretirementproduct. Ithasbeendesignedtosit
withintheexistingsuperannuationstructuresandisbasedonexistingwidelyofferedandwell
understooddefaultinvestmentoptions.
5.1.2 ChoiceThe
choice
sector
is
also
an
important
component
of
Australias
superannuation
system.
The
Panel
recognisesthatacompetitivechoicesectorworkswellformemberswhowanttotailortheir
superannuation.
But,evenwithinchoice,therearegraduateddegreesofmemberresponsibilityandengagement.
WhilethePanelbelievesthatthetrusteeshouldbeprotectedwhenamemberchoosesaparticular
investmentoptionthatcausesthatmembertosufferloss,thetrusteealsohasaresponsibilityto
applyagreaterlevelofscrutinytothesortsofproductsthatareofferedtosuperfundmembersin
themastertrusts,platformsorwrapenvironment. Itshouldnotbepossiblefortrusteesmerelyto
presideoveramenuofinvestmentoptionsprincipallyselectedbydealergroupsorotherexternal
parties.
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Currently,theAustralianfinancialservicesregulatoryregimedoesnotassessthesuitabilityof
productsmadeavailabletoretailinvestors,includingmembersofcertaintypesofsuperfunds.
Instead,disclosureissaidtoenableinvestorstodecideforthemselveswhatproductisappropriate
andneitherAPRAnorASICpassesjudgmentonthemeritsorsuitabilityoftheinvestment.
This
regulatory
policy
affects
super
because
members
are
able
to
access
a
wide
range
of
non
super
financialproductsthroughmastertrusts,platformsandwraps(oftenmanyhundredsofproducts).
Thishasresultedinsomememberssometimeschoosingriskyandilliquidinvestmentsthatare
arguablyunsuitableasretirementproducts.
ThePanelhasrecommendarefineddutyonthepartofachoicetrusteetocarryoutappropriatedue
diligenceandmonitoringofinvestmentoptionstheyoffer. Thedetailsofthisnewdutywouldbe
fleshedoutinstandardstobedevelopedbyAPRAinconsultationwiththeindustry.
5.2 Chapter2:TrusteegovernanceThePanelbelievesthatthecombinedeffectofacompulsorysystem(outsourcedbygovernmentto
theprivatesector)andlegislatedpreservationofbenefitsdemandahigherlevelofgovernancein
respectofsuperfundmembersthanthelevelrequiredforshareholdersinmajorlistedcompanies.
Investorsinlistedcompanieshavechosentoinvestandarefreetoselltheirholdingsatanytime.
ThePanelhasrecommendedseveralinitiativestoimprovetrusteegovernance.
ThePanelseesvalueincreatingadistinctnewofficeunderstatute,thatoftrusteedirector. The
duties,powersandstandardsrequiredofthisofficewouldberecordedclearlyintheSISActand
nowhereelse. Thesestatutorydutieswouldenhance,expandandclarifythedutiessetoutin
section
52(2)
of
the
SIS
Act
as
well
as
appropriately
adapt
the
chapter
2D
directors
duties
from
the
CorporationsAct. Theidentificationandmanagementofconflictsofinterestsandofdutiesarea
particularpriority. Thoughconflictsarecoveredunderthegenerallawpertainingtotrustees,itis
clearfromtheReviewsanalysisthatthereisaneedforgreaterclarityofwhatisrequiredof
superannuationfundtrusteesandtrusteedirectorsinthisregard.
Changesarealsorequiredinrelationtothestructureoftrusteeboards,includingtheirsizeandthe
tenureoftrusteedirectors. Contemporarybestpracticeincorporategovernanceforlisted
companiesincludesthepresenceofindependentdirectorsontheboard. ThePanelbelievesthata
minimumnumberofnonassociatedtrusteedirectors(suchthattheycangenuinelyinfluencethe
decisionsofthoseboards)shouldberequiredonallsuperannuationtrusteeboards.
Tosupporttherecommendedlegislativechanges,thePanelproposestheestablishmentofaCodeof
TrusteeGovernancewhichwouldreflecttheuniquecontextofasuperannuationfund. ThisCode
wouldnotbebindinglawand,assuch,wouldbemoreflexiblethanlegislationandcouldkeeppace
moreeasilywithchangesintheindustry. ThisCodewouldbedevelopedbyindustry.
Aspartofimprovingaccountabilitytomembers,thePanelhasrecommendedthatatrusteeshould
provideamemberwithreasonsforitsdecisionsinrelationtoamembersformalcomplaint.
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5.3 Chapter3:InvestmentgovernanceTheinvestmentoffundassetsisoneofthekeypartsoftheroleplayedbyatrusteeofa
superannuationfund. Thegovernanceoftheinvestmentfunctioniskeyinensuringthatthesteps
involvedintheinvestmentprocessareefficientandthatriskismanagedproperlyatalllevels.
ThePanelrecognisesthattheinvestmentofamodernsuperannuationfundisacomplexactivity
requiringawiderangeoftechnicalexpertiseandskills. Forthisreason,mostAPRAregulatedfunds
employarangeofserviceproviders,includingfundmanagers,assetconsultantsandcustodians,to
assistthem. Thisinturnplacespressureonthetrusteetoensurethattheprocessofappointment
andtheprocessofmonitoringtheseagentsaredesignedtopromotetheinterestsofmembers.
ThePanelhasidentifiedanumberofareasinwhichameasureoftighteningintheregulatorysystem
seemsappropriate.
Performancebasedfeeswere,untilrecently,typicallyonlychargedbyhedgefundsorinthecontext
ofmandates
relating
to
alternative
assets.
Quite
quickly,
they
have
become
much
more
widespread.
ThePanelsviewisthatperformancebasedfeesshouldbetheexception,ratherthantherule,for
superannuationfundinvestmentsandhasrecommendedthataperformancebasedfeestandardbe
adoptedforMySuperproducts.
Membersaccumulatetheirretirementsavingsandretireonaftertaxreturns,notpretaxones. Yet,
thereisawidevariationintheextenttowhichmosttrusteesandinvestmentmanagershaveregard
totheoptimisationoftaxoutcomesformembers. Thebenefitsofdividendimputationcreditsand
capitalgainstaxdiscountsareonlyrealisedwheretheunderlyinginvestmentsareheldatthetimeof
thedividenddistribution,orforaspecifiedperiod.
Investmentchurn
or
portfolio
trading
that
ignores
tax
consequences
can
result
in
the
premature
turnoverofassetswherethepotentialaftertaxbenefitstomembersarelost.
