Industry Super Australia (ISA) has slammed the government’s proposed Your Future, Your Super law package, claiming it would allow ‘dud’ retail funds to cream $10 billion a year from Australian workers.
ISA said that the laws would be the “federal government’s greatest gift to the big banks and the for-profit super sector, allowing them to skim $10 billion a year in profit no matter how bad the investment returns.
This figure is based on the Productivity Commission’s report that found that there was a 1.7 per cent unexplained underperformance in the retail sector, which equalled about $10 billion.
ISA’s submission in response to the government’s proposed reforms explains that measures favour the for-profit sector by excluding the sector’s most excessive fees from performance benchmarks and shielding sub-par for-profit products from performance tests.
ISA is also concerned about moves to prohibit industry funds from advertising their comparative outperformance or warn members about changes that could erode their savings.
Under the proposed laws, fees and profits are excluded from the revamped member’s best financial interest test, which reverses the onus of proof if fund expenditure or investments are challenged by the regulators.
“The billions in mark-ups that for-profit and bank-run funds pay to other parts of the businesses for services are excluded, this fee gouge on members’ savings generates up to $10 billion a year in profit,” ISA explained in a statement.
“The government instead wants to install a regulatory kill switch, which would allow it to prohibit any super fund investment or expenditure they do not approve of, even if in the best financial interest of members.”
The banking royal commission found that advertising by industry super funds and advocacy programs were in the best financial interest of members, as they warned workers about potentially adverse government policies and helped connect Australians with a super fund that delivered better returns.
“Retail funds can also effectively bypass much of the requirements of the new laws test by filtering expenditure through the parent company or other arms of the business,” ISA explained.
“Almost 70 per cent of the retail sector – or 6.7 million-member accounts holding $427 billion in assets – will likely be forever shielded from the crucial government performance benchmarks, which forces funds to tell members they were inferior.
“Just 20 per cent of the ‘Choice’ sector will have to pass performance benchmarks, this is despite the Productivity Commission finding the sector was littered with dud for-profit products.”
ISA explained that even the way the performance tests were measured was tilted in favour of the retail sector by excluding administration fees.
ISA says a net-return measurement would provide Australians with much better information when selecting a superannuation fund.
ISA chief executive Bernie Dean said that he supported the government’s policy intent but is concerned that the actual measures included in the reform package will leave many members worse off.
“We thought the government had at last focused on reform that put members’ first, but instead they’re planning a feast for the banks and retail funds and they’ll be dining out on workers’ savings,” Mr Dean said.
“The government is making countless dud retail super funds and investments immune from any meaningful performance tests, effectively giving some of the worst performing financial outfits in Australia a licence to go on fee gouging.
“It’s as if the carnage we saw at the royal commission never happened, and instead we’ve got the government letting the foxes into the henhouse.
“No matter how lousy they are, these dud funds will be able to go on creaming $10 billion in profit each year from members, without having to answer how it is in the members’ best financial interests.
“The government has sided with the banks and the retirement savings of millions will suffer unless it corrects course or the parliament steps in.”
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