Will the government (whoever wins) keep its hands off super?

In less than 30 days we’ll cast our votes at the next Federal Election, to decide whether Anthony Albanese and the Australian Labor Party, or the incumbent Prime Minister Scott Morrison and the Liberal National Party Coalition, will lead the nation.

Since Morrison met with the Governor-General on 10 May to request the dissolution of parliament and bring on the election, the (official) campaigning has kicked into gear. The biggest issues are:

• Climate change,
• the cost of living and
• the economy.

Within the last point, the dominant areas are employment and the effects of rising inflation – at a time when government debt is at a record high after the COVID stimulus measures of 2020.

One topic that hasn’t received much focus is superannuation. In addition to the reasons outlined below, the blowback from industry and individuals alike to former Labor leader Bill Shorten’s attempted big-ticket reforms – in that case, dividend imputation and franking credits – has left both parties gun shy.

But each side dispatched their representatives to the Self-Managed Superannuation Fund Association annual conference last week. Their main aim was to assure constituents there would be no further changes to Australia’s $3.4 trillion superannuation system on their respective watches.

From Stephen Jones, Shadow Assistant Treasurer and Shadow Minister for Financial Services:

“Our message is around stability and certainty – and in an uncertain time the last thing we want for the SMSF sector, whether advisers or accountants or their customers – is the next regulatory hit coming out of Canberra."

The ALP wants financial advisers to focus on delivering “great outcomes for members and for retirees” and said “your nest egg and retirement savings are always going to be safer under Labor.”

Among his arguments on that front, he:

• Provided assurances the superannuation Guarantee increase to 12% would be delivered “on time and in full”
• Emphasised the importance of affordable access to professional financial advice. “Australians have never been retiring with more money but have never had more difficulty getting access to the professional financial advice they need,” Jones said.

Jane Hume, the Minister for Superannuation, delivered a video address recorded on the day the Federal Budget was handed down. Among her key messages, Hume said the LNP’s key achievement was in helping clean up a system, “plagued by inertia and conflicting interests that left too many Australians’ retirement prospects languishing in poor performing products.”

Some of the major reforms introduced in the last two years – which the government claims will deliver $17.9 billion to Australians over the next decade include:

• Increasing the maximum number of members in an individual SMSF from 4 to 6
• Introduced a two-year period allowing legacy retirement holders to switch to new products, reducing complexity, lowering costs and increasing control,
• Catch-up provisions for superannuation contributions, enabling unused cap amounts to be accrued and paid into superannuation for members meeting certain conditions

One of the most recent changes was the extension of the reduced minimum withdrawal rate for account-based pensions, including super funds in the pension phase. This was temporarily halved in the first half of 2020. It recognised the detrimental effect of forcing retirees to withdraw a higher proportion at a time when the COVID market selloff had smashed investment returns.

Initially set to end on 30 June this year, it covered the 2019-2020, 2020-2021, and 2021-2022 financial years. The Federal Budget handed down last month extended this until 30 June 2023. Full details are on the Australian Tax Office website. 

Too much "post-Hayne pain"

But the government has been reluctant to touch superannuation since last year. And no further changes have been flagged by either side. Why?

“I honestly think that they understand that super and the industry has gone through a lot of pain post-Hayne Royal Commission. Any changes are going to be very heavily tested in focus groups and deliberated with industry to avoid the backlash that Shorten saw in 2019,” says Liam Shorte, an SMSF specialist and principal of Verante Financial Planning.

The Royal Commission, spearheaded by former High Court Justice Kenneth Hayne, had wide-reaching effects on the Australian financial services sector. Starting in February 2018, it culminated in Australian banks drastically reducing or entirely divesting their financial advice businesses.

Alongside the Productivity Commission inquiry, the Royal Commission led to the Your Future, Your Super Bill 2021 – which Treasurer Josh Frydenberg last year touted as the most significant super reform since the introduction of compulsory super in 1992.

This saw the creation of the YourSuper superannuation comparison tool, hosted on the website of the Australian Tax Office. The “league table” publication of performance figures ranking every Australian Prudential Regulation Authority -regulated super fund – all part of the MySuper cohort – stirred up a hornet’s nest.

APRA heatmap - Fees and cost movements December 2019 - May 2020 

Following on from APRA’s MySuper Product Heatmap, it means all super funds face an annual performance test. This provides a table of super funds, ranked by fees and investment returns.

These changes spurred a spate of super fund mergers, particularly of smaller funds, which consistently rank among poorer performers. And the process is ongoing. Most of the mergers have been by not-for-profit funds, particularly industry super funds, rather than the retail funds run by wealth management firms.

Among some of these so far:

• QSuper and Sunsuper – who were previously the third and fifth-largest Australian super fins in terms of assets – completed their merger in February. It now ranks as the second-largest with around $235 billion in funds under management.
• Aware Super is currently the second-largest in terms of assets (and fourth-largest in terms of members) and Unisuper is the fourth largest in terms of assets (and 14th largest in terms of members).
• REST has the second-largest member base (1,846,992), Hostplus ranking fourth by this measure with 1.3 million members. The merger of Intrust last November adds another 92,000 members to this figure.
• Of the largest super funds, Equipsuper grew the most in terms of assets (up 109%) due to the merger with Catholic Super.
• Spirit Super grew the most in terms of members (up 64%), due to the merger and rebranding between Tasplan and MTAA.
• MLC, Retirement Portfolio Service (OnePath and ANZ) and IOOF shrunk the most in terms of both assets and members, by 15%, 10% and 9% respectively. All these funds are now owned by IOOF. AMP’s National Mutual Retirement Fund also lost 10% of members.

Other mergers are still in process:

• LGIAsuper + Suncorp Portfolio Services
• Hostplus + Statewide
• Australian Retirement Trust + Australia Post Superannuation Scheme (APSS)
• AustralianSuper + LUCRF.

Source: SuperGuide

Only the brave...or foolish

It would be a brave (and possibly foolish) political leader who would make further changes to superannuation – or the Australian financial system more broadly. As financial planner Liam Shorte explained, the tightening of the financial system is done and dusted. “Now just needs to make sure they haven’t gone too far and that things like financial advice haven’t become too expensive.”

The superannuation consolidation has been a long time coming, a process that was started when members were no longer “defaulted” into an industry-relevant super fund when joining a new company. This has been compounded by the rising cost of financial advice, which has left many of the smaller funds unable to stay in business.

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