Researchonthequantumoftheleakagehasfoundthatportfolioturnoverresultingfrominvestment
decisionsmadewithoutregardtotaxcanaffectaftertaxreturnssignificantly. ThePanelbelieves
thattheSISActshouldbeamendedsothattrusteeshaveanobligationtohaveregardtothetax
consequencesoftheirinvestmentstrategies.
Similarly,thePanelalsoconsidersthattheSISActshouldbeamendedsothattrusteeshavean
obligationtohaveregardtotheexpectedcostsofparticularinvestmentstrategiesandthe
availabilityofindependentandtimelyassetvaluations.
5.4 Chapter4:OutcomestransparencyTransparencyandcomparabilityarecriticaltotheefficiencyandoperationofamarketbasedsavings
system,evenwhereparticipationiscompulsory. ThePanelbelievesthatthereispresentlyalackof
transparency,comparabilityand,ultimately,accountabilityintheAustraliansuperannuationsystem
thatcanonlybeeffectivelyimprovedthroughtargetedandproportionateregulation.
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ThePanelconsidersthat,tomakeprogressquicklytowardaccuratecomparability,APRAshouldhave
anewpowertomakeoutcomesreportingstandardsastothewaylargeAPRAfundsreportand
advertisetheinvestmentperformanceandcostsoftheirinvestmentoptions. LargeAPRAfunds
wouldberequired(amongotherthings)to:
report
past
performance
in
a
standard
format
that
also
discloses
the
volatility
associated
with
the
return; and
classifytheirinvestmentoptionsaccordingtoanewriskandreturntargetingapproach.Infinancialmarkets,thereisgreatbenefitinwhatcouldbetermedsystemictransparency:thatis,
disclosuretothesystematlarge,includingregulators,academics,analysts,advisersandinformed
investors. SystemictransparencyiswhatislargelymissingintheAustraliansupersystem. Thereis
toolittlehighqualityinformationavailabletoexpertswhowouldbeabletousesuchinformationfor
theultimatebenefitofmembersasawhole. SystemicfundinformationaboutlargeAPRAfunds
shouldsitalongsidespecificmemberfocusedandeventdrivendisclosureobligations.
ThePanelconsidersthatthereneedstobealowcost,butdramatic,changeinthisarea. Thisis
wherelargeAPRAfundsmustseethemselvesasdifferentfromotherbusinesses. Trusteesmustget
usedtobeingmoretransparentabouttheirfunds. ThePanelthereforebelievesthereshouldbenew
standardsforwebbasedsystemicdisclosuresforlargeAPRAfundsinarangeofareas,including
detailsoftheirportfolioholdingseverysixmonths.
Membersalsoneedacertainminimumamountofinformationwhenconsideringsuperannuation
investmentoptions,includingMySuper. ThePanelbelievesthiscanbeprovidedthroughthe
developmentofaplainEnglishproductdashboardthatwouldprovidememberswitha
standardisedformatinwhichtocompare:
theinvestmentoptionsriskandreturntargets; whethertheinvestmentoptionwasilliquid;and feesandcosts,includingaprojectedTotalAnnualExpenseRatio(TAER).5.5 Chapter5:InsuranceinsuperannuationInsurancecanbeanimportantaspectofsuperannuationasitprovidesbenefitstomembers(and
theirdependants)whenmembersarenolongerabletoworkduetodeathortotalandpermanent
disablement(TPD)beforenormalretirementage.
However,insurancecoverembeddedinsupercomesatthecostofforegoneretirementsavingsand
earnings. Inthiscontext,trusteeshaveanimportantroleinsettingappropriateinsuranceofferings
fortheirmembers. Defaultinsurancemustbetailoredformemberswhodonotconsidertheir
insuranceneeds,andwhorelyonthetrusteesjudgmentforadequateinsurance. Formemberswho
doconsidertheirinsuranceneeds,theyshouldbeabletooptoutofcoverentirelyortohaveaccess
toadditionalcover.
DeathandTPDinsurance,inparticular,meettheneedsofmemberssothattheyhavesufficient
benefitsintheeventthattheyneedtoaccesstheirretirementsavingsearly. Incomeprotection
insurancecancomplementthesetypesofinsurancebyprovidingbenefitswhendisabilityisbelieved
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tobetemporary,notpermanent. InthePanelsview,noothertypeofinsuranceisconsistentwith
theobjectivesofsuperannuationandnorshoulditbepaidforfrommembersupersavings.
Insuranceisacomplexproductformemberandtrusteealikeanditisacrucialcomponentof
superannuation. Accordingly,alltrusteesshoulddevelopaconsideredinsurancestrategyand
monitor
its
implementation.
The
risks
associated
with
fund
self
insurance
of
life
and
TPD
benefits
arehighandsoselfinsuranceshouldonlybepermittedinlimitedcircumstances.
Informationaboutinsurancemustbemorewidelyavailableandtrusteesmustmakeiteasierfor
memberstocompareinsuranceoptions,recognisingthefinancialimpactonmembers. ThePanel
thinksthatmuchofthiscanbeeasilyaccomplishedonthefundswebsite.
Insuperannuation,insuranceisgenerallyautomaticallyprovidedtomembersand,consequently,
memberswillcontinuetohavecoveragewithouttheneedtohaveadvisersrenumeratedbytrailing
commissions.InthePanelsview,commissionsaddunnecessarilytotheinsurancepremiumsthat
memberspay.
5.6 Chapter6:SystemintegrityTrusteesoflargeAPRAfundsneeddirectaccesstoariskweightedpoolofcapital,whetheran
operationalriskreservewithinthefundorcapitalheldseparatelybythetrustee. Changesproposed
inordertoimproveaccesstocapitalaccordingtotheassessedriskofthefundshouldbephasedin
overtimesoastoliftprudentialstandardswhileminimisinganyintergenerationalequityissuesand
disruptiontofunds.
Trusteesneedtogiveexplicitconsiderationtoliquidityriskmanagementatbothwholeoffundand
investment
option
level.
Administratorsandcommercialclearinghousesaresystemicallysignificanttothesuperannuation
systemandshouldbesubjecttoAPRAregulationandlicensing,includingarequirementtohold
capitalintheirownright.
Thefundingstandardsfordefinedbenefitfundsshouldbestrengthenedtofocusonthelevelof
vestedbenefitsratherthanminimumrequisitebenefits. ThePanelbelievesthatdefinedbenefit
fundsneedtobeconsideredcarefullyandspecificallywhenthereisanychangetolegislationascosts
forthesefundscanbeinadvertentlyincreasedwhenlegislationdoesnotsufficientlytaketheminto
account.
