MySuper Tranche 3 puts member benefits at risk

MySuper Tranche 3 is a rush job which attempts to force MySuper legislation through before the key issues can be laid on the table and properly debated, according to the Association of Financial Advisers (AFA).

After presenting the AFA’s Opening Statement to the Parliamentary Joint Committee into MySuper (the PJC) last Friday, AFA CEO Richard Klipin said the AFA has two key concerns: the mandatory transfer of default accounts by 1 July 2017 and intra-fund advice.

Mandatory Transfer of Default Accounts
The Government is making assumptions around member disengagement and attempting to force all members who have not chosen an investment option, or chosen the default investment option, into a MySuper Fund. 

“We are very concerned that the scope has been expanded to include people who have specifically selected the default option,” Mr Klipin said. “While this is subject to an opt-out approach, where it is based upon one communication, it is simply  inappropriate.”
 
Mr Klipin also highlighted that the legislation specifically removes any liability for super fund trustees involved in a mandatory transfer, leaving Australians with a fundamental lack of consumer protection.

“The mandatory transfer could result in members losing benefits associated with their existing fund, before they are even aware of it,” he said.  “For example, members who are forced into a MySuper option might lose some or all of the life insurance cover they hold in their previous fund. Although life insurance cover should be available to them in the MySuper fund, it may be inferior to their existing cover, particularly if they have pre-existing medical conditions.

“Even members who have made an active decision to invest in an option that happens to be a default option, will be forced into the MySuper fund against their will,” he said.  “It is simply wrong to move people who have made an active decision to be where they are.”

Mr Klipin said the AFA is also concerned that members will be forced into MySuper funds that may be quite different to their current option, without any advice on their particular needs. “The investment arrangements within the MySuper fund may not match their life cycle or financial needs,” he said.

Intra Fund Advice
Good advice is key to the financial future of super fund members and the AFA therefore has no objection to superannuation funds providing advice to their members.

However, Mr Klipin said the AFA does harbour serious concerns around whether the advice will be provided in the client’s best interests.

“We have objections to the lack of transparency in the cross-subsidisation of advice via the administration fee, paid by all super fund members,” he said. “While the Future of Financial Advice reforms require complete transparency in fees paid by clients, intra fund advice fees are hidden in the administration fee and are paid by all members regardless of whether they get advice or not. This lack of transparency is not in the best interest of super members.”

Mr Klipin said that although the legislation suggests that intra-fund advice will be limited to simple advice that is not ongoing, the AFA is concerned that the legislation is inconsistent.

“The legislation allows for advice on a pension fund and insurance,” he said. “Advice on a pension fund is invariably retirement advice and retirement advice is always complex.”

MySuper and Tricky Drafting
Mr Klipin also said that tricky drafting of the MySuper legislation intentionally infringes the property and income rights of advisers.  “It appears that the legislation  has been purposely drafted to deprive advisers of the earnings they receive from existing default option superannuation clients,” he said. “This represents an acquisition of property rights on unjust terms, which would in other circumstances be contrary to the constitution.”

Mr Klipin said the Government has failed to put forward an adequate case to justify what amounts to a huge exercise which will disadvantage many super fund members. 

“Despite strong evidence highlighting the problems, the rushed majority PJC report has discounted the very serious consumer disadvantage in this legislation,” he said.  “The dissenting Coalition report has recognised the broad level of concern across the industry and has made some worthy recommendations.

“The community’s confidence in the superannuation system is at stake and the MySuper bills as they currently stand will further erode this confidence. It is time to get good policy back on track.”