Successive governments have provided dozens of regulatory carve-outs and concessions to products, benefitting banks and other retail super providers for more than a decade, according to a new report released this week by the Australian Institute of Superannuation Trustees (AIST).
The report – based on AIST research and authored by corporate governance expert, Professor Thomas Clarke – shows how regulatory carve outs given to the for-profit super sector have resulted in serious omissions and exemptions in superannuation reforms that have impacted badly on the interests of superannuation fund members.
AIST CEO Eva Scheerlinck said the regulatory carve outs or concessions had watered down many vitally important consumer reforms in superannuation. This included government decisions not to improve disclosure and transparency in non-MySuper funds, which manage more than A$1trn ($738bn) of super across 8m member accounts. As just one example, a government decision was made not to extend best practice disclosure requirements for MySuper funds to other super products. According to SuperRatings, in the non-MySuper “Choice” sector, bank and retail-owned funds charge between 117-182% more than profit-to member funds and generally underperform over both the short and long term.
The report notes the legislative gaps in super reforms has led to a systemic lack of comparability of data in the super system. The Australian Prudential Regulation Authority (APRA) collects and publishes data on the performance, fees and costs of MySuper products, but does not collect or publish equivalent data on Choice products or investment options.
MySuper, introduced in 2013, is a system that allows superannuation funds to offer simple products. A MySuper product contains just one investment choice and a standard cover insurance arrangement compared to regular funds that offer dozens of investment and insurance choices.
Superannuation members in Australia are faced with an industry that is complex, fragmented and often impenetrable. APRA recognises 86 MySuper products but over 40,000 member investment choices.
The report also says that recent research by Rice Warner consultants reveals some startling figures relating to the comparative performance of the MySuper superannuation products and Choice products. Collectively, Choice members could be as much as A$52.5bn worse off in 10 years compared to MySuper members.
What is needed
Ms Scheerlinck said uniform disclosure requirements across the super system were needed as the first step towards improving regulation in superannuation. This would require extending current “product dashboard” requirements for MySuper products to Choice products.
AIST has also called on APRA to publish comparative data to help consumers more easily compare and choose super funds and to help regulators and other stakeholders have a better understanding of the efficiency of the super system as a whole.
Ms Scheerlinck said, “Due to the complex nature of super, a carve out can sometimes seem like a minor amendment when in fact it can be worth billions of dollars in profit to a bank.”
Prof Clarke said, “The research points to an army of lobbyists – and the financial institutions that employ them – having been very successful in persuading governments to go light on regulation.
“This panoply of self-interested exemption has arisen over time, incrementally and without any ostensible rationale other than to benefit providers. The exemptions are systemic, on a vast scale, and have been occurring for decades.”