Reforms for not-so-super funds

The superannuation reforms linked to Tuesday’s federal budget are sensible and overdue. Josh Frydenberg has announced an end to the racket whereby workers can be “defaulted” into multiple separate super funds as they shift from job to job. A default system is necessary because many people, especially the young, take little active interest in retirement savings. But the way the system works encourages funds to maximise fees — $33bn a year all up, more than we spend on household energy — rather than serve the interests of members. It also gives funds more reason to lavish hospitality on corporate folk with the power to anoint a fund as the default for employees. When Ken Hayne wrote his 2019 final report into the industry, he noted that about 40 per cent of Australians with super had more than one account. So, it’s a no-brainer to follow the consolidation of multiple accounts with a tweaked default system so that someone new to the labour force is defaulted just once, with that account moving with the worker from job to job.

As well, the government will set the banking regulator to benchmark fund performance, which is often pretty unimpressive, as Mr Hayne pointed out. Starting with basic MySuper accounts, a fund that underperforms across two consecutive years will be blocked from taking any new members until it lifts its game. This should help increase the pressure on funds to perform, pressure that in many cases is sorely needed. For those people who do track and compare superannuation results, the good news is more transparency with a YourSuper portal. Again, the rationale is to put the heat on fund managers to maximise members’ returns. Further ahead, there’s the promise of smarter payroll software to automate delivery of information and streamline choice of fund. The sharper focus offered by the interactive YourSuper portal is timely because it’s possible that the pandemic hit to incomes and super account balances — and potentially the capacity of the commonwealth to finance the pension — may motivate a bigger slice of the labour force to pay careful attention to retirement savings.

Mr Frydenberg also has flagged accountability measures and new obligations to hold trustees to their duty to act in the best financial interests of members. This agent-principal problem lies at the heart of many shortcomings. It’s not just the obvious commercial self-interest of a retail fund but also the institutional conflict of trustees “representing” trade unions in industry funds. At the Hayne royal commission, trustees made it seem that discerning the best interests of members was a hideously complex task. As Mr Hayne commented in his report: “It should be concerning to regulators that professional trustees apparently struggle to understand their most fundamental obligation.” The reforms outlined by the Treasurer are a step in the right direction, but lasting change will require a cultural shift — and real moral clarity — in the industry entrusted with $3 trillion of our savings.