Super outcome: Changes finally law
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Well, it has finally happened. On 17 June this year, landmark changes to the superannuation industry were finally passed into law. New arrangements for super will mean less members’ money wasted in fees and more accountability for member outcomes.
In January 2019, the Productivity Commission concluded that the super industry needed an overhaul. It found there was no real competitive tension and that the super industry was more effective at serving itself than its members.
A trail of wasted money
It found that more than $30 billion dollars a year of members’ money was being wasted in unnecessary fees. Money being transferred from the pockets of everyday Australians into the hands of finance executives without their knowledge. And it found that because super fund members don’t engage with their super, there was no real accountability for investment performance.
It was hard for the industry to argue. According to the prudential regulator, APRA, as at 30 June last year there were more then 150 super funds in Australia; all of them vanilla, and largely undifferentiated.
The industrial relations system had created this inefficiency.
Since the early 1990s, every time an Australian employee changed jobs a new super fund account was created. Sure, people could proactively consolidate their funds and more recently actively choose their super fund, but most didn’t. They just defaulted into the new fund, creating a trail of duplicated fees.
A better regime
From November 2021, all that changes. When Australians switch jobs, their super fund will follow them just like their bank account does. That’s great news for members, but bad news for super funds. When the automatic flow of new members stops, most super funds will stagnate or even shrink.
It’s harder to manage money when the pool is shrinking. And there will be nowhere to hide. New changes also mean more transparency and accountability for investment performance. A new performance test will mean that if a fund underperforms the benchmark it will be blacklisted, required to tell their members they’re in a dud fund and banned from accepting new members.
And that will be the end of them as members rush to switch their money into funds with safer hands.
What this means for you
All of this amounts to good news for super fund members. It’s getting harder and harder to run a super fund, and these changes will create competition.
With so much at stake, super funds will be more careful with their expenditure. They will improve their net returns by reducing fees to members and they will be more diligent with their investment decisions.
And that’s the way it should be. Because it’s your money, not theirs.
At When Financial Solutions, we are not tied to any super funds. We can tell you if your super fund is at risk and help you find a good one.
So, if you partner with us, it’s not a matter of ‘if’ you will be benefit from the changes to super, but ‘when’.
Michael Bowman and James McMaster are co-founders of When Financial Solutions. This article is general and does not consider your personal circumstances so it may not be appropriate to you. If you would like advice specific to you, please give us a call.