The introduction of new disclosure laws risks muddying the superannuation waters.
Industry Super Australia (ISA) claims new fee and cost disclosure rules set to take effect next week will provide misleading information to consumers trying to compare super funds.
Independent superannuation ratings agency SuperRatings has released a report suggesting the new rules will make it difficult to compare super funds and increase investor confusion.
In particular, the ratings agency highlights the different disclosure mechanisms for platforms and superannuation funds, which could mislead an investor into believing a platform investment is cheaper when, in fact, it may be more expensive.
Some superannuation funds offer platforms for you to choose your investments. These platforms may have lower fees and costs in their PDS because the figures there just cover the fees and costs of the platform. This investment is not necessarily cheaper when you take into account fees and costs that are being charged inside the investments on the platform's menu.
The report highlights how the primary product disclosure statement (PDS) of a conventional super fund could look four times as expensive as the costs disclosed in a platform's primary PDS, even when the total costs of investing in the same product via a platform might be more expensive.
The report states that “members are to be provided with a secondary PDS and calculate the ETF costs themselves (for a platform product), which will cause confusion and introduce the risk of miscalculation”.
SuperRatings describes this “lack of simple comparability” as one of its biggest concerns, and goes on to state: “it is imperative that consumers can make fair and reasonable comparisons, which are not unduly complicated”.
The new disclosure rules mean that if a consumer invests through a super fund, all fees and costs are disclosed in one place, including indirect costs. If, however, a consumer invests through a super fund that uses a ‘platform’, he or she could need to scrutinise multiple PDSs to calculate fees and costs.
ISA Public Affairs Director, Matthew Linden said: “Over $500 billion is invested through platforms, which are typically owned by banks and wealth management groups and used by financial planners.
“The new super rules are more likely to mislead consumers than help them.
“It is time for the Government to step in. Otherwise super fund members across the country could be misled.”
Comparing superannuation funds is essential for workers seeking to achieve the best financial outcome in retirement.
If the Government is serious about lessening the reliance on the Age Pension in the coming years, it is critical that Australians are not hindered in making a decision that could significantly affect their retirement income.
This new legislation, which treats platforms and intermediary trusts investing in real property or infrastructure differently to regular super funds, is adding a level of complexity that has no reason to exist.
It isn’t surprising that any confusion is likely to benefit the bank-owned superannuation funds that generally do have higher fees when they are able to be compared accurately against Industry Super funds. It could be argued that every piece of proposed regulatory change in the superannuation space is targeting industry funds, rather than looking at delivering the best outcomes for workers.
This latest change comes on the back of attempts to change the make-up of superannuation fund boards to include one-third independent directors and an independent chair.
These changes come at a time when the poor governance, culture and conduct within banks and their wealth-management arms are at an all-time low.
The Australian Securities and Investments Commission (ASIC), which is introducing the new changes, has provided no explanation for the exemptions of certain funds from the disclosure requirements. Surely the changes should be deferred until a time when all funds are treated the same.
What do you think? Are you worried that comparing super funds could become even more confusing and threaten your ultimate retirement nest egg?