The new regulations are part of the Treasury Laws Amendment (Your Future, Your Super) Bill 2021 aiming to ensure the superannuation system works harder for all Australians by reducing waste, holding underperforming funds to account, and strengthening protections around the retirement savings of millions of Australians. The Your Future, Your Super package is scheduled to commence on 1 July 2021.
Treasurer Josh Frydenberg said the regulations released today for consultation outline a strengthened methodology for the annual performance test as well as requirements for notifications to members.
The regulations aim to prescribe the definition of a “stapled fund”, including tie-breaker rules for determining which fund is to be an employee’s stapled fund where they have multiple existing funds, and to specify how products will be ranked on the online YourSuper comparison tool.
It will also set out the manner in which superannuation fund portfolio holdings are to be disclosed to members, bringing Australia in line with global best practice, prescribe the information that must be included with the notice of an Annual Members’ Meeting and further strengthen the prohibition on funds offering inducements to employers.
“The government has made several amendments to strengthen the performance test,” Mr Frydenberg said.
“Administration fees will be included in the performance test, ensuring that the test focuses on the final member outcome and is consistent with information presented to consumers on the online YourSuper comparison tool.
“The government has also added Australian unlisted infrastructure and unlisted property as specific asset classes covered by the performance test. This will improve the accuracy of the performance test, strengthen the focus of the test on investment outcomes delivered to members, and ensure that Australian superannuation funds can invest with confidence in these domestic assets.”
But while the new regulations will reform the definitions within the performance test, there are fears that the changes may lead to the system potentially being gamed.
“We agree with annual performance tests in principle, but we’re concerned there’s potential for the system to be gamed,” said Dr Jane Rennie, general manager of external affairs at CPA Australia.
“Performance tests may incentivise trustees to take on more investment risk or adjust their portfolios in order to recover from poor investment periods.”
However, CPA Australia welcomed the inclusion of the administration fees and that the look-back period of eight years is consistent with the Productivity Commission’s recommendations and is not unreasonable in their view.
With the test result to be compared to a benchmark, which includes the median administration fees for its product category, in the new reforms, Dr Rennie said the benchmarking measures now appear to have the potential to include unlisted infrastructure and property, and this may yield more accurate comparisons in the future.
“Failure notices aren’t reviewable, which is remarkable. Funds which believe their rating is based on incorrect information or information that has been processed incorrectly cannot have these decisions reversed,” she continued.
“We don’t think it’s appropriate to carve out investment options like single sector and pension phase products. This makes it harder to assess how effectively trustees are implementing their investment strategy.”
Consultation on the new regulations will be for four weeks and close on 25 May 2021. Further information is available on the Treasury’s website.
