Need to know
- A Bill before parliament will require super funds to provide evidence about how they act in the best financial interests of their members.
- Super Consumers Australia says the proposed reform is reasonable as funds are already expected to put the interests of their members first.
At recent Senate hearings, superannuation funds were asked if they currently act in the best financial interests of their members. The majority of super funds said yes. So why is it that so many are trying to block reforms that will enforce that very principle?
Currently, there is a Bill before Parliament that will reform the super system. Funds will need to act in your best financial interests, and pass an annual investment performance test to accept new members. The reforms will also make it easier for people to manage their super and stop costly multiple unintended superannuation accounts being created.
Yet, superannuation lobby groups and funds have used every opportunity to focus on scrapping the legislation rather than improving it. One industry body even stated that the Government intends to legislate consumer harm. A bold call from a sector that causes the average consumer to lose $51,000 in a lifetime due to multiple accounts.
Best financial interests
The Bill before parliament will require super funds to provide evidence about how they act in the best financial interests of their members. This is not a radical change from the current system. Funds are already expected to act in the best interests of members and case law has interpreted this duty as a requirement to act in the financial interests of members.
What's changing is that funds will have to prove they're doing the right thing, rather than leaving it to regulator APRA to dig up evidence if they suspect a breach of the law.
At the recent Senate hearings, the super industry had the cheek to claim that being forced to prove they're acting in the best financial interests of members is a similar burden terrorists face in proving their innocence.
For example, the Association of Superannuation Funds of Australia (ASFA), the peak policy, research and advocacy body for Australia's superannuation industry said, "The withdrawal of that presumption of innocence has in recent decades only been addressed, in most Western democracies, in the areas of terrorism and the right to silence."
Trustees have always had the onus on them to act in the best financial interests of members. Until now the legislation didn't require them to prove it.
Asking funds for bare-minimum evidence that they're doing the right thing by members is not unreasonable
An important fact, obviously ignored by super funds, is that the legislation states if trustees are able to point to evidence that suggests a 'reasonable possibility' that they've acted in member interests, APRA still needs to prove the case in court.
Super funds are trying to argue that the requirement to prove they're complying with the law is some sort of breach of fundamental rights or legal principle. This is a very long bow to draw. Super funds are some of the largest organisations in Australia, with a mandated flow of billions of dollars of people's retirement savings. Asking them for bare-minimum evidence that they're doing the right thing by members is not unreasonable.
It's a bit like doing your tax. You are responsible for working out how much you can declare and claim on your tax return. You also need to be able to show how you arrived at these figures – in some cases, you may be required to provide written evidence.
At its core, paying taxes is about contributing to a collective society so we can share in the benefits. Similarly, super funds, which get the benefit of managing all our retirement savings, just need to keep the same records to prove they have acted in our financial interests.
Classic diversionary tactics.
Funds have cried foul that these reforms will make them excessively document why they spend money on biscuits in the tearoom, purchase coffees and provide stationery like staplers.
But Australians don't care if super fund offices around the country provide their staff with biscuits. We care if multi-million dollar advertising campaigns are increasing our fees and hurting our overall returns.
It won't be difficult for a fund to document why it needs an office, staff amenities and the other employee basics that go into running an organisation but, as the Senate committee discovered, spending approximately $50 million on four lobby groups and over 110 staff might need more scrutiny to determine whether it is in members' best interests.
APRA said it best: "I think it's important to understand that the reverse onus is really just for the trustee to have sufficient information to be able to demonstrate how its decision-making is in the best interests of members. Once they've adduced that evidence, then the obligation rests back with us to demonstrate that that evidence is not adequate or that they have in fact not met the obligations."
Spending approximately $50 million on four lobby groups and over 110 staff might need more scrutiny to determine whether it is in members' best interests
Take, for example, APRA's loss of a best-interest court case against IOOF. APRA's downfall was partly due to the lack of documentation produced about IOOF's actual systems and procedures. This made it extremely difficult to determine if IOOF acted in the best interest of members when it used member's money to refund those same members for an error one of its service providers had made.
This lack of evidence on trustee decision making was pivotal in APRA losing this case. IOOF, had previously been chastised in royal commission hearings for not keeping board minutes of important discussions, instead relying on notes taken on scraps of paper by directors.
A well-resourced fund that has a legislated duty to act in the best financial interests of members should have to provide clear evidence on how it discharges this duty.
Curiously, there has been only one historic action on these issues in 30 years. Taking the regulator at its word, this new law will provide a very clear framework for super funds to prove they are acting in our best interests.
All this said, the legislation could use some improvements to strengthen its intent. For example, a proposed express power that allows the Minister of the day to ban any fund expenditure or investment needs to be better articulated to avoid the potential for partisan use.
If we want to improve super for consumers, the industry would do better to focus on real issues rather than biscuits.
This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.
Stock images: Getty, unless otherwise stated.