‘Stronger Super’ is the catch-cry heralding in the Federal Government’s response to the Cooper Review report on the superannuation system.
On 16 December 2010, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, released the Government’s response via a new website called ‘Stronger Super’ (strongersuper.treasury.gov.au).
The Government has made four main recommendations, namely:
- SMSF package: 24 recommendations spanning SMSF borrowing, AFSL licensing of accountants, SMSF registration and more
- Governance: To strengthen the governance, integrity and regulatory settings of the superannuation system.
I will provide more details on these changes later in the article.
The Cooper Review, officially known as the Super System Review has been kicking around for nearly two years now but the final report from the panel was officially submitted to the Government in June 2010 detailing 177 recommendations. The Federal Government has accepted 139 of the report’s recommendations.
In framing its response to the Cooper Review report, the Government states it was mindful of three issues identified in the Cooper Review:
- Superannuation fees are too high
- Choice of super fund has failed to deliver a ‘competitive market that reduces costs for members’
- Superannuation has been subject to way too much tinkering.
SMSF recommendations
Considering the drama and gossip surrounding the life of the actual Cooper Review, the final response from the Government is… well, a bit ho-hum, with one major exception. The Government have slipped in some significant SMSF recommendations behind the MySuper and SuperStream flagship changes, and bundled together the SMSF recommendations with the unassuming ‘governance of the super system’ recommendations.
Now, why would the Government do such a thing when the SMSF recommendations are clearly a significant separate component, especially when the SMSF market represents a third of all superannuation money. Let’s think about this for a moment. Could it be that they didn’t want to make a big deal about the fact that the Government is increasing the ATO supervisory levy again, or that they may ban SMSF borrowing in two years’ time?
You can find out what the Government has in store for SMSFs in the following articles:
- SMSF supervisory levy to increase from 2010/2011 year (this article also explains the Government’s other SMSF-related recommendations)
- Cooper Review: Government flags ‘bye bye’ to SMSF borrowing (this article also explains the Government’s SMSF
MySuper recommendations
From 1 July 2013, superannuation funds will be permitted to offer MySuper products. MySuper is “a new low cost and simple superannuation product that will replace existing default funds’, according to the Federal Government.
Quoting directly from the Stronger Super website:
“Default superannuation funds are those funds to which employers make compulsory superannuation contributions for employees who do not choose a fund to receive those contributions. For these employees, a default fund is selected by their employer, or nominated through an industrial award or enterprise agreement. Of almost 12 million Australians who currently hold a superannuation account, approximately 80 per cent have their compulsory superannuation contributions paid into a default superannuation fund.”
The aim is that MySuper products will have a standardised set of product features that can be easily compared, such as cost, investment performance and level of
The key features of MySuper are set out below:
- Value for money.
- A single diversified investment strategy. The single strategy must be suitable for the majority of members in the default option.
- Strict rules controlling excessive fees. MySuper products must not generate commissions, even for life insurance. Performance fees charged by fund managers will be subject to new standards. A ban on entry fees will apply, and exits fees will only be charged for cost recovery.
- Plain English member reports.
- Insurance. Life insurance and total and permanent disability (TPD) insurance will be offered but members can opt out on request.
Eventually, MySuper products may include intra-fund advice or offer retirement income stream products but at this stage, the Government states that these features will not be compulsory.
SuperStream recommendations
Streamlining the back office of the superannuation industry is long overdue and both the Cooper Review panel, and the Government should be congratulated for pushing ahead with these changes.
All I can say is ‘good luck!’ Five years ago, I was commissioned to write a report on the scope for electronic processing and standardised forms and the like for a major financial association. The recommendations made in my report were similar to the recommendations made in the Cooper Review and by the Government, but alas, the report was buried. I am not willing to disclose the organisation involved, or any details about the buried report but happy to pass on the report to the relevant person involved with the SuperStream project. I’ll just wait patiently and see if anyone contacts me.
The Government is giving the industry plenty of time to get its act together for these long overdue changes. The SuperStream package of changes will be phased in over the next four years (by 1 July 2015), although the common data standards and electronic transmission of linked personal and financial data is expected to be in place by 1 July 2012.
The Government notes that the Cooper Review identified “excessive costs and complexity arising from manual processing of both money transfers and data, the lack of standardised formats, and poor and incomplete data.”
As part of SuperStream, the Government recommends the following proposals:
- improve the quality of data in the system
- allow the use of tax file numbers (TFNs) as the primary account identifier (from 1 July 2011)
- encourage the use of technology to improve processing efficiency
- improve the way fund-to-fund rollovers are processed and the way contributions are made.
Governance, integrity and other regulatory recommendations
The Government’s response to the Cooper Review report on the topic of governance is fairly general, and includes the following recommendation:
- refer to APRA the need for additional guidance for trustees on appropriately managing conflicts of interest.
- give APRA the ability to issue prudential standards in relation to superannuation, consistent with its existing powers in relation to the banking and insurance industries. According to the Government, prudential standards “will give APRA greater flexibility in its oversight of MySuper products and in undertaking its broader prudential regulation of the superannuation industry”.
- increase the requirements for trustees who deal with administrators. APRA will consider the need for prudential standards in this area.
- replace the current capital requirement for superannuation fund trustees with a risk-based approach. The Government intends to consult with industry on whether financial resources should be held in the form of trustee capital or as an operational risk reserve within the fund.
You can find more information about the Government’s response to the Cooper Review by visiting the Stronger Super website (strongersuper.treasury.gov.au).