Giventhesuperannuationsystemssolepurpose,externalities,whetheranationalinterestin
developinginfrastructure,orpromotingsoundenvironmental,socialandgovernanceoutcomes,
alwaysneedtobereflectedintheriskandreturnvaluationofapotentialinvestment,butnotas
endsinthemselves.
5.7 Chapter7:RetirementAustraliassuperannuationsystemexiststodeliverprivateincometoenhancethelivingstandardsof
retiredAustralians. Successivegovernmentshavecommittedtothethreepillarframeworkasthe
underpinningofAustraliasretirementincomespolicy,blendingnearuniversalemployee
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participationinthesuperannuationsystemwithanadequatesocialsecuritysafetynetandincentives
fordiscretionarysavingsbyindividualsbeyondtheemployermandatedlevels.
Todate,theretirementincomeproductmarkethasbeenunderdeveloped,largelyreflectingthe
relativelysmallbalancesthatmanyretiringworkersholdasaconsequenceoftheimmaturityofthe
SG
system
(being
less
than
20
years
old).
Currently,
the
market
is
dominated
by
account
based
productsinwhichtherisksassociatedwithinvestmentmarkets,longevityandinflationaredirectly
bornebythemember. However,balanceswillincreasesubstantiallyintheperiodaheadandthis,
combinedwithdemographicageing,shouldhelpspurproductdevelopment. Treasuryestimatesthat
postretirementassetswillmorethantripleinrealtermsby2035toreach$850B.
MySupershouldbeawholeoflifeproductandincludeasingletypeofretirementincomestream
product,chosenbythetrustee.
Becauseretirementneedsvaryconsiderably,thereisnoonesizefitsallretirementincomeproduct
thatthegovernmentshouldmandate. Itisimportantthattrusteesconsiderlongevityissuesmore
explicitlywhen
developing
investment
strategies.
It
is
also
important
that
the
regulatory
system
supportsproductinnovation.
Goodfinancialadvicecanbeveryhelpfulasmembersplanforretirementandastheymanageassets
intheretirementphase. ThereisastrongcaseforrequiringMySuperproductstoprovideproactive
intrafundadviceperiodicallytothisgroupofmembers.
5.8 Chapter8:SelfmanagedsupersolutionsThePanelrecognisesthatwithintheSMSFsector,members(whoalsoactasthetrustees)should
have
ultimate
responsibility
for
their
retirement
savings.
Unless
there
is
a
countervailing
public
policyreason,trusteesofSMSFsshouldbefree,asmuchaspossible,fromgovernmentintervention.
Ineffect,theworkofthePanelhasledittoconcludethattheSMSFsectorislargelyasuccessfuland
wellfunctioningpartofthesystem,asreflectedinthePanelsstatisticalsummaryissuedin
December2009. Infact,thePanelsuspectsthatthemostsignificantaspectofitsworkintheSMSF
sectoriswhatithasnotrecommended(forexample,minimumfundsizeorspecifictrustee
educationalrequirements). TheSMSFrecommendationsarenotdramaticandlargelyrelateto
compliance,audit,advisercompetencyandlikemeasures. Thereweresomerecommendations
aboutassetsthatthePanelthoughtoughtnottobeinSMSFs(forexample,collectables)butthese
werenotmaterialinquantum.
SometrusteesarecapableoflookingafteralloftheaffairsoftheirSMSF. Mostultimatelydelegate
someorallofthetasksofrunninganSMSFtoserviceproviders. Insomerespects,serviceproviders
intheSMSFsectorhaveauniquerole. Theyare,inasense,thefirstlineofdefenceforthe
communityinasectorthatischaracterisedbyadoityourselfphilosophy. Recognisingthis,the
PanelbelievesthathighercompetencyandadvicestandardsareneededforSMSFserviceproviders.
ThePanelalsobelievesthatthesectorwouldbemoreefficientiftrusteeshadaccesstobetter
resourcesandsimplifiedlegislation.
ThePanelalsorecognisesthatotherpartsoftheSMSFregulatoryframeworkneedtobeimproved.
TheATOneedsagreaterrangeofflexiblepenaltiesifitistoachieveappropriateandproportionate
regulatoryoutcomes.
Likewise,
given
the
pivotal
role
approved
auditors
play
in
underpinning
the
SMSFregulatoryframework,theircompetenceandindependenceshouldberaisedtoalevelwhere
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theyprovidethelevelofassurancethatacompliancebasedregulatoryframeworkdemands. The
SMSFregistrationprocessneedstobeimprovedtocombatfraudsandillegalearlyaccessschemes.
5.9 Chapter9:SuperStreamSuperStreamisthenamethePanelhaschosentodescribethepackageofmeasuresdesignedto
enhancethecurrentbackofficeofsuperannuation. Itincludesnewstandardstoimprovethe
qualityofdataprovidedbyemployers,toallowtheuseoftaxfilenumbers(TFNs)asaprimary
identifierandtorequiretheuseoftechnologytoimproveprocessingefficiency. SuperStreamalso
includesimprovementstothewayfundtofundrolloversareprocessedandthewaycontributions
aremade.
Excessivecostscausedbymanualprocessingofbothmoneytransfersanddatainsupercanbe
significantlyreducedbyrequiringelectronictransmissionoflinkedfinancialandmemberdataatall
levels,usingstandardisedformats. UseoftheTFNastheprimaryidentifieriscriticaltothisprocess.
TherewillbeanenhancedrolefortheATOinfacilitatingamoreefficientbackofficefor
superannuation. Further,thePanelproposesthatthepresentarrayofcontrolsoversuperannuation
contributionsshouldbesimplifiedandstreamlined,withtheATOhavingsoleregulatory
responsibility.
Improveddataqualityandsearchprocessesshouldleadtoareductioninthenumberofinactiveor
lostmemberaccountsinthesystem.
5.10 Chapter10:RegulatorysettingsChanges
are
required
to
the
regulatory
system
in
order
to
achieve
the
efficiencies
that
the
Panel
seeksfortheindustry.
ThePanelbelievesthatAPRAmusthaveastandardsmakingpowerinrelationtosuperannuationto
allowittotakeonthesignificanttasksofoverseeingandpromotingindustryefficiency(aswellasits
existingprudentialrole). ThePanelseesthiscomplementedbyafreshapproachtograduated
regulatoryenforcementandsanctions.
ThePanelisoftheviewthatefficiencycanalsobeachievedbyenhancedcooperationand
coordinationbetweentheregulatorswithrespecttotheirsuperannuationfunctions. Thiscouldtake
severalforms,includingsecondmentarrangementsbetweenASICandAPRAoranoperational
mergeroftheirsuperannuationcapabilitieswithorwithoutacolocationinmajoroffices. TheATO
shouldberesourcedsothatitcancarryoutitsnewrolewithrespecttoSuperStreamaswellasits
currentrolesintheindustry.
