Super framework to remove legacy barriers
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The Financial Services Council (FSC) has urged the Government to consider implementing a product modernisation framework to improve member retirement outcomes and remove legacy barriers.
The Product Modernisation Research Report, prepared by EY and released by the FSC, found consumers would collectively retire with $16 billion more by 2050 and would increase their total retirement income by $22 billion if the proposed framework was implemented.
This would be achieved by limiting the obstacles super funds and fund managers face when it comes to transitioning members from legacy to modern investment products when it is in their best interests, without triggering the early application of tax obligations.
The report also showed the framework would grow the Government’s medium and long-term fiscal position by close to $1 billion over the next 10 years and $21 billion by 2050. This includes:
- “Additional Government revenue of $2 billion by 2050 through additional superannuation tax receipts, with $700 million of the revenue realised in the next 10 years; and
- A reduction of $19 billion in Age Pension outlays by 2050, with $240 million of these social security savings delivered within the next 10 years, as retirees benefit from higher superannuation balances.”
“There is $132 billion invested in superannuation and investment options that could benefit from modernisation, impacting over 1.8 million customer accounts,” The FSC’s chief executive, Blake Briggs, said.
“Allowing superannuation trustees and fund managers to move consumers to modern products would result in consumers having $16 billion more in their retirement by 2050, delivering $21 billion in additional retirement income for Australians.
“A product modernisation regime would support the Government’s fiscal position, by lowering Government Age Pension outlays and raising new tax revenue, by almost $1 billion in the next decade, without having to raise new taxes on superannuation consumers.”
The report revealed that a member aged 40 with a current superannuation balance of $80,000 could potentially have another $198,676 by the time they retire in 2050 if super trustees were allowed to move them to modern investment products “without incurring tax penalties or regulatory barriers”.
The FSC said the proposed framework could resolve issues presented by the Government’s Your Future, Your Super regime, which has often emphasised that while “consumers are often stranded in historical products” they “cannot be moved out of these products due to tax and regulatory barriers imposed by the Government”.
“The FSC supports performance testing of superannuation products, however flaws in the current design of the ‘Your Future, Your Super’ framework is having adverse consequences for consumers,” Briggs said.
“The FSC encourages the Government to act to protect consumers from being trapped in underperforming products that APRA has publicly identified, by implementing a product modernisation framework that allows superannuation trustees to transfer consumers to modern products.
“Without a product modernisation regime, consumers will receive performance notifications, but personal tax consequences and the need for comprehensive financial advice remains, preventing consumers from taking action.”
some good logic here
Sharon I know we struggled with ending many long term relationships based on cost to serve and compliance risk. But…
Of course, can’t expect APRA or ASIC to actually really do anything against Industry / Union / Bikkie Super Funds.…
It's quite easy to charge way less than this and remain profitable and compliant. If clients have simple requirements then…
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