FSC urges against ‘default-centric’ super policy

The next Federal Government should avoid inappropriate expansion of the Your Future, Your Super (YFYS) performance test and a general default approach to superannuation, according to the Financial Services Council (FSC).

In an outline of suggested policy priorities ahead of the upcoming Federal Election, the FSC said that as the superannuation system has evolved, “regulation has been default-centric”.

“This has failed to recognise different levels of customer engagement, particularly for those who are more engaged and exercise various degrees of choice of superannuation products,” the FSC said.

“Default-centric regulation, that displaces legitimate consumer choices and consumers’ financial advisers, works against Australians being engaged with their retirement,” it said.

This trend can be seen:

• from proposals to extend the performance test to choice products, where a consumer has made an active choice on the basis of receiving financial advice,
• with the implementation of the Retirement Income Covenant, where regulators have suggested the Trustee should be providing advice to customers about their retirement in circumstances where that customer already has professional personal advice, and
• in proposals that call for the defaulting of consumers into retirement products, the testing of retirement products like default MySuper products, or the setting up of default retirement products, which would limit consumer engagement and choice.

“The FSC believes that the superannuation system should be built on the principle of encouraging superannuation customers to be engaged with their superannuation and make active choices that suit their individual needs.”

“Consumers should be provided with tools, guidance, and where required, access to affordable advice to help them make individual decisions for their specific circumstances,” the FSC said.

The FSC said the Government policy should promote consumer choice and competition in the superannuation and retirement income market and that “as part of the ongoing review of the Your Future, Your Super performance test and the ongoing consultation into retirement phase policy, proposals should recognise the different types of superannuation products and the role of personal financial advice in delivering good outcomes for customers”.