InthePanelsview,furtherefficienciescanbeachievedbyfacilitatingrationalisationoflegacy
productsinsuperannuationand,tothatend,suggeststhattheequivalencetestforsuccessorfund
transfersbechangedtoatestofnooveralldisadvantagewiththeintentionofallowingmore
transferstoproceed. ThereisalsobenefitingivingtheFederalCourtthejurisdictiontodetermine
superannuationproductrationalisationwherethesuccessorfundtransfertestcannotbemet. CGT
reliefintheseinstancesshouldbeexpandedandmadepermanent.
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InefficiencyisalsoabyproductofacomplexlegislativeframeworkandthePanelbelievesthata
restructureoftheSISActcouldbehelpfultotheindustry. ThePanelsuggestthattheSISActbe
organisedsothat,amongotherthings,theprovisionsapplyingtoeachsectorofthenewchoice
architecturearesetoutseparately.
As
a
way
to
determine
if
the
Panels
recommendations
have
been
effective
in
advancing
efficiency
in
theindustry,thePanelbelievesthattheProductivityCommissionshouldreviewtheimpactand
implementationofMySuperandSuperStreamandthefunctioningoftheretirementproductmarket
fiveyearsaftertheGovernmentsresponsetothisreport.
Withaviewtoadvancingmembersinterests,thePanelbelievesthatmemberprotectionshould
ceaseinthenewchoicearchitecturesothatsubsidisationofprotectedmembersbyunprotected
membersdoesnotcontinuetooccur. ThePanelalsoendorsesanextensionoftheGeneralEmployee
EntitlementandRedundancyScheme(GEERS)tocoveruptothreemonthsofunpaidSGAct
contributionsandachangeofnamefortheSuperannuationComplaintsTribunal(SCT)tobecome
theSuperannuationAppealsTribunaltobetterreflectitsrole.
6 HOWTHERECOMMENDATIONSBENEFITMEMBERSThePanelstermsofreferencewerequiteexplicitthatitsworkwastobeconductedaroundthe
conceptsofthebestinterestsofthememberandthemaximisingofretirementincomesfor
Australians.
ThePanelhasthereforeframeditsrecommendationsinawaythatreinforcestheprinciplethat
superannuationmustbeforthebenefitofmembersandimposesnewrequirementsontrusteesto
ensurethat
they
make
decisions
and
conduct
their
operations
so
that
members
benefit.
ThePanelhasalsodevelopednumerousproposalstomakesupereasier,simplerandmoreefficient
formembers.
6.1 Optimisingcostsandfeesformembers6.1.1 MySuperfeesincurrentmarketconditionsTheaimofMySuperisloweringoverallcostsformemberswhilesupportingandencouraginga
competitivemarket
based,
private
sector
infrastructure
for
superannuation.
The
Panels
objective
is
tomakesuperbettervalueformoneyandMySuperisdesignedwiththisinmind.
WhilethePanelhasnotrecommendedacaponfees,thePanelhasrecommendedchangesin
legislationandregulationtomakefeesmoretransparentandtoassistmemberstocomparefees
acrosstheindustry. Thesemeasures,alongwithsharperdutiesontrustees,shouldseebetter
managementofoverallcosts.
AspartoftheReview,thePanelcommissionedareportfromDeloitteActuariesandConsultants
seekingDeloittesviewofreasonableandachievabletotalcostsforanaveragememberwitha
$25,000accountbalance,assumingtheadoptionoftheMySupermodel. Deloittesmethodology
involvedusing
current
market
information
to
estimate
the
likely
costs
and
fee
ranges
for
the
various
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componentsoftheMySuperproduct,withouttakingaccountoftheimpactofSuperStreamand
otherPanelrecommendations.
DeloittesviewofwhatthecurrentmarketcouldprovideinthewayoffeesforMySuperisshownin
thefollowingtable:
Table2: EstimatedtotalannualpercentagecostsforMySuperproductsofvaryingsizes
(investmentcosts,plusoperatingcostsandintrafundadvice)
MySuperfundsize/investmentstrategy $2b $5b $10b $20b
Passivebalanced 0.60% 0.46% 0.38% 0.32%
Passiveconservative 0.58% 0.45% 0.37% 0.32%
Activebalanced 0.94% 0.83% 0.70% 0.60%
Activeconservative 0.80% 0.70% 0.59% 0.49%
Activebalanced(withalternatives) 1.04% 0.89% 0.77% 0.66%
Activeconservative
(with
alternatives)
0.89%
0.76%
0.64%
0.54%
AcopyofthefullDeloittereportisatappendixD.
Foravarietyofreasons,feescurrentlypaidbysuperfundmemberscoverawiderangeacrossthe
differentfundtypesandsectors. However,nearlyalldefaultfundmembersaretodaypayingmore
thanthe0.66percenttotalfeesprojectedbyDeloitteforthehighestcostinvestmentoptionina
$20BMySuperproduct,withsomememberspayingmorethantwicethisamount. Thisestimated
savingwouldrepresentasignificantboosttoretirementsavings. Treasuryestimatesanaveragefee
fordefaultfundmembersof97bpsperannum,basedontheRiceWarnerSuperannuationFee
Report2008.
Beingacurrentmarketestimate,Deloittesnumbersdonottakeaccountofanysavingsfromthe
SuperStreamproposaltomodernisethebackofficeofthesuperindustry(seechapter9). ThePanel
askedDeloittetokeeptheaccountbalanceusedintheexampleslow,reflectingtherelativelylow
averageaccountbalancesinthesystem. Anaccountbalanceof$250,000wouldseeoperatingcosts,
includingforintrafundadvice,ofbetween0.05percentfora$2Bfundand0.03percentfora$20B
fund,towhichpercentagebasedinvestmentmanagementfeeswouldhavetobeadded.
6.1.2 Wouldlowerfeesharminvestmentreturns?ConcernhasbeenexpressedthatMySuperwouldbeseenascheapandnastywithitsmembers
disadvantagedbecausetheywouldbeforcedintopoorlyperforminglowcostinvestmentstrategies.
Thisisnotso. Thecostestimatesshownintable2includeanelementofperformancefeesand
rangeacrosspassiveandactiveinvestmentstrategies,includingexposuretoalternativeassetclasses.
MySupertrusteeswouldberequiredtoconsiderandimplement,asappropriate,whattheyconsider
tobetheoptimalinvestmentstrategytomaximisenetreturnsfortheirmembers.
