Introduction
Good afternoon everyone – it’s terrific to join you for the Australian Shareholders’ Association’s Investor Conference.
As shareholders you are primary stakeholders in the Australian economy.
You decide whether to invest in a company, to buy more shares, or to move your money elsewhere.
Each and every decision you make has an impact.
And your belief in, and support of, Australian business and the broader economy is even more important in these unprecedented times.
This year, the impact of your decisions has been magnified, and in the coming months your decisions are going to help shape Australia’s recovery from this economic crisis.
The COVID-19 pandemic has tested us like never before — with lockdowns, job losses and, at its worst, illness and the loss of loved ones.
The Morrison Government acted decisively from the moment COVID-19 reached our shores.
Our aim has always been clear:
- to save lives and livelihoods
- keep Australians in jobs, and
- keep our businesses in business.
Our decisions were not easy, but I’m very proud to say that Australia has achieved some of the best health and economic outcomes in the world to date.
I’m also a proud Victorian and Melburnian.
And I am delighted we are finally emerging from stage four lockdowns that kept millions of Melburnians housebound for months, constrained by night-time curfews, restricted to 5 kilometre limits and having to justify their reasons for leaving home.
Now – as borders and businesses reopen – we can all look to the future with some optimism.
But there is no question that there is still work to be done and we have a bumpy ride ahead of us as the economy shifts into recovery gear.
COVID-19 challenges for our economy
As we are all too aware, the COVID-19 pandemic has led to significant uncertainty and volatility in the economy, and in financial markets throughout 2020.
COVID-19 has seen the Australian economy go into recession for the first time in almost 30 years.
And unlike the recessions of the early 1980s and 1990s, this pandemic has created both a supply side and demand side shock, driving a sharper and deeper economic downturn.
Our economic toolkit has been constrained, with monetary policy having less room to move as the cash rate was already relatively low pre-crisis.
However, with the measures announced in the Budget, the Government is setting out our economic plan as we move to the recovery phase.
I have to quote the Treasurer here: This Government’s first, second and third priority is to get Australians back into jobs.
I’m confident that the measures we’ve announced are the right ones at the right time to help Australians get back into jobs.
Our Economic Recovery Plan creates jobs in three key ways.
- It grows the economy by continuing to support spending and aggregate demand;
- It supports businesses, making it easier for them invest, innovate and hire; and
- It provides incentives for Australians to get back into jobs and take up new opportunities.
Future of Super
A key part of this year’s Budget – and the focus of my address today – is a package of superannuation reforms designed to make superannuation work harder for members.
It is a package that will encourage competition between funds, remove unnecessary waste built into the system, and improve standards so funds can focus on delivering better performance and minimize unnecessary expenditure.
Your Future, Your Super is a package that will save Australians $17.9 billion over 10 years.
That’s around $5 million of benefits each day.
The case for reform
As shareholders, you’re familiar with the scrutiny and performance standards you place on the businesses in which you invest.
Why should Australians expect anything less from those who manage their hard-earned retirement savings?
Australia’s superannuation system is the fourth largest in the world, managing $3 trillion in retirement savings for 16 million Australians.
In fact, there are enough savings in our superannuation system to buy every company listed on the Australian Securities Exchange – one and a half times over.
While many Australians have benefitted greatly from the system and been provided a higher standard of living in retirement, widespread underperformance, complex arrangements, and a lack of transparency have undermined outcomes for too many.
As the Productivity Commission identified in its inquiry into superannuation, structural flaws in the system are resulting in lower retirement balances for millions of members.
For too long, superannuation fund members have not been able to get clear answers to some very simple questions:
- How is my super fund performing?
- Where is my money being invested and how is it being spent?
They are questions that deserve answers.
Inefficiencies in the superannuation system have resulted in Australians paying $30 billion per year in fees.
In comparison, Australian households pay $27 billion on their energy bills.
The inefficient design of default arrangements also means members can fall victim to what the Productivity Commission described as the ‘unlucky lottery’ in which they may be placed into underperforming products.
Disengagement means people often anguish in a ‘dud’ fund for years at enormous cost to their retirement outcomes.
Further, there are currently 6 million unintended multiple accounts within the system that are unnecessarily draining the superannuation savings of 4.4 million Australians.
We can do better than this.
Making super work harder for members
The Government has steadily raised the bar on superannuation performance expectations and governance structures since we came to power.
