The construction industry fund has cried foul over the government’s proposed super reforms, warning retail funds could gain an unfair advantage and the bill could fuel aggressive marketing and hawking.
Speaking to the economics legislation committee on Thursday, Cbus chief executive Justin Arter expressed concerns the draft Your Future, Your Super bill will not apply equally across super funds.
“Our… concern is that the bill doesn’t apply to all sectors of the industry, or as you’d say in any other industry, it’s anticompetitive,” Mr Arter said.
“Why should a retail fund be free to advertise without limit, using its members’ funds that have been diverted to a parent company, while high performing industry funds are tied up in red tape justifying every dollar spent?
“Why should a fund that pays profits to a parent company not be required to demonstrate how this is in the best interests of members of the fund? All members, regardless of what fund they belong to, deserve the same level of protection.”
One of the government’s proposals under the Your Future, Your Super reforms is an amendment to Superannuation Industry (Supervision) Act 1993 (SIS Act), which would change the best interests duty to specifically requiring trustees act in members’ “best financial interests” across all investments and expenditure.
The draft bill has also proposed to reverse the evidential burden of proof, so it is up to trustees and directors to show they performed their duties in line with the best financial interests of beneficiaries, rather than requiring regulators to prove their guilt.
There seemed to a broad consensus across industry submissions that a switch to a reverse onus of proof would create an immense regulatory burden for trustees.
“The obligation of proof rests on us to prove otherwise, which stands a very high chance of winding every group up in red tape, proving that this has in fact been in the best financial interests of our members and the trustees would incur a massive obligation to do so,” Mr Arter said.
“Anything that is not applied uniformly will leave members in the system unprotected,” Robbie Campo, group executive of brand, engagement, advocacy and product at Cbus added.
“It will also have an anti-competitive effect across the sector if some funds are having to meet a whole lot of very onerous record-keeping obligations to demonstrate that they’ve met the best financial interests duty, while others are not subject to the same obligation.”
Cbus is concerned that if a number of funds are not restricted in the same way on expenditure, they could run free with their advertising while their rivals are stifled.
“Young people, as I think the royal commission noted, are not terribly attuned to the whys and wherefores of super and what’s going on, much less insurance in it. And so, they can get captured up by this without engaging properly as to what the underlying benefits are to them,” Mr Arter said.
Ms Campo also reported a number of rival institutions have already made aggressive attempts to poach the fund’s members.
“We’re already observing a sharp increase in our members being approached by institutions who are effectively [conducting] hawking activity,” Ms Campo said.
“So they’re phone-based services that approach members, cold-calling them and there is a very well structured process that they’re taken through, which results in a recommendation for them to switch their super. It’s one of the other things that we raise as a concern, that the mechanisms that have been recommended around coming down on that kind of hawking activity doesn’t align with the commencement of this legislation.
“But we have already seen in the last year, a very sharp increase in members being targeted by these unethical practices.”
AustralianSuper warned the government in its submission that account stapling, the proposed reform to tie members to one fund through their working life, could give rise to hawking. Funds could end up targeting new entrants to the workforce to ensure they become their default fund, the submission stated.
The best financial interests update will also include granting a veto power to Treasury to override trustees and block super funds’ investments or expenses. Again, Cbus’ fear, as outlined in its submission to the Your Future, Your Super consultation, is that the power could further undermine competition if selected funds face restrictions.
Unlike super trustees, Treasurer Josh Frydenberg is under no obligation to ensure investments and fund expenditure is in the best interests of members, the Law Council of Australia told the committee on Wednesday.
The Senate economics legislation committee is due to file its final report from its inquiry into the Your Future, Your Super reforms on 22 April.
If passed in its current form, the bill will take effect from July. It is currently in front of the House of Representatives.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].