ThereisnojustificationfortheassertionthatMySuperwouldpreventtrusteesandfundmanagers
frompursuingcertaintypesofinvestmentstrategiesthattheymightotherwiseconsider. The
MySuperconceptispredicatedontrusteesbeingrequiredtodesignandimplementaninvestment
strategy
that
is
for
the
benefit
of
members,
which
means
trustees
have
to
weigh
the
expected
returnsofanystrategyagainstconsiderationsofliquidity,riskandcost. ThePanelisconfidentthat
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trusteeswouldbeabletoidentifystrategiesthatoffercompetitivenet(thatis,aftertaxes,feesand
costs)returnstomemberswithintheregulatoryframeworkgoverningMySuper.
ItisclearfromDeloitteswork,andothermaterialanalysedbytheReview,thattherearesubstantial
benefitsfromscaleinthesuperindustry. InMySuper,trusteeswouldhavetoconsiderannually
whether
their
MySuper
product
would
have
enough
scale
to
provide
optimal
benefits
to
members.
6.1.3 FutureimpactofMySuperandSuperStreamonfeesThePanelhassoughttoquantify(assetoutintable3)thepotentialimpactoftwomajorreforms
MySuperandSuperStreamonfeesthatmembersmightpayinthefuture.
Table3: ProjectedannualsavingsfromMySuperandSuperStream*
Sourceofsavings Shortrun Longrun
MySuper $0.55b $1.7b
SuperStream $1.0b
$1.0b
Totalannualsavings $1.55b $2.70b
* TheSuperStreamreformsareexpectedtoinvolveinitialupfrontcostsfortheindustryandthefullbenefitsmightnotbe
realisedimmediately. Theseshortruncostshavenotbeenquantified. However,theyareexpectedtoberelativelylowin
thelongerterm.
Thesefeesavingswouldprovidesignificantbenefitstoordinaryworkers. Treasuryestimatesthatan
averagewageearnerpayingaverageMySuperfeescouldbenefitfromarounda40percentfeecut,
liftingtheirfinalsuperannuationbalancebyaround$40,000or7percent.
Giventheuncertaintiesinvolved,theseestimatesshouldbeseenasbroadlyindicativeonly. Details
ofthe
Treasury
assumptions
underpinning
these
projections
are
set
out
in
appendix
C.
6.2 BetterretirementbenefitsThebettermanagementofcostsandfeesgoesdirectlytoimprovingthebottomlineformembers,
thatis,greaterretirementbenefits. Theinformationinsection6.1illustratewhatpositiveresultscan
beachievedwiththeMySuperandSuperStreamproposals.
WhileincreasedretirementbenefitsaretheoverallaimofthePanelsrecommendations,specific
recommendationsthatsignificantlycontributetothisresultare:
(a) movementofagreatershareofthevaluederivedfrominvestmentsofsuperassetsfromagentstomembersascompetition,scaleandefficiencygainsarerealised,increasing
membersnetwealth;
(b) prohibitingadvisercommissionsoninsuranceprovidedthroughsuperannuation,thatcanbeupto2030percentofmemberpremiums;
16
(c) removingtrailingcommissionsonadviceandlimitingperformancebasedinvestmentmanagementfees;
(d) requiringtrusteestomanageinvestmentsforaftertaxreturnsandtoaligninvestmentmanagementarrangementswithmemberinterests;
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(e) givingMySupertrusteesadutytoconsiderlongevityriskandinflationriskinrelationmembersinretirementphase;
(f) removingbarriersinthetaxlegislationandSISActtofundconsolidationsothatscalecanbemoreeasilyachieved; and
(g) requiringtrusteestohavenotonlyaninvestmentstrategy,butalsoaninsurancestrategysothatcostsinbothareasareactivelyconsideredandmanagedbythetrustee.
6.3 EnhancedsecurityofthesystemImposingacapital(orreserving)requirementontrusteeswillhelpensuretheirviability,whichisof
courseofutmostimportancetomembers.
Licensingofadministratorsandclearinghouses(andcapitalrequirementsforthem)meansthat
memberrecordsaremoresecureand,generally,reducestheriskofoperationalfailurein
administratorsand
clearinghouses.
Bringing
these
entities
into
the
regulatory
net
gives
comfort
to
membersthattheregulatoryoversightextendstoallcriticaloperationsofthesystem.
Definedbenefitmemberswillbemoresecureinknowingthatthefocusoffundingwillbeontheir
vestedbenefitsnotminimumrequisitebenefits.
Further,trusteeswillberequiredtomanageliquidityrisksbetterbothinthefundasawholeandin
individualinvestmentoptionswhichreducestheriskformembersthattherewillbenocashavailable
topaytheirbenefitswhentheycomedue.
Thestrengtheningofgovernancestandardsfortrusteeboardsandtrusteedirectorswillhelpensure
thatpersons
involved
with
the
fund
at
the
highest
level
are
of
high
quality
and
capability.
Maintainingconfidenceinthesystemisimportantandsecuringthesystemsstabilityisfundamental.
6.4 BetterinformationIncreasingthetransparencyofthesystemandprovidingmoremeaningfulinformationwouldbeof
obviousbenefittomembers. ThePanelbelievesthattheprovisionofbetterinformationto
membersandtheiradviserswouldmakesuperannuationlessopaqueandincreasethelikelihood
thatmembersunderstandwhatishappeningwiththeirsuperannuation.
Thenewforwardlookinginvestmentoptiondisclosuredashboardwouldenablemembersto
examinelikelyfutureperformance,ratherthanbasinginvestmentchoiceonpastinvestment
performance. ThePanelbelievesthatthiswayofpreparinganddisclosinginvestmentoptiondata
willaidmembersinfiguringoutsomeofthetechnicalinformationthatisassociatedwiththeirsuper.
MySupertrusteeswillberequiredtoprovidetheirmemberswithintrafundadviceproactivelyat
variousstagesthroughouttheirworkinglivesandastheyapproachretirementandduringtheir
retirement. ThePanelseesintrafundadviceasbeingofgreatvaluetomembersasitcomesfrom
thetrustee,theentitythatismostfamiliarwiththefundsoperation.
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6.5 GreaterefficiencyAsaconsequenceoftheSuperStreamproposals,superwillbeeasiertolocateandhardertolose.
Currently,thereareapproximately12Mmemberswithsuperannuation,17yetthereareover
33
million
accounts.
18
Equally
frustrating
for
members
(and
trustees
and
administrators)
is
the
laboriousprocessofreunitingmemberswiththeirlostsuper. Therewasmorethan$13.6Binlost
superasat30June2009.19
ThePanelsrecommendationstoenablegreateruseofTFNstohelpinidentifyingmemberaccounts,
torequireelectronictransmissionoflinkedfinancialandmemberdata(usingstandardisedformats)
andtofacilitateautoconsolidationofmultipleaccountswillgofarinmakingthesystemmore
efficientformembers.