Our focus has been squarely on ensuring superannuation delivers for members.
With $121 billion in contributions each year into the system, it is incumbent on us as policy makers to ensure the settings are calibrated to deliver the best possible outcomes to members.
Since becoming the Assistant Minister for Superannuation, tackling those structural flaws has been my focus: eliminating duplicate accounts and providing choice of fund to members to avoid unwanted new accounts; reducing fees and unnecessary insurance premiums; and stopping savings languishing in the long tail of persistently underperforming funds.
If you follow the progress of the Morrison Government’s reform agenda, you can see that we’ve been successfully chipping away at these inefficiencies, one by one.
Our Protecting Your Super reforms were aimed at addressing the erosion of small and inactive accounts – the accounts getting the worst deal from our system.
We capped fees for small accounts and empowered the ATO to reunite inactive, low balance accounts with their rightful owners. So far, these reforms have resulted in almost $3 billion of inactive superannuation being proactively consolidated into the accounts of 1.4 million people.
The Putting Members’ Interests First Bill prevented members from paying for automatic insurance that is unnecessary, inappropriate or which goes well beyond their needs. Combined, these changes mean that millions of Australians have saved billions of dollars of their hard-earned retirement savings.
And our Your Super, Your Choice reforms were long overdue changes to allow employees to keep the super fund they chose when changing jobs, rather than employers and unions dictating their fund for them.
Now we are going further.
Your Future, Your Super will build on these reforms to implement a number of key recommendations from both the Productivity Commission’s inquiry into superannuation, and the Financial Services Royal Commission.
I’d like to talk through the benefits of each of the four elements of the Your Future, Your Super package – and what that means for the future of the superannuation system.
Your Super Follows You
We know that, every year, about 1.6 million people change jobs, and about 470,000 people enter the workforce for the first time.
Today, on starting a new job, most people are defaulted into a new super account, even when they already have one. This results in about 850,000 new duplicate accounts being created every year.
The creation of unintended multiple accounts as people change jobs has a significant impact on their retirement savings.
Both the Productivity Commission and the Financial Services Royal Commission identified the proliferation of multiple superannuation accounts as a key structural flaw of our system.
- Multiple accounts cost members around $450 million per year in unnecessary fees, and
- Over one third of multiple accounts are held by people aged 35 or younger.
While we have already taken action to consolidate inactive low balance accounts through our Protecting Your Super reforms and to remove outdated restrictions on choosing a super fund through our Your Super, Your Choice legislation, this only addresses part of the problem.
As the Productivity Commission stated, such initiatives amount to no more than ‘mopping up spilt milk’ as long as unintended multiple accounts continue to be created.
Further action is needed to treat the cause of the problem and stop the creation of new unintended multiple accounts in the future.
Like the Productivity Commission and like Commissioner Hayne, the Morrison Government believes that Australians who already have a superannuation account should only have another account if they decide to open one.
That is why we are acting on the recommendations from the Productivity Commission and Royal Commission that a superannuation account should be ‘stapled’ to a member as they change jobs.
From 1 July 2021 employers will no longer automatically create a new superannuation account in their chosen default fund for new employees when the employee does not decide on a superannuation fund.
Instead, if the employee doesn’t explicitly provide details about their existing super fund, employers will obtain that information direct from the ATO so that superannuation from the new employer can continue to be paid into the employee’s existing fund.
Of course, if the employee doesn’t have an existing superannuation fund and doesn’t choose one, the employer will then nominate their chosen default fund, as currently occurs.
By preventing the creation of unintended multiple accounts, the Morrison Government will protect the retirement savings of millions of Australians from being eroded by unnecessary fees and insurance premiums, resulting in a benefit of $2.8 billion over 10 years.
Empowering Members
Multiple reviews into the system have revealed that Australians are paying too much for their superannuation and are not always getting the returns that they should.
The complexity of the superannuation system and the lack of simple and clear independent information is holding Australians back from finding the product that suits them best.
As a result, we see too few members actively choosing their own super fund and most members end up in the default MySuper fund selected by their employer.
Despite the fact that there are dozens of MySuper products, the default arrangements have led to a lack of competition between funds, which has led to higher fees and lower returns for members.
The Morrison Government is committed to empowering members by giving them the ability to simply and safely pick a well-performing MySuper product.
That is why, by 1 July 2021, the Government will deliver an interactive YourSuper comparison tool administered by the ATO.
