Consumer protection in superannuation watered down
Successive governments have provided dozens of regulatory carve-outs and concessions to superannuation products.
The carve-outs have been benefiting banks and other retail super providers over more than a decade, according to a new research report released today by the Australian Institute of Superannuation Trustees (AIST).
The report – based on AIST research and authored by corporate governance expert, Professor Thomas Clarke - shows how regulatory carve outs given to the for-profit super sector have resulted in serious omissions and exemptions in superannuation reforms that have impacted badly on the interests of super fund members.
AIST CEO Eva Scheerlinck said regulatory carve outs or concessions provided to the for-profit super sector had watered down many vitally important consumer reforms in superannuation.
This included government decisions not to improve disclosure and transparency in non-MySuper funds, which manage more than $1 trillion of super across 8 million member accounts. As just one example, a government decision was made not to extend best practice disclosure requirements for MySuper funds to other super products.
According to SuperRatings, in the non-MySuper “Choice” sector, bank and retail-owned funds charge between 117-182% more than profit-to member funds and generally underperform over both the short and long term.
“Constant erosions to the legislation and for-profit super providers being let off the hook has been at an enormous cost to consumers who are effectively left to fend for themselves,” Ms Scheerlinck said. “We have a mandated super system but providers managing more than $1 trillion of super savings are not held to account.”
The report also notes the legislative gaps in super reforms has led to a systemic lack of comparability of data in the super system. The Australian Prudential Regulation Authority collects and publishes data on the performance, fees and costs of MySuper products, but does not collect or publish equivalent data on Choice products or investment options.
In compiling the report, Prof Thomas Clarke said he had been “astonished” by the sheer number of regulatory carve outs afforded to the banks and other for-profit super providers.
“The research points to an army of lobbyists - and the financial institutions that employ them - having been very successful in persuading governments to go light on regulation,” Mr Clarke said.
“This panoply of self-interested exemption has arisen over time, incrementally and without any ostensible rationale other than to benefit providers. The exemptions are systemic, on a vast scale, and have been occurring for decades.”
Ms Scheerlinck said uniform disclosure requirements across the super system were needed as the first step towards improving regulation in superannuation. This would require extending current “product dashboard” requirements for MySuper products to Choice products. AIST has also called on APRA to publish comparative data to help consumers more easily compare and choose super funds and to help regulators and other stakeholders have a better understanding of the efficiency of the super system as a whole.
“All sorts of arguments have been put up by the retail super sector as to why these things shouldn’t happen when what they really fear is losing the easy profits to be made from consumers being in high fee, opaque products,” Ms Scheerlinck said. “Due to the complex nature of super, a carve out can sometimes seem like a minor amendment when in fact it can be worth billions of dollars in profit to a bank.”
Ms Scheerlinck said the report showed that the practice of providing carve-outs on super legislation was entrenched.
“Simply because some practices are deeply embedded and conducted on a mass scale, doesn’t make them permissible” she said.
See the report “Serious failures in superannuation governance and critical omissions in superannuation regulation” at http://www.aist.asn.au/media/1239565/regulatory_carve_out_report_-_prof_clarke_-_serious_omissions.pdf
5 December 2018.