The Government already had underperforming super funds under the spotlight with its controversial Your Future Your Super reforms, but has added extra protections to counter criticisms.
The reforms initially targeted funds that were deemed to be under-performing.
But, in changes announced today, administration and investment fees will also be included in judging a fund’s performance. That could mean an extra one million accounts won’t pass the test.
Minister for Superannuation, Senator Jane Hume, said the reforms are all about making sure super works harder for members and claims they could save Australian workers $17.9 billion over ten years.
“There are millions of Australians, stuck, languishing in under-performing funds and that can be really detrimental to their retirement incomes.
“This is about holding those funds to account and ensure that those members have the option of moving to a fund that’s better performing,” the Senator told 9News.
Funds that fail the performance test once, will have to advise their members and the market that they’ve failed. If they fail in the following year too, they won’t be able to accept new members.
It’s thought that out of 80 or so default MySuper products on the market, as many as 25 will not meet the performance benchmark.
“We would expect that those funds that have been under-performing for a considerable period of time will think about whether the best thing they can do for their members is to exit the market and give those members to another fund to look after,” said Senator Hume.
But the opposition remains unconvinced.
“Labor’s been saying for some months that the government’s superannuation changes would be bad for workers and bad for the economy. Even this backflip at the 11th hour doesn’t undo all the damage proposed in the legislation,” Shadow Treasurer Jim Chalmers told 9News.
“The government’s been caught playing political games with superannuation, when they should have been focused on two million people who can’t find jobs or can’t find enough work,” he said.
“Even with these changes, the treasurer can still cancel investments on a whim which should send a shiver down the spine of every boardroom in Australia.”
Industry Super Australia was initially critical of the Your Future Your Super legislation but today welcomed the strengthening of the new performance test laws and the assurance that super funds will not be penalised for investing in vital local infrastructure projects.
“Spurred on by near-universal feedback from the industry, the government is now ensuring the Your Future Your Super performance test better focuses on member outcomes and appears to now include administration fees,” Industry Super Australia said in a media release.
“Both changes in the proposed regulations released today need to be examined in further detail, but ISA is willing to work with the government on further changes to get the best outcome for members,” it said.
However, it’s still critical that a huge number of funds are not included in the testing regime.
“Potentially millions of Australians could never be told their fund is inferior. Members are still able to be ‘stapled’ to a product that has not passed a performance test – running the risk they could be stuck in a dud fund for life.”
The changes are due to come into effect on July 1.