Industry Super Australia (ISA) has suggested that a “complete reworking” of the Your Future, Your Super (YFYS) performance test will be necessary in order to strengthen its operation.
On Tuesday, the federal government announced that it intended to address several unintended consequences of the test which had been identified in Treasury’s review of the YFYS laws and released exposure draft regulations for consultation.
While ISA acknowledged that the government had put forward some worthwhile improvements, the peak body argued that further changes would be required to fix the test.
“These tweaks are a start to fixing the benchmarks, but they must just be the entrée, with the main course being a complete reworking that strengthens the test,” commented ISA deputy chief executive Matt Linden.
In particular, ISA noted that a large portion of the “poorer performing” Choice sector would remain shielded from assessment, including all products in the decumulation phase.
“The government should commit to all APRA regulated funds being tested, including those in the retirement phase from this year. All members deserve to know if their fund is a dud including retirees,” the body said.
ISA also expressed disappointment that historical administration fees remain carved out of the performance test and claimed that only including one year of administration fees leaves the test “ripe for fee gaming and manipulation”.
“Including 10 years of administration fees, like they do with other fee types, was a simple change that could have been made before the next benchmarking begins in August,” it said.
The issue of super stapling also attracted criticism from ISA, which said that some members were still being stapled to funds that had failed the performance test.
“In a compulsory system, disengaged members should not be left languishing in a dud super fund. The government needs to upgrade consumer protections, so members are only stapled to the best funds, who have passed the performance tests,” said Mr Linden.
Other changes to the YFYS test proposed by the government, including an extension to the testing period from eight to 10 years and the addition of new benchmarks to better reflect underlying assets, received praise from the peak body.
The inclusion of new benchmarks was also supported by the Financial Services Council (FSC), which welcomed the release of the YFYS review and the government’s response.
“The government has responded to feedback from the investment and superannuation sectors by including 10 new benchmarks into superannuation fund performance assessments that will ensure consumers continue to benefit from investment diversification and higher investment returns,” said FSC chief executive officer Blake Briggs.
“In the highly complex and technical field of investment management, the government should be congratulated for taking the prudent approach of listening and responding to evidence-based policy.”
According to Mr Briggs, the decision to continue using current administration fees when benchmarking product performance is “the best outcome for consumers”.
He said that evidence from APRA has shown that this focus has led to a reduction in administration fees for those in MySuper products.
The FSC also welcomed the government’s commitment to not make changes to the legal framework for stapling and the best financial interest duty.
“These reforms are important new consumer protections and changes to these regimes would create unnecessary disruption and costs for superannuation consumers, employers, and superannuation funds,” Mr Briggs said.
Meanwhile, Cbus Super said that it was pleased the government has now acknowledged the importance of access to appropriate insurance for workers in hazardous industries.
In its submission to the YFYS review, the industry super fund said that changes must be made so that workers in hazardous occupations and their families are not put at risk, left uninsured or disadvantaged by the unintended consequences of stapling.
“The failure to include a hazardous occupations exemption in the original legislation ignored the importance of insurance to workers in physically demanding industries,” Cbus Super interim CEO Kristian Fok said.
“We look forward to working with government to address the pressing insurance needs of workers across Australia in hazardous occupations.”
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.