The YourSuper comparison tool will make the performance of MySuper products clear, requiring funds to compete for the hard-earned retirement savings of Australians.
The comparison tool will:
- display a table of MySuper products ranked by fees and investment returns, with underperforming products clearly identified
- provide a link to each fund’s website where a MySuper product can be selected
- show a member’s existing superannuation accounts that can be selected to receive new employer contributions, and
- prompt members with multiple accounts to consider consolidating their money.
It’s about easy access to practical information that will have significant long-term benefits.
For example, by choosing a well-performing fund and avoiding the creation of multiple unintended accounts, a person new to the workforce could be $98,000 better off at retirement.
Empowering members to engage more meaningfully with their superannuation will significantly boost the retirement savings of Australians, and result in a benefit to members of $3.3 billion over 10 years.
Underperforming funds
It’s not just about empowering members to proactively identify the well‑performing products, we also need to do more to notify members when they are in a product that is not delivering.
Under our compulsory superannuation system, members should know whether their fund is underperforming, and those underperforming funds should be called out.
The investment returns of superannuation products have a large bearing on retirement balances. Small differences in fees and returns translate into large differences in retirement outcomes – for better or worse – because they accumulate and compound over time.
Treasury analysis of APRA data shows that many superannuation funds are consistently poor performers.
In fact, in the 5 years to 2019, 21 out of 77 MySuper products underperformed their own benchmark by more than 0.5 percentage points.
Those products:
- held over $100 billion in assets across 3 million accounts
- received over 330,000 new member accounts and over $10 billion in contributions in 2018-19 alone, and
- charged members $1.2 billion in fees annually.
Being in a poorly performing fund can have a significant impact on how much super Australians have when they retire.
That is why the Morrison Government wants – and expects – the superannuation system to deliver more for Australians.
Therefore, from 1 July 2021, MySuper products will be subject to an annual performance test.
The first test for MySuper products will require funds that are underperforming to inform their members of that underperformance by 1 October 2021.
Underperforming funds will also be required to inform their members about the YourSuper comparison tool, so members can choose to switch to a better product.
The YourSuper comparison tool will also highlight these funds as underperforming until such time as their performance improves. This will prevent people from inadvertently joining a poor performing product.
Funds that continue to underperform and fail two consecutive annual tests will not be permitted to accept new members until their performance improves.
This is particularly important for MySuper products which, as default products, are specifically designed for people who are disengaged from our compulsory super system.
But we won’t stop there.
Also from 1 July 2022, annual performance tests will be extended to ‘trustee-directed products’ outside MySuper.
The performance test will be based on the methodology adopted by the Productivity Commission and by APRA.
By being notified when they are in an underperforming fund and using the YourSuper comparison tool to switch to a better performing product, new workforce entrants could be $87,000 better off by retirement.
But avoiding underperforming funds does not just benefit young people. A person aged 50 who switches from a poorly performing product to a well-performing product, thanks to our reforms, could be $60,000 better off by the time they are 67 years old.
By holding funds to account for underperformance and switching to higher performing products, members will see $10.7 billion in higher returns over 10 years.
Transparency and accountability
This brings me to the fourth and final piece of the puzzle – which is the measure to increase transparency and accountability.
In many other countries, the public sector has taken on the role of custodian of the retirement savings for its citizenry. In Australia, the government has outsourced this responsibility to super funds. In turn, super funds must meet certain criteria that make them worthy of the title 'trustee'.
These include things like account keeping, avoiding conflicts of interests and prohibiting unauthorised benefits to the trustee or their related parties. The most important core duty of a trustee is the duty to adhere to and carry out and comply with the terms of the trust deed. For superannuation, included in the trust deed are a set of covenants that require or prevent certain actions of trustees, as specified in Section 52 of the SIS Act.
The keystone of these covenants is something we call the best interests duty: to act in the best interests of members, for the sole purpose of investing to provide income in retirement to members.
Superfunds invest in bridges and roads that members can drive over, but the role of a super fund is not to make members’ commuting lives easier.
Super funds invest in airports, but the purpose of super funds is not to give members a place to fly from on holidays.
Superfunds invest in wind farms, pipelines and power grids, but the job of superfunds is not to help members turn their lights on.
These all may be good things. But they’re not the purpose of super. They’re simply welcome and happy by-products of the best interests duty
Australians entrust super funds with their savings to make a return on them; to maximise their risk-adjusted returns on their retirement savings.
