Banking Royal Commission findings: How it affects superannuation

The days of having multiple super funds draining unnecessary fees from Australian savers are now numbered, and a ban on “hawking” of superannuation products is afoot.

The days of having multiple super funds draining unnecessary fees from Australian savers are now numbered.

The Royal Commission’s final report has recommended that a person should have only one default superannuation account — which is where employers pay workers’ super contributions unless told otherwise.

It recommends that “machinery should be developed for ‘stapling’ a person to a single default account”.

Commissioner Hayne said too many employees had more than one super account, and they should not be induced to hold multiple accounts. A ban on “hawking” of superannuation products — unsolicited approaches to attract new members — was also recommended.

“Superannuation is not a product to be sold. It is a compulsory product,” Mr Hayne said.

“Ideally all employees would make informed and rational choices about their superannuation arrangements. But many employees are not, and will not become, engaged enough to make those decisions.”

The recommendation follows last month’s Productivity Commission report that said workers should only ever be defaulted into a super account if they were new to the workforce and did not already have an account.

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Australians super accounts are set for a shake-up. Picture: Thinkstock

New employees today who don’t actively choose where their employer super contributions go must be defaulted into a simple, low-cost MySuper product.

Mr Hayne also recommended that the deduction of advice fees from MySuper accounts should be prohibited.

“The simpler the arrangements about MySuper, the better,” he said. “If a member wants financial advice, the cost of that advice should be charged to and paid by the member directly.”

The recommendation does not relate to intra-fund advice provided by the fund for things such as switching investment options or making extra contributions.

Deducting advice fees from other super accounts where members had chosen the fund should also be limited, Mr Hayne recommended. He said using super money to pay for broad financial advice did not fit with super’s sole-purpose rules that all funds should focus on retirement saving.

The report recommends the unsolicited sale of superannuation products should be prohibited, and that employers should not receive treats such as entertainment and sporting event tickets from super funds as an attempt to influence them to nominate a fund.

The government said it agreed with all the report’s superannuation recommendations.

“This builds on the action the government has taken to address the stock of unintended multiple accounts through the Protecting Your Super Package,” it said.

Retirees will be affected by the changes. Picture: iStock

That includes automatically consolidating low-balance inactive accounts, capping fees for low-balance accounts and stopping automatic life insurance in super for younger members.

These changes have been stalled in parliament amid concerns raised by insurers and super funds.

Australian Institute of Superannuation Trustees CEO Eva Scheerlinck welcomed the royal commission recommendation to ban cross-selling by banks of super products.

“The hearings revealed that many consumers were switched into bank-owned super funds that were not in their best interests, so the law needs to be very clear that such hawking is illegal,” she said.

“As Commissioner Hayne succinctly put it, the concept of acting in members’ best interests is not hard to understand.”

Industry Super Australia said the recommendations appeared to stop short of the big reforms suggested by some to address conflicts of interest at the heart of most misconduct.

Deputy chief executive Matt Linden said the super system should be more transparent.

“It shouldn’t take a royal commission for workers to see whether their retirement savings are in safe hands or not,” he said.

“That not-for-profit industry superannuation funds have emerged from the process relatively unscathed is vindication of our governance structure and member-first ethos.”

Originally published as Banking Royal Commission findings: How it affects superannuation