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Attachment

Government Response to the Review into the Governance, Efficiency, Structure and Operation of Australia's Superannuation System

Chapter 1: MySuper and choice architecture

Recommendation 1.1

The 'choice architecture model' should be adopted as the structure for Australia's superannuation industry.

Government response

Support.

The Government will allow superannuation funds to offer MySuper products from 1 July 2013.

Recommendation 1.2

The SG Act should be amended so only a MySuper product is eligible to be a 'default' fund nominated by an employer.

Government response

Support.

MySuper products will replace existing default funds after an appropriate transitional period. The Government will consult with industry, consumer, employer and union groups on the transitional period and other transitional issues.

Recommendation 1.3

The relevant legislation should be amended so:

  1. only MySuper products are eligible to be nominated; and
  2. all MySuper products are able to be nominated,

for 'default fund' purposes in awards approved by Fair Work Australia.

Government response

Support.

The Government will request Fair Work Australia to review the default superannuation funds named in modern awards so that only those funds offering a MySuper product continue to be included in modern awards as default funds following consultation with relevant stakeholders on the appropriate transitional period.

Recommendation 1.4

In 2012, the Productivity Commission should conduct a review of the processes by which default funds are nominated in awards to assess whether the processes are sufficiently open and competitive.

Government response

Support.

The Government will ask the Productivity Commission to design a process, by 1 July 2013, for the selection and ongoing assessment of superannuation funds that are nominated as default funds in modern awards and enterprise agreements.

Recommendation 1.5

Any fund that is a 'successor fund' (as defined in the SIS Act) to a fund currently nominated as a default fund under an award should, where the successor fund is a MySuper product, be accepted automatically as a default fund under the award, so that there is no impediment to consolidation for those funds that wish to do so.

Government response

Support.

This recommendation will be considered by Fair Work Australia's reviews of current modern awards.

Recommendation 1.6

The SIS Act should be amended to apply statutory duties to MySuper trustees to:

  1. formulate and give effect to a single, diversified investment strategy at an overall cost aimed at optimising fund members' financial best interests, as reflected in the net investment return over the longer term; and
  2. actively examine and conclude whether, on an annual basis, its MySuper product has sufficient scale on its own (with respect to both assets and number of members) to continue providing optimal benefits to members.

Government response

Support.

The Government will require trustees of MySuper products to meet these heightened trustee duties. The Government will consult on whether a MySuper product's single, diversified investment strategy can be a lifecycle investment strategy.

Recommendation 1.7

Recommendation 1.7 The SIS Act should be amended to require trustees of MySuper products to satisfy objective criteria relating to:

  1. APRA licensing;
  2. acceptance of contributions;
  3. single, diversified investment strategy;
  4. absence of costs cross-subsidisation;
  5. buy and sell spreads;
  6. switching fees;
  7. fee discounts;
  8. performance-based investment management fees;
  9. e-super disclosures;
  10. retirement income stream product;
  11. entry and exit fees;
  12. benchmarking;
  13. intra fund advice;
  14. insurance;
  15. absence of commissions and like payments;and
  16. member engagement

Government response

1.7a APRA licensing

Support.

Superannuation fund trustees wanting to offer a MySuper product will be required to hold a specific MySuper licence issued by the Australian Prudential Regulation Authority (APRA).

1.7b Acceptance of contributions

Support.

MySuper products will be required to accept all types of contributions including, but not limited to, superannuation guarantee (SG) contributions, salary sacrifice contributions, after tax contributions, spouse contributions and rollovers.

1.7c Single, diversified investment strategy

Support.

Each Registrable Superannuation Entity (RSE) will be able to offer a single MySuper product with a single, diversified investment strategy. The Government will further consider trustees offering a lifecycle investment option as the single investment option, and whether in limited circumstances, separate brands within an RSE can offer separate MySuper products.

1.7d Absence of costs cross-subsidisation

Do not support.

Trustees will be required to make a fair and reasonable allocation of costs between MySuper and other products. The Government will consult further on design and implementation issues.

1.7e Buy and sell spreads

Support in principle.

The Government will determine the types of fees that can be charged by MySuper products, including no entry fees and limits on exit and switching fees. The Government will consult further on design and implementation issues.

1.7f Switching fees

Support in principle.

The Government will determine the types of fees that can be charged by MySuper products, including no entry fees and limits on exit and switching fees. The Government will consult further on design and implementation issues.