That’s it. Nothing more. And certainly nothing less.
That’s why, to ensure trustees only use members’ money to maximise members’ retirement savings, the Government will be legislating to compel superannuation trustees to act in the best financial interests of their members.
This measure will remove ambiguity on how superannuation trustees should be spending members’ money. As the Productivity Commission identified, unfortunately the culture of some superannuation funds has drifted away from the sole responsibility that they have as custodians of members’ money.
Consistent with the recommendation of the Productivity Commission to clarify what it means for a trustee to act in members’ best interests, the Government will put beyond doubt that trustees must act in the best financial interests of members.
In addition to strengthening the duty owed by trustees, the onus on demonstrating compliance with the new duty will be reversed so that trustees must establish that there was a reasonable basis to support their actions being consistent with members’ best financial interests.
I am not saying that direct investments in airports, social housing or energy generation are inappropriate – far from it. We also know that there is an illiquidity premium that comes with large scale direct infrastructure investment which can add great value to a portfolio.
But to invest in these things for any reason other than the best financial interests of members – even if it’s to improve the economy or create jobs - is a breach of obligations to members who have entrusted trustees to have one overarching objective – their best financial interests.
That’s why we will be putting the onus on super funds to show their actions are consistent with the financial best interests of their members, even when divergent interests are present.
Further, funds will be required to provide better information regarding how they manage and spend members’ money in advance of the Annual Members’ Meeting.
For too long, superannuation fund members have not been able to get clear answers to a couple of simple question: What are they doing with my money? Where is invested, and where is it spent?
The Productivity Commission’s landmark report on the superannuation system lamented this lack of transparency, speaking at length of the ‘yawning gaps’ in superannuation data.
In a compulsory system, this is not good enough. A system which automatically receives almost one in every ten dollars earnt by Australians must be held to highest standards of transparency. People should be able to see exactly where that money is being invested and where every cent of their compulsory superannuation savings are being spent.
This measure is designed to do precisely that. We are lifting the bar higher in the name of greater transparency in the superannuation system.
The Coalition kicked off the process of improving transparency and accountability for members with the introduction of the Member Outcomes legislation back in 2017. Among other things, this legislation introduced the requirement for superannuation funds to hold Annual Members’ Meetings, similar to the obligations to host Annual General Meetings applied to their ASX-listed brethren.
And now, when members’ are notified of your fund’s Annual Members’ Meeting, they will also receive detailed information about that funds’ expenditure.
We are requiring funds to disclose the remuneration of their key executives and highly paid investment managers, in the same way that we expect ASX listed companies to disclose this information to shareholders.
Funds will have to disclose their donations to political parties, peak bodies and affiliates like employer organisations and unions.
They’ll have to be upfront about what they are paying in marketing expenditures, sporting sponsorships and external entertainments – areas where we want trustees to be thinking long and hard about whether there’s a tangible financial return to members before they spend other peoples’ money.
These changes are the continuation of the Morrison Government’s journey to ensure that the superannuation system is working for the benefit of members, not vested interests. Combined with the obligation for trustees to act in the best financial interests of their members, these changes will results in savings to members of over $1 billion over the next decade due to less wastage of members’ money.
Conclusion
The Your Future, Your Super package is the next step in the Government’s goal of maximising the retirement savings of all Australians. We want your money to work harder for you. And we want to help you make more informed decisions about who manages your superannuation. This package will complement the advance of financial technology which is making it ever easier to get your super paid promptly, to let you know when it happens, and to see how your money is being put to work to build retirement savings.
All this is making super more than a ‘once a year’ envelope which may not even get opened. Greater member engagement will drive greater competition in our system, delivering lower fees and better returns for members.
The compulsory superannuation system is just shy of 30 years old. Members have held up their end of the bargain, via part of their wage rises being diverted into retirement savings. As we look to the future of superannuation, the Government must hold up its end of the bargain and ensure the bolts continue to be tightened and the settings are right so that the system delivers the best possible outcomes to its members. The Morrison Government is doing just that.
COVID-19 has been and continues to be a very challenging time for us all.
But by working together, we will get to the other side and we will bounce back stronger.
The Government’s actions, as well as your own decisions as shareholders and stakeholders in the future of our country, provide hope and support for millions of Australians at a time when they need it most.
Thank you again for the invitation. It has been terrific to have to opportunity to speak today.
We know that there is more to do and we will continue to do what it takes.