MemberswillalsobenefitfromthePanelsemphasisontheavailabilityofelectronicinformation
bothfromtheirfundandfromgovernment. Theestablishmentofthegovernmentssuperwebsite
meansthat
there
will
be
acentral,
authoritative
repository
for
information
about
superannuation.
A
websitebasedapproachwillbemoreefficient(andlesscostly)asinformationcanbeupdatedeasily
andquicklyandmemberscanaccesstheinformationatanytime.
7 IMPLEMENTATIONWhilepitchingitsrecommendationsatahighconceptuallevel,thePanelhasendeavoured
throughouttheReviewtobesatisfiedthatitsideasandrecommendationsarepracticable. Inpart,
thishasbeeninanefforttominimiseanyunintendedconsequencesofitsproposals.
ThePanelappreciatestheworkinvolvedintakinghighlevelrecommendationsandimplementing
theminpractice. TothatextentthePanelhas,wherepossible,givenasmuchdirectionasitcanto
enabletheTreasury,withitsresponsibilityforimplementingrecommendationsthatareacceptedby
Government,tounderstandthePanelsthinking. Inthesamevein,thePanelurgesTreasurytohave
regardtothe10superpolicyprinciplestoclarifyareasofambiguity.
Inevitably,therewillbemattersofdetailthatwillnotbeaddressedinaprojectofthisnatureand
thesewillhavetoberesolvedinthesubsequentconsultationprocess.
ThePanelsrecommendationsareexpectedtobenefitmemberssubstantiallyinthelongterm
throughcost
savings
and
improved
efficiencies.
Counter
balancing
these
savings,
the
Panel
acknowledgesthatsomeofitsrecommendationswouldincreasesomefundcostsintheshortterm,
particularlytheimplementationofcertainaspectsoftheMySuperandSuperStreamreforms.
Whenmakingrecommendations,thePanelhasbeenconsciousoftheGovernmentsbestpractice
regulationprinciples. Asaresult,thePanelslargelyprinciplebasedreformsaimtomaximisethe
overallbenefittomembers,whileminimisingthecostbornebytheindustry.
ThePanelhasnotpresumedtorecommendaspecifictimetableorsequenceofimplementation,
althoughitwouldclearlybepreferableforimplementationplanningtocommenceimmediatelyon
someofthekeyproposalsincludingMySuperandthevariousSuperStreamproposals. Manyofthe
otherkey
recommendations
depend
on
further
detailed
consultation
with
the
industry,
and
any
reformsrequiringlegislativechangesneedtobeverycarefullyplannedandaccommodatedwithin
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thegovernmentsbroaderlegislativeprogram. ThePanelis,however,confidentthatallthereforms
proposedareeminentlycapableofbeingimplemented,andwillresultinsignificantnetgainsto
members.
8 OUTSTANDINGISSUESAspartoftheReviewprocess,thePanelreleasedthreecomprehensiveissuespapers,detailing
myriadissuesaboutgovernance,operations,efficiencyandstructureacrossthesuperannuation
industrytoday(seeappendixAforalistoftheissuespapers).
ThePanelspriorityhasbeentoaddressthoseissuesthatitbelievedwouldbringaboutthegreatest
benefittomembersandthesuperannuationindustry. However,thePanelrecognisesthatthereare
stillanumberofsecondorder,butstillimportant,changesthatcouldresultinbenefitsformembers.
Inthisregard,thePanelbelievesthatpolicymakersandregulatorsshouldcontinuetoprogressthese
issuesand
commends
to
them
the
issues
papers
and
the
submissions
that
responded
to
these
papersasanimportantongoingresource.
9 ACKNOWLEDGEMENTSThePanelwishestothankthelargenumberoforganisations,particularlyAPRA,theATO,ASICand
everyonewhoparticipatedinroundtables,focusgroupsandmeetingswiththePanel,orassisted
withresearch. ThePanelwasgratefultoreceivethemanythoughtful,consideredanduseful
submissionsandthanksthemanyorganisationswhomadesubmissionsinallthreephasesofthe
Review.The
Panel
was
also
particularly
grateful
that
so
many
individual
members
made
submissions
abouttheirownexperiencesandissues.
ThePanelalsoacknowledgesthesupportMinisterBowenandtheGovernmenthavegiventothe
Reviewprocess,whilealwaysrespectingtheindependenceofthePanel. ThePanelalso
acknowledgestheinitiativeofAssistantTreasurer,SenatortheHonNickSherry,ininstigatingthe
Review.
ThePanelisalsogratefulfortheadministrativesupportithasreceivedfrommanyareasofthe
DepartmentoftheTreasury. TherewerealsomanyothersupportersoftheReviewwhoassistedin
variouswaysduringtheprocess(byprovidingmeetingvenues,ideasandfeedback,goodquality
coffee,discussion
forums
and
support)
and
we
thank
them
as
well.
ThereweremanyfriendsoftheReview(toomanytonameindividually)andthePanelthankseachof
themfortheirsupportandencouragement.
Lastly,thePanelwishestoacknowledgetheoutstandingsupportprovidedbyallmembersofthe
Reviewsecretariat(listedinappendixE)drawnfromboththeprivateandpublicsectors.
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10 LISTOFRECOMMENDATIONS10.1 Chapter1:MySuperandchoicearchitecture
Recommendation1.1
ThechoicearchitecturemodelshouldbeadoptedasthestructureforAustralias
superannuationindustry.
Recommendation1.2
TheSGActshouldbeamendedsoonlyaMySuperproductiseligibletobeadefaultfund
nominatedbyanemployer.
Recommendation1.3
Therelevantlegislationshouldbeamendedso:
(a) onlyMySuperproductsareeligibletobenominated; and(b) allMySuperproductsareabletobenominated,fordefaultfundpurposesinawardsapprovedbyFairWorkAustralia.
Recommendation1.4
In2012,theProductivityCommissionshouldconductareviewoftheprocessesbywhichdefault
fundsarenominatedinawardstoassesswhethertheprocessesaresufficientlyopenand
competitive.
Recommendation1.5
Anyfundthatisasuccessorfund(asdefinedintheSISAct)toafundcurrentlynominatedasa
defaultfund
under
an
award
should,
where
the
successor
fund
is
aMySuper
product,
be
acceptedautomaticallyasadefaultfundundertheaward,sothatthereisnoimpedimentto
consolidationforthosefundsthatwishtodoso.
