June 21 2018
Regulators have allowed “dead dog zombie” superannuation funds to underperform for more than a decade without enforcement, according to former Australian Securities & Investments Commission counsel Pamela Hanrahan, who has called for a specialist regulator to take charge of the $2.6 trillion nest egg system.
At a hearing for the Productivity Commission’s review of superannuation in Sydney yesterday, Professor Hanrahan said the current disclosure obligations regime that dominated financial regulation was not protecting consumers.
“That framework … may well be coming to the end of its life. It may well have proved to be a failed experiment in some extent,” Professor Hanrahan said.
“The current disclosure requirements — it’s full of information that is not meaningful to members and it’s provided at the wrong time,” she said.
Professor Hanrahan, an expert adviser to the banking royal commission and the former head of the investment managers stakeholders team at ASIC, which dealt with the aftermath of the 2009 Trio collapse, said super members were often confronted with too much choice. There were some 40,000 super investment options in the for-profit choice segment.
“At the point where an individual member is required to make a choice I don’t think they are well supported by mandatory disclosure or the advice laws at the moment,” Professor Hanrahan said.
There was friction between what ASIC was responsible for in the super system and what was the responsibility of the Australian Prudential Regulation Authority.
“(ASIC) is a financial markets regulator but it’s also a consumer regulator. Sometimes within ASIC there is a bit of tension between those two roles,” she said, noting that ASIC often treated superannuation members as investors rather than consumers.
Professor Hanrahan said while the Productivity Commission assumed the “current regulatory architecture” was immovable, she suggested the department’s final response should aim to shake this up. She floated the idea of a “dedicated pensions fund regulator” or “a specialist consumer regulator for the financial sector”.
“I worked on Trio and that was an interesting exercise in (regulatory) agency co- operation. There is a kind of a sense that people are often surprised at how lenient the performance standards in the industry are,” she said.
“A law firm will say it’s a very high threshold for duty of care (obligations), but the conduct has to be pretty egregious before a successful action can be run. Even though there’s a lot of regulator interest in the space, when you drill down and say: if you’ve got a board of trustees that has woefully unperformed for a decade, it couldn’t possibly be in members’ interests to let this dead dog zombie thing keep lurching along.
“There is a place for regulatory agencies to be clear about the level of professionalism required. Enforcement can reinforce that standard for the rest of the community.”
The Productivity Commission’s draft report on superannuation found entrenched overcharging in the for-profit fund sector, underperforming trade union funds that refuse to merge despite it being in their members’ best interests, and an industry happy to preside over a system that acts as an “unlucky lottery” for many savers.
The draft report said APRA and ASIC “need to become member champions — confidently and effectively policing trustee conduct”.