1.7g Fee discounts

Support in principle.

The Government supports requiring MySuper trustees to charge all members the fees stated in their fee schedules to ensure simplicity, transparency and comparability of MySuper products. Making fees more easily comparable will assist in improving competition between MySuper products.

1.7h Performance-based investment management fees

Support.

The Government will determine parameters under which trustees can pay performance fees to fund managers in respect of MySuper products, and will consult further on design and implementation issues.

1.7i E-super disclosures

Do not support.

The Government will further consider e‑disclosure requirements through existing processes for financial product disclosure. While requiring only e‑disclosure of Product Disclosure Statements may reduce costs, it may also disadvantage some members.

1.7j Retirement income stream product

Noted.

The Government will consult with relevant stakeholders on whether post‑retirement products should be mandated for MySuper products at some time in the future.

1.7k Entry and exit fees

Support.

The Government will determine the types of fees that can be charged by MySuper products, including no entry fees and limits on exit and switching fees. The Government will consult further on design and implementation issues.

1.7l Benchmarking

Support.

The Government will ask APRA to develop a process for collecting and publishing comparable data which allows APRA to publish long‑term net returns for MySuper products.

1.7m Intra fund advice

Noted.

The Government will consult with relevant stakeholders on whether MySuper products should be required to offer intra‑fund advice and the appropriate timing of any change.

1.7n Insurance

Support.

MySuper products will be required to offer life and total and permanent disability (TPD) cover (where available, depending on occupational and demographic factors) on an opt‑out basis. The Government will consult further on implementation of this recommendation.

1.7o Absence of commissions and like payments

Support.

The Government has adopted this principle as part of the Future of Financial Advice reforms and is consulting on implementation details.

1.7p Member engagement

Do not support.

The Government considers that member engagement activities are a matter for the trustee to determine.

Recommendation 1.8

Neither advice to members (other than intra fund advice), nor advice to employers should be 'bundled' with MySuper products.

Government response

Support in principle.

The Government has adopted the principle that financial advice costs should not be bundled with products as part of the Future of Financial Advice reforms and is consulting on implementation details.

Recommendation 1.9

Advice to members of a MySuper product (other than intra fund advice) should only be provided on request and trustees should only be able to deduct the costs of advice about superannuation from a member's account with the member's written agreement.

Government response

Support.

The Government has adopted this principle through the Future of Financial Advice reforms and is consulting on implementation details.

Recommendation 1.10

The cost of advice or services provided to employers should not be borne in any way, directly or indirectly, by MySuper members.

Government response

Support.

The Government supports the cost of advice provided to employers not being borne by MySuper members, and will consult with relevant stakeholders on implementation details.

Recommendation 1.11

Trustees of MySuper products should not:

  1. pay or fund any product‑based up‑front or trailing commission or other similar payment; or
  2. make or fund any payment that relates to volume,

in respect of superannuation advice or other products or services provided to members.

Government response

Support.

The Government has adopted this principle through the Future of Financial Advice reforms and is consulting on implementation details, including on whether to extend the ban on commissions to individual risk insurance.

Recommendation 1.12

Members of MySuper products should only be provided with advice about superannuation (other than intra‑fund advice) under arrangements that require the member to renew the advice service each year on a renewal notice from the adviser.

Government response

Support.

The Government has adopted this principle through the Future of Financial Advice reforms and is consulting on implementation details.

Recommendation 1.13

ASIC should, in consultation with industry, devise a standard form which requires clear identification of the advice service to be provided where a fund member renews an ongoing advice service.

Government response

Support.

The Government is considering this recommendation further in consultation with the industry through the Future of Financial Advice process.

Recommendation 1.14

Trustees of MySuper products should not pay premiums for insured member benefits that include or fund an up‑front or trailing commission or like payment.

Government response

Support.

Trustees of MySuper products will not be able to pay premiums for insured member benefits that include commissions in relation to the group insurance product. The Government will consult with industry on the treatment of commissions for individual risk insurance products through the Future of Financial Advice process.

Recommendation 1.15

Legislation should apply specific and thorough conduct and enquiry duties on persons (including trustees) providing switching advice to a MySuper member built on the current requirements of section 947D of the Corporations Act.

Government response

Support.

The Government supports imposing these duties in respect of advice to MySuper members, and will consult with relevant stakeholders on implementation details.

