The Albanese Government will strengthen Australia’s world‑class superannuation system to deliver a dignified retirement for all Australians.
Today, the Government is releasing the outcomes of the review of the Your Future, Your Super laws and announcing the next steps that will ensure we deliver in the best interests of members.
The purpose of this review was to identify any unintended consequences of these laws which might be leading to poor outcomes for members.
The feedback from stakeholders was primarily focused on the annual superannuation performance test, which is intended to hold trustees to account to maximise returns to members. Responding to this feedback forms the first part of the Government’s response to the review.
The Government will address several unintended consequences of the test identified in the review, while maintaining the test’s integrity. Updates to the performance test are outlined in exposure draft regulations which have been released today.
Key updates include:
- prospectively increasing the testing period from eight to ten years to encourage longer‑term investment decisions.
- calibrating key benchmarks to ensure that funds are not unintentionally discouraged from investing in certain assets.
- adjustments to the notification letter that trustees of failed products send to members.
- minor changes to improve accuracy and reduce administrative burden for APRA; and
- ensuring the test is fit‑for‑purpose when it is extended to trustee‑directed products this year.
Further detail is provided in the explanatory statement.
Consultation on the draft regulations is open until 2 May 2023, and updates will be implemented prior to the August 2023 performance test.
The review also heard feedback on the other measures of the Your Future, Your Super laws, including stapling. The Government is committed to stapling, the eradication of unintended duplicate accounts, and will work with Treasury, the regulators and stakeholders to deliver on its goal.
A summary of the key themes raised by stakeholders in the review are outlined below, along with the Government’s response on next steps.
|Performance test||Government response|
|Impact on investment decisions||
The test uses a single measure of performance, based on implementing an investment strategy, as a simple and objective assessment of performance.
This can unintentionally affect investment decisions of all funds to reduce the risk of failure and closure by encouraging short‑termism and benchmark hugging as well as discouraging certain investments.
The existing test can be adjusted in the short term to reduce these unintended consequences, while retaining the integrity of the test. In the longer term, more substantial changes could be considered to address these concerns.
Performance testing is imperative for the superannuation system. Trustees must be held to account for the investment decisions made with members’ funds. Members should have confidence that the return on their savings will be maximised to support a dignified retirement. The performance test will apply to trustee‑directed products (TDPs) for the 2023 testing period, increasing the number of products in which Australians are invested that will be subject to performance testing.
The performance test will be fine‑tuned with updates to the benchmarks that can be implemented within the timeframe for the 2023 testing period. The lookback period will also be progressively extended from eight to ten years which will help to reduce short‑termism and support investments that can generate strong returns for members over a longer time period. The Government will give further consideration to other changes that may be necessary to improve fund performance.
|Choice and values‑based products||
The existing test may not reflect the diversity and objectives of choice products. At the same time, it remains important that funds are held accountable for underperformance in the choice sector.
Values‑based products were a key example where the investment strategy may deviate from the benchmarks, increasing the risk of failure and constraining the trustee’s ability to meet its members’ objectives.
|YourSuper comparison tool||Government response|
|Default sorting||Default sorting of products by fees can unintentionally increase the ranking of products with relatively poor investment performance that have temporarily lowered fees.||The YourSuper Comparison Tool has been a useful means to provide members with simple and trusted information, while putting downward pressure on fees. The performance test will be extended to TDPs for the 2023 testing period. Any changes to the Tool should take this extension of the performance test into account, while working with consumer groups to ensure that the Tool remains meaningful and trusted.|
|Tool improvements||The tool could be improved by including additional metrics or features and extending to choice products.|
Stapling is increasing administrative burden on employers’ onboarding processes, particularly where an employment link is not already established.
Some employers are seeking to avoid stapling by encouraging new employees to make an active choice of superannuation fund as part of their onboarding process.
When stapling was introduced, the now Government raised significant concerns with how effectively it would be implemented. It is apparent that these implementation issues have come to fruition. There are concerns with the systems, legal framework and outcomes of stapling that are generating a significant administrative burden for employers that is leading some to bypass the stapling requirements.
The intent of stapling – to reduce the occurrence of duplicate superannuation accounts – is in the best interests of members as it reduces unnecessary fees while maximising the benefits of compounding returns. The Government is committed to stapling and will seek to address some of the significant issues in the current system to help meet the intent of stapling.
The Australian Taxation Office (ATO) is anticipating that it will have an IT service for digital service providers available to adopt in April 2023 which should support a more streamlined service. The ATO will also finalise improvements to its ‘Choice of Fund’ form in April 2023 to improve the onboarding experience for employers who use the ATO form.
As this solution beds down, the Government will continue to explore options that could support an improved experience and outcome from stapling.
Where stapling is successful, the Government notes that the performance test has significantly reduced the likelihood that employees are stapled to underperforming MySuper products. It is important that members are insured appropriately, and the Government will continue to work with stakeholders and Treasury to ensure that members get the best possible outcomes.
The Review has also uncovered inappropriate behaviour where software providers are not only undermining stapling, but also directing employees towards products that are associated with the software provider. This behaviour should cease voluntarily. If it does not cease, then the Government will explore changes to law or regulation to prevent it continuing.
|Insurance||Employees changing jobs may have inappropriate insurance cover within their stapled superannuation account, particularly those moving to high‑risk occupations.|
|Underperforming funds||Employees may be stapled to underperforming products, which could lead to diminished retirement savings.|
|Best financial interests duty||Government response|
|Compliance costs||There is uncertainty as to what the new duty means in practice for trustees, given the reverse onus of proof and the absence of a materiality threshold, resulting in compliance costs for funds.||The Best Financial Interest Duty will not be changed. Ultimately every dollar spent will have an impact on member fees, which in turn directly impacts the retirement savings of members. Stakeholder uncertainty and concerns can likely be effectively addressed through further guidance from the regulator.|