- Enact legislation to clearly state the purpose of superannuation, which is to build retirement savings in a favourably taxed environment, and remove it from the industrial relations system in order to prevent governments from tampering with it. Constant changes to the superannuation system certainly do erode member confidence as annual changes have occurred for the past 30 years.
- There should be a more competitive process to assign new participants in the workforce to high performing superannuation funds. In essence this means that funds would be tendering for members based on their past performance and low fees. The Committee was of the view that members were paying too much for superannuation products because funds had failed to pass on savings as they grew in assets under management. The Committee further iterated its ‘reservations’ about whether the recent Stronger Super reforms would improve the efficiency of the superannuation system.
- Establish income streams as a default. This would mean that at retirement the superannuation benefit would automatically convert into a regular income payment. Funds should focus more on retirement products and educate their members as to the benefits of a regular income stream rather than a lump sum payment. All funds would to be required to offer account based pensions.
- Self-managed super funds should be banned from borrowing money to buy property and/or shares.
- Superannuation boards should consist of a majority of independent directors. This is in contrast to the current industry fund model whereby the principal parties appoint an equal number of employer and employee directors.
- Trustees should be subject to the same penalties for misconduct as directors of managed investment schemes.
It is clear that the Committee was not impressed with the recent Stronger Super changes which were both comprehensive and expensive for funds to implement. Decoding the messages could certainly lead to some significant future reforms.
The emphasis on income streams (or account based pensions) could be read as a requirement to disallow or discourage full lump sum payments at retirement. This measure would certainly sustain the savings longer.
Removing superannuation as an ‘allowable matter’ from industrial awards would break the traditional nexus between various industries and their funds. Compulsory superannuation certainly started as an accord between unions and employers – the initial 3% was paid into newly established industry super funds in lieu of a pay rise.
So it has been an industrial matter historically. Removing the constant tinkering with super by various governments would certainly be a good thing, but it may be impossible to legislate. The equal representation rule for directors has served the industry well and it is arguable that independent directors would be as familiar with the membership and do a better job. Banning self-managed super funds from borrowing would enhance security and reduce the risk of a default.
Super is definitely a difficult and complex area for governments to navigate as voters feel strongly about their retirement ‘nest egg’ after having worked a lifetime to build it. It will be interesting to see which of the Murray reforms (if any) will be legislated – certainly bipartisan agreement as to the purpose of superannuation and an end to the constant tinkering would be positive outcomes.