Recommendation 1.16

Members should only be able to be moved involuntarily out of a MySuper product if they are:

  1. transferred to an ERF;
  2. flipped from a MySuper product in a master trust to another MySuper product in another division of that trust; or
  3. transferred under legislative requirements such as auto consolidation of accounts or temporary resident arrangements.

Government response

Support.

The Government will define the circumstances where a member can be involuntarily moved out of a MySuper product, and will consult with relevant stakeholders on implementation details, including to address the practice of 'flipping' members to higher fee default products upon cessation of employment with a particular employer.

Recommendation 1.17

The presentation of retirement forecasts should be mandatory for MySuper products, and should be developed in consultation with industry in accordance with the approach identified by the Panel.

Government response

Do not support.

The Government will ask the Australian Securities and Investments Commission (ASIC) to continue development of retirement forecasts that can be used by trustees, having regard to the Future of Financial Advice reforms.

Recommendation 1.18

The superannuation industry should have at least two years to transition to MySuper and the new choice architecture.

Government response

Noted.

Funds will be able to offer MySuper products from 1 July 2013. However, all existing default funds will not be required to convert to MySuper products at this date.

Existing default funds will transition to MySuper after an appropriate period. The Government will consult with relevant stakeholders on the duration of this transition and other implementation issues.

Recommendation 1.19

Both APRA and ASIC should oversee the transition referred to in Recommendation 1.18.

Government response

Noted.

The Government will monitor the implementation of, and transition to, MySuper.

Recommendation 1.20

Trustees of choice sector products should also not be able to charge entry fees and should only charge exit fees on a cost recovery basis.

Government response

Support.

The Government will determine the types of fees that can be charged on choice products, including no entry fees and limits on exit and switching fees. The Government will consult further with relevant stakeholders on design and implementation issues.

Recommendation 1.21

Neither advice to members (other than intra-fund advice), nor advice to employers should be bundled with choice products or with any other product in the choice architecture model, including products offered to SMSFs.

Government response

Support.

The Government has adopted the principle that financial advice costs should not be bundled with products as part of the Future of Financial Advice reforms and is consulting on implementation details.

Recommendation 1.22

Advice to members of a choice product or of any other product in the choice architecture model (other than intra-fund advice) should only be provided on request and trustees should only be able to deduct the costs of advice about superannuation from a member's account with the members' written agreement.

Government response

Support.

The Government has adopted this principle through the Future of Financial Advice reforms and is consulting on implementation details.

Recommendation 1.23

The costs of advice to employers should not be borne in any way, directly or indirectly, by members of choice products or by members of any other products in the choice architecture model.

Government response

Support.

The Government supports the cost of advice provided to employers not being borne by members, and will consult with relevant stakeholders on implementation details.

Recommendation 1.24

Trustees of choice products or of any other product in the choice architecture model should not:

  1. pay or fund any product-based up-front or trailing commission or other similar payment;
  2. or make or fund any payment that relates to volume,

in respect of superannuation advice or other products or services provided to members.

Government response

Support.

The Government has adopted this principle through the Future of Financial Advice reforms and is consulting on implementation details, as well as whether to extend the ban on commissions to individual risk products.

Recommendation 1.25

Members of choice products or of any other product in the choice architecture model should only be provided with advice about superannuation (other than intra-fund advice) under arrangements that require the member to renew the advice service each year on a renewal notice from the adviser.

Government response

Support.

The Government has adopted this principle through the Future of Financial Advice reforms and is consulting on implementation details.

Recommendation 1.26

Trustees of choice products or of any other product in the choice architecture model should not pay premiums for insured member benefits that include or fund an up-front or trailing commission or like payment.

Government response

Noted.

The Government will consult with industry on the treatment of commissions for individual risk insurance products through the Future of Financial Advice process.

Recommendation 1.27

Choice trustees must offer a range of options sufficient to allow members to obtain a diversified asset mix if they choose, but members can choose to be undiversified and the trustee would have no obligation to assess the appropriateness of the investment strategy chosen by the member. Trustees would be subject to new express duties in selecting and monitoring options.

Government response

Support in principle.

The Government will consult further with relevant stakeholders on this recommendation.

Recommendation 1.28

A choice trustee that discharges its duties in selecting and monitoring investment options should not be exposed to civil liability in the event that a member suffers damage by reason of illiquidity or other circumstances affecting the investment option, including diminution in value or failure.

Government response

Support in principle.

The Government will consult further with relevant stakeholders on this recommendation.


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