Synopsis of SuperRatings’ views regarding the Productivity Commission’s final report Superannuation: Assessing Efficiency and Competitiveness:
SuperRatings supported the need for a review of the current system and we engaged with the Productivity Commission by providing data and insights, including a formal submission regarding the draft report at that time.
Our submission focused on areas where we foresee implementation issues that could potentially present challenges. As a general principle, we support initiatives that:
- ensure unintended multiple accounts are consolidated;
- make it easier for members to engage with their superannuation;
- provide simple, easy to use tools and information to help inform members;
- improve member outcomes;
- require funds to demonstrate how they are providing quality member outcomes; and
- improve MySuper requirements.
Our responses to the key recommendations and findings were as follows…
Recommendation 1: Defaulting only once for new workforce entrants
- SuperRatings supports the recommendation of creating a default account only for members who are new to the workforce or do not already have a superannuation account and do not nominate a fund of their own.
- We note that the proliferation of member accounts has been the catalyst for a number of issues, which persist within the superannuation system such as balance erosion due to multiple insurance policies and account keeping fees.
- We agree that a centralised system is needed to facilitate this change. A centralised system will remove some of the administrative burden for members seeking to consolidate their superannuation accounts and improve efficiency of the process.
Recommendation 2 and 3: ‘Best in show’ shortlist for new members and independent expert panel for shortlist selection
- We do not believe that the overall approach covered by recommendations 2 and 3 is workable in practice.
- One of the key considerations is the role of government in directing the superannuation system. We believe that there would be clear risks involved if the Australian Government, either directly or indirectly, were seen to be endorsing specific products for selection by consumers.
- SuperRatings has more than fifteen years of experience as one of Australia’s leading providers of information about superannuation funds to fund members, employers and trustees. During this time, we have gradually evolved a sophisticated approach to rating and comparing a range of superannuation products.
- As a result, we also have an appreciation of the practical challenges involved in creating lists of rated products and explaining our ratings to consumers, product providers and other interested parties.
- The “Best in Show” shortlist recommendation also has unintended consequences for employer-sponsored corporate funds. We assume that the intention of the Productivity Commission’s recommendation is to publish a list of funds that could be joined by any new employee in any occupation or industry, i.e. those classified as “Public Offer” funds.
- However, based on SuperRatings data, we note that in the past some of the best performing funds have been “Limited Public Offer” funds.
Recommendation 4: Elevated MySuper and Choice outcomes tests
- SuperRatings support the Productivity Commission’s recommendations for strengthening the MySuper authorisation and have long held the view that the emphasis placed on size alone should not be the key determinant when assessing the viability of a fund.
- Our in-house analysis suggests there are examples of good small funds delivering quality member outcomes in a cost controlled manner, helped in part by their ability to know and understand their demographic.
- Conversely, there are examples of larger funds for whom demonstrating quality member outcomes may not be as easily attainable despite the potential size benefits.
Recommendation 5: Cleaning up unintended multiple accounts
- We are supportive of legislation to ensure that unintended accounts are sent to the ATO once they meet a definition of ‘lost’. Policies that aim to reunite members with any existing superannuation accounts are a positive step towards reaching the true level of membership across the industry.
- Whilst we support auto-consolidation of the aforementioned accounts by the ATO, a framework addressing trustee reporting requirements is essential to ensure that any unnecessary processing delays are avoided and that funds are allocated into the member’s most appropriate account.
- In relation to the transfer of accounts from Eligible Rollover Funds (ERFs) to the ATO and prohibiting further accounts from being sent to ERFs, we believe further information would be useful regarding investment of ATO-held super, fees and charges for ATO-held super and governance of ATO-held super.
Finding 3.7: Association between fees and returns
- SuperRatings does not ascribe to the view that higher fees are clearly associated with lower net returns over the long term. Superannuation products levy a variety of fees and charges, some of which may ultimately add to retirement balances.
- For a number of providers with a high investment fee, it can be attributed to allocations to higher cost asset classes, which have been a key reason for their consistently strong performance outcomes for members.