2 February 2019
Simon Benson, National Affairs Editor
The Morrison government will frame an election battle over superannuation reforms, as the $2.7 trillion sector braces for a sweeping shake-up following what is expected to be a damning final report of the Financial Services Royal Commission on Monday.
Josh Frydenberg yesterday accused the opposition of blocking reforms — backed by the Productivity Commission and expected to be addressed by commissioner Kenneth Hayne in his final report — that would hand the prudential regulator extra power to target dozens of underperforming super funds and up to 1.6 million accounts held in poor-performing MySuper funds.
The Weekend Australian understands the government will move to bring on a vote on its legislation in the Senate when parliament resumes on February 12 in what will be a direct challenge to the opposition to support the reforms.
The proposed powers would give the Australian Prudential Regulation Authority the ability to take corrective action against underperforming funds and even shut down habitual offenders. Five-year jail terms for directors who fleece members’ funds and fines of up to $420,000 are also being considered.
The superannuation sector is preparing for a major shake-up following scathing evidence about the underperformance of funds across the spectrum, including negative returns for some members. The MySuper default funds would be the primary targets of the legislation.
It is widely expected in the industry that the final report of the royal commission, handed to Governor-General Peter Cosgrove and the Treasurer yesterday, will include changes to APRA’s ability to intervene in the management of super funds.
A Productivity Commission report into superannuation, released to the government in December, found a mixture of 29 underperforming funds across retail, industry, corporate and public sector funds, including specific issues with default products.
There are currently 1.6 million accounts in underperforming MySuper products.
The Treasurer moved this week to draw Labor out on the superannuation reforms ahead of the release of the royal commission’s final report.
“The legislation that the Coalition has introduced into parliament, which is supported by the independent Productivity Commission, will provide APRA with critical additional powers to drive out underperformance in the superannuation industry,” Mr Frydenberg said yesterday.
“It is beyond belief that the Labor Party will not support penalties for superannuation directors who breach the law. Who are they trying to protect?
“When Bill Shorten was minister for financial services and superannuation, he did nothing to increase APRA’s powers to deal with underperforming funds or impose penalties on trustee directors who breach the law.
“The Coalition’s primary focus is to maximise the money that Australians have when they retire so they can enjoy the retirement they deserve. The legislation that the Coalition has in the parliament helps deliver on this objective.”
The Treasurer yesterday also took the attack to Labor over other powers in the legislation that included allowing the ATO to consolidate automatically multiple and inactive super accounts into a member’s primary super account to address an estimated $6.5 billion in missing super funds.
The government says that, in some cases, people in poor-performing funds would retire $500,000 poorer than if they were in an average fund.
Mr Frydenberg cited a scenario from the Productivity Commission where a person aged 21 starting on a $50,000 salary and retiring at 67 would be more than $500,000 worse off when they retired if they defaulted to a bottom-quartile MySuper product versus a top-quartile MySuper product.
Opposition Treasury spokesman Chris Bowen has accused the government of
cowardice by not presenting the Protecting Your Super legislation to the Senate yet. Mr Bowen has flagged similar powers for APRA to act against underperforming funds under a Labor government but has claimed the Coalition’s proposed model is flawed.
The Weekend Australian understands the government late last year privately floated amendments that would have watered down the legislation to get support for the bill in the Senate.
Mr Bowen said last night he would welcome the bill being brought on for a vote and had already indicated to the government Labor would back the bill if the Coalition accepted the opposition’s amendments. “Our amendments improve the bill by allowing APRA to carve out funds where APRA is convinced that (it) is in the best interests of the member and/or there are high-risk occupations,” Mr Bowen said.
Under current laws, directors of trustees do not face civil or criminal penalties for breaching their duties. Evidence provided to the royal commission found a significant flaw in the regulator’s powers and ability to hold directors to account.
The Productivity Commission report recommended that the government’s reforms be legislated and suggested they could have gone even further in reform of the sector. The report said that although the legislation would not fix problems in financial system governance, including those identified by the commission and the royal commission, the package was “welcome and warrants support”.
Mr Frydenberg said the legislation would also give APRA powers to reject a change of ownership of a fund, such as that which occurred under the failure of Trio Capital in 2009, when $176 million was wiped from members’ benefits. The Financial Services Council said it would not be speculating on what the royal commission’s final report might contain in relation to the expected shake-up of the superannuation sector. FSC chief executive Sally Loane said in relation to greater powers for APRA: “The FSC strongly supports policy outcomes that provide regulators with the powers to ensure poor-performing super funds of any kind lift their performance or merge with better- performing funds.”
The government has indicated it will adopt the recommendations of the royal commission, first called for by Mr Shorten.