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Recommendation1.6
TheSISActshouldbeamendedtoapplystatutorydutiestoMySupertrusteesto:
(a) formulateandgiveeffecttoasingle,diversifiedinvestmentstrategyatanoverallcostaimed
at
optimising
fund
members
financial
best
interests,
as
reflected
in
the
net
investmentreturnoverthelongerterm; and
(b) activelyexamineandconcludewhether,onanannualbasis,itsMySuperproducthassufficientscaleonitsown(withrespecttobothassetsandnumberofmembers)to
continueprovidingoptimalbenefitstomembers.
Recommendation1.7
TheSISActshouldbeamendedtorequiretrusteesofMySuperproductstosatisfyobjective
criteriarelating
to:
(a) APRAlicensing;
(b) acceptanceofcontributions;
(c) single,diversifiedinvestmentstrategy;
(d) absenceofcostscrosssubsidisation;
(e) buyandsellspreads;
(f) switchingfees;
(g) feediscounts;
(h) performancebasedinvestmentmanagementfees;
(i) esuperdisclosures;
(j) retirementincomestreamproduct;
(k) entryandexitfees;
(l) benchmarking;
(m) intrafundadvice;
(n) insurance;
(o) absenceofcommissionsandlikepayments; and
(p) memberengagement.
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Recommendation1.8
Neitheradvicetomembers(otherthanintrafundadvice),noradvicetoemployersshouldbe
bundledwithMySuperproducts.
Recommendation1.9
AdvicetomembersofaMySuperproduct(otherthanintrafundadvice)shouldonlybeprovided
onrequestandtrusteesshouldonlybeabletodeductthecostsofadviceaboutsuperannuation
fromamembersaccountwiththememberswrittenagreement.
Recommendation1.10
Thecostofadviceorservicesprovidedtoemployersshouldnotbeborneinanyway,directlyor
indirectly,by
MySuper
members.
Recommendation1.11
TrusteesofMySuperproductsshouldnot:
(a) payorfundanyproductbasedupfrontortrailingcommissionorothersimilarpayment;
or
(b) makeorfundanypaymentthatrelatestovolume,
inrespectofsuperannuationadviceorotherproductsorservicesprovidedtomembers.
Recommendation1.12
MembersofMySuperproductsshouldonlybeprovidedwithadviceaboutsuperannuation
(otherthanintrafundadvice)underarrangementsthatrequirethemembertorenewtheadvice
serviceeachyearonarenewalnoticefromtheadviser.
Recommendation1.13
ASICshould,inconsultationwithindustry,deviseastandardformwhichrequiresclear
identificationoftheadviceservicetobeprovidedwhereafundmemberrenewsanongoing
adviceservice.
Recommendation1.14
TrusteesofMySuperproductsshouldnotpaypremiumsforinsuredmemberbenefitsthat
includeorfundanupfrontortrailingcommissionorlikepayment.
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Recommendation1.15
Legislationshouldapplyspecificandthoroughconductandenquirydutiesonpersons(including
trustees)providingswitchingadvicetoaMySupermemberbuiltonthecurrentrequirementsof
section947DoftheCorporationsAct.
Recommendation1.16.
MembersshouldonlybeabletobemovedinvoluntarilyoutofaMySuperproductiftheyare:
(a) transferredtoanERF;
(b) flippedfromaMySuperproductinamastertrusttoanotherMySuperproductinanother
divisionofthattrust;or
(c)
transferredunder
legislative
requirements
such
as
auto
consolidation
of
accounts
or
temporaryresidentarrangements.
Recommendation1.17
ThepresentationofretirementforecastsshouldbemandatoryforMySuperproducts,and
shouldbedevelopedinconsultationwithindustryinaccordancewiththeapproachidentifiedby
thePanel.
Recommendation1.18
ThesuperannuationindustryshouldhaveatleasttwoyearstotransitiontoMySuperandthe
newchoicearchitecture.
Recommendation1.19
BothAPRAandASICshouldoverseethetransitionreferredtoinRecommendation1.18.
Recommendation1.20
Trusteesofchoicesectorproductsshouldalsonotbeabletochargeentryfeesandshouldonly
chargeexitfeesonacostrecoverybasis.
Recommendation1.21
Neitheradvicetomembers(otherthanintrafundadvice),noradvicetoemployersshouldbe
bundledwithchoiceproductsorwithanyotherproductinthechoicearchitecturemodel,
includingproductsofferedtoSMSFs.
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Recommendation1.22
Advicetomembersofachoiceproductorofanyotherproductinthechoicearchitecturemodel
(otherthanintrafundadvice)shouldonlybeprovidedonrequestandtrusteesshouldonlybe
abletodeductthecostsofadviceaboutsuperannuationfromamembersaccountwiththe
memberswritten
agreement.
Recommendation1.23
Thecostsofadvicetoemployersshouldnotbeborneinanyway,directlyorindirectly,by
membersofchoiceproductsorbymembersofanyotherproductsinthechoicearchitecture
model.
Recommendation1.24
Trusteesofchoiceproductsorofanyotherproductinthechoicearchitecturemodelshouldnot:
(a) payorfundanyproductbasedupfrontortrailingcommissionorothersimilarpayment;
or
(b) makeorfundanypaymentthatrelatestovolume,
inrespectofsuperannuationadviceorotherproductsorservicesprovidedtomembers.
Recommendation1.25
Membersofchoiceproductsorofanyotherproductinthechoicearchitecturemodelshould
onlybeprovidedwithadviceaboutsuperannuation(otherthanintrafundadvice)under
arrangementsthatrequirethemembertorenewtheadviceserviceeachyearonarenewal
noticefromtheadviser.
Recommendation1.26
Trusteesofchoiceproductsorofanyotherproductinthechoicearchitecturemodelshouldnot
paypremiums
for
insured
member
benefits
that
include
or
fund
an
up
front
or
trailing
commissionorlikepayment.
Recommendation1.27
Choicetrusteesmustofferarangeofoptionssufficienttoallowmemberstoobtainadiversified
assetmixiftheychoose,butmemberscanchoosetobeundiversifiedandthetrusteewould
havenoobligationtoassesstheappropriatenessoftheinvestmentstrategychosenbythe
member. Trusteeswouldbesubjecttonewexpressdutiesinselectingandmonitoringoptions.
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Recommendation1.28
Achoicetrusteethatdischargesitsdutiesinselectingandmonitoringinvestmentoptionsshould
notbeexposedtocivilliabilityintheeventthatamembersuffersdamagebyreasonof
illiquidityorothercircumstancesaffectingtheinvestmentoption,includingdiminutioninvalue
orfailure.
