Bad fund performance, client service prove need for super objective: Jones
Sixty-thousand choice superannuation products failing the performance test is “not good enough”, Assistant Treasurer Stephen Jones has said in a scathing assessment of the industry that he argues underscores the need for a legislated objective for super.
With more than 5 million Australians currently at or approaching retirement age, this is a “critical juncture for the superannuation system”, Jones told the AFR Super & Wealth Summit on Tuesday, requiring a higher level and scope of engagement between members and their super funds. But the poor performance results show funds are not stepping up.
“Unresponsive. Slow. And not member-focussed,” he said. “This is a $3.5 trillion industry. It’s certainly not a standard that the government will accept. And it shouldn’t be a standard funds accept.”
Objective of super
Jones was laying out the government’s perspective on the direction of the superannuation industry, emphasising the need to legislate a so-called objective of super, a plan Treasurer Jim Chalmers first announced in February.
Under the proposed language set forth in draft legislation, the objective of super is “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.
Treasury is currently reviewing feedback on the draft before bringing legislation to Parliament for consideration.
Saying there must be an “urgency to ensure the system is working for its members”, Jones explained Treasury’s focus on three outcomes: establishing political consensus by legislating an objective for the system, improving fund performance and lifting the standard of customer service.
Super savings are to be preserved until retirement, and members expect trustees to be held to a very high standard for use of member funds, he said, noting that trustees’ investment decisions have a major impact on members’ retirement outcomes. Super investment returns have averaged 7 per cent per year for the last 30 years.
‘Not good enough’
The speech was Jones’ first opportunity to discuss the annual performance test results for 2023, he noted. It’s the first year choice super products were tested in addition to MySuper products, raising its coverage from 64 products to 869 and improving transparency for 4 million more member accounts, representing $360 billion in FUM.
While only one MySuper product failed, more than 10 per cent of tested choice products failed. “That’s not good enough,” Jones said.
“Every year that people languish in underperforming products, they are missing out on future retirement income. Because of our decision to extend the test, members from the 60,000 accounts with failed choice products have now been notified that their superannuation product is failing them.”
He also cited a 32 per cent increase in super complaints filed in the last year, with complaints about claim delays, including the payment of death benefits, up 136 per cent.
‘Important need’ for advice
Jones called financial advice an “area of important need”, with only about a quarter of those approaching retirement currently getting professional guidance. This is “clearly the biggest gap in the advice market”, he said, adding that the government has committed to expanding the role super funds play in providing personal financial advice.
“Superannuation has a unique challenge, because we have made it so easy for members in the accumulation phase to limit their engagement with their fund,” he said. But that’s likely to change, with more meaningful interactions between funds and members needed to ensure better decisions, in a “safe, consumer-first environment”.
While the government will continue to hold trustees accountable for their investment performance and customer service, he said, the sector must work harder to help members achieve a dignified retirement.
“With five million Australians either retiring or approaching retirement, funds must urgently lift their game.”