10.2 Chapter2:TrusteeGovernanceRecommendation2.1
TheSISActshouldbeamendedtocreateadistinctnewofficeoftrusteedirectorwithall
statutoryduties(includingthosewhichwouldotherwisebeintheCorporationsAct)tobefully
setoutintheSISAct,alongwithrefocuseddutiesfortrustees. Thedutiesfortrusteedirectors
shouldinclude:
(a) Toactsolelyforthebenefitofmembers,includingandinparticular:
i. toavoidputtingthemselvesinapositionwheretheirinterestsconflictwith
membersinterests;
ii. togiveprioritytothedutytomemberswhenthatdutyconflictswiththetrustee
directorsdutytothetrusteecompany,itsshareholdersoranyotherperson;
iii. toavoidputtingthemselvesinapositionwheretheirdutytoanyotherperson(such
asanothersuperfundoraserviceprovider)conflictswiththeirdutytomembers;
iv. toavoidputtingthemselvesinapositionwheretheirdutytoanyotherperson
(otherthanmembers)conflictswiththeirdutytothetrusteecompany;
v. nottoobtainanyunauthorisedbenefitfromthepositionoftrusteeortrustee
director;and
vi. nottoenterintoanycontract,ordoanythingelse,thatwouldpreventthetrustee
from,orhinderthetrusteein,properlyperformingorexercisingthetrustees
functionsandpowers.
(b)
Toact
honestly.
(c) Toexerciseindependentjudgment.
(d) Toexercisethedegreeofcare,skillanddiligenceasanordinaryprudentpersonof
businesswouldexerciseindealingwiththepropertyofanotherforwhomtheperson
feltmorallyboundtoprovide.
(e) Tohavespecificregardto(amongothermatters)thelikelylongtermconsequencesofany
decision,includingtheimpactofthedecisiononthecommunityandtheenvironment
andontheentitysreputationforhighstandardsofconduct.
Thedutiesfortrusteesshouldinclude:
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(f) Tokeepthemoneyandotherassetsoftheentityseparatefromanymoneyandassets,
respectively:
i. thatareheldbythetrusteepersonally;or
ii.
thatare
money
or
assets,
as
the
case
may
be,
of
astandard
employer
sponsor
or
an
associateofastandardemployersponsor,oftheentity.
(g) Toformulateandgiveeffecttoaninvestmentstrategyinrespectofthefundasawhole
andeachinvestmentchoiceoption,thathasregardtothewholeofthecircumstancesof
theentityincluding,butnotlimitedto,thefollowing:
i. theriskinvolvedinmaking,holdingandrealising,andthelikelyreturnfrom,the
entitysinvestmentshavingregardtoitsobjectivesanditsexpectedcashflow
requirements;
ii.
thecomposition
of
the
entitys
investments
as
awhole,
including
the
extent
to
whichtheinvestmentsarediverseorinvolvetheentityinbeingexposedtorisks
frominadequatediversification;
iii. theliquidityoftheentitysinvestmentshavingregardtoitsexpectedcashflow
requirements;
iv. theabilityoftheentitytodischargeitsexistingandprospectiveliabilities;
v. theexpectedcostsofthestrategy,includingthoseatdifferentlevelsofany
interposedlegalstructuresandunderavarietyofmarketconditions; and
vi. thetaxationconsequencesofthestrategy,inlightofthecircumstancesofthefund.
(h) Toformulateandgiveeffecttoaninsurancestrategywhichincludes,butisnotlimitedto,
thetypesofinsurancetobeofferedandthedefaultminimumandpermissiblemaximum
levelsofcovertobeofferedaswellasthecostandvalueformoneytomembers.
(i) Ifthereareanyreservesoftheentity,toformulateandtogiveeffecttoastrategyfor
theirprudentialmanagement,consistentwiththeentitysinvestmentstrategyandits
capacitytodischargeitsliabilities(whetheractualorcontingent)asandwhentheyfall
due.
(j) Toallowabeneficiaryaccesstoanyprescribedinformationoranyprescribeddocuments.
(k) Toactfairlybetweenallbeneficiariesofthefundandtoactimpartiallybetween
beneficiariesofthesameclass.
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Recommendation2.2
Trusteedirectorsshouldnotberequiredtohavespecificpreappointmentskillsortraining.
However,APRAshouldconsiderfurtherstrengtheningitsadministrationofthefitnesstest
undertheSISActincludingrequiringpotentialtrusteedirectorstobefullybriefedbefore
acceptingthe
position
(or
deciding
to
seek
nomination,
where
applicable)
as
to
their
responsibilitiesandpotentialliabilities. TheCodeofTrusteeGovernanceshouldaddressthe
ongoingtrainingrequirementsthattrusteesandtrusteedirectorsmustmeetonanannual
basis.
Recommendation2.3
Theboardofthetrusteemustdemonstrateonanannualbasisthatithasthecollectiveskillset
togoverntheAPRAregulatedfundorfundsforwhichitisresponsibleandthisshouldbeoneof
thesubjectscoveredintheindependentannualreviewoftheboard.
Recommendation2.4
TheSISActshouldbeamendedsothatitisnolongermandatoryfortrusteeboardstomaintain
equalrepresentationinselectingitstrusteedirectors. ThePanelexpectsthattrusteeswould
reviewandamendcorporateconstitutionstoensureconsistencywiththisrecommendation.
Recommendation2.5
TheSIS
Act
should
be
amended
so
that
policy
committees
are
no
longer
mandatory
where
the
trusteeboarddoesnothaveequalrepresentation.
Recommendation2.6
TheSISActshouldbeamendedsothatifatrusteeboarddoesnothaveequalrepresentation,
thetrusteemusthaveamajorityofnonassociatedtrusteedirectors(asdescribedin
chapter2).
Recommendation2.7
Forthoseboardsthathaveequalrepresentationbecausetheircompanyconstitutionsorother
bindingarrangementssorequire,theSISActshouldbeamendedsothatnolessthanonethird
ofthetotalnumberofmemberrepresentativetrusteedirectorsmustbenonassociatedandno
lessthanonethirdofemployerrepresentativetrusteedirectorsmustbenonassociated.
7/31/2019 Part 1 Overview Recommendations
40/70
SuperSystemReview:FinalReportPartOne:OverviewandRecommendations
Page32
Recommendation2.8
TheCorporationsActshouldbeamendedsothatanyprovisionofatrusteecompany
constitutionthatprohibitsanytrusteedirectorfromvotingonanytrusteecompanybusiness
(otherthanintheeventofconflictofdutyorinterest)isineffective.
Recommendation2.9
SISActsection101shouldbeamendedtorequireatrusteetoprovideamemberwithr
Recommended