The Morrison government tried long and hard to legislate for the clear ability to tell super fund trustees what to do, but in the end they seem to have been thwarted by climate change.
In an exquisite irony, the Nationals were prepared to vote against the Your Future, Your Super bill (YFYS), apparently in case a future Labor government might use it to prevent super funds from investing in fossil fuels.
So the clause in the bill that said acting in the best financial interests of members included complying with “any requirements prescribed by the regulations” was removed and the bill was then passed.
Even that was a change from the original wording, which gave the government explicit power to prohibit any expenditures by super funds that it didn’t like, but the National Party and the crossbench sensibly saw that giving politicians the power to tell super funds what to invest in can work both ways.
So the main purpose of the YFYS legislation – to nobble industry super funds and help retail funds – has been curtailed, but not gone entirely.
For a start, the definition of “best financial interests” seems to be specifically designed to stop super funds from advertising, and second, the law still includes performance tests that let most retail funds off the hook and it still weirdly reverses the onus of proof.
“Best financial interests” is defined in the explanatory memorandum issued by the Treasurer Josh Frydenberg, which introduces it like this: “Numerous reports and hearings in recent years have highlighted the extent of spending by superannuation funds on discretionary items like advertising, sponsorships and corporate entertainment”.
It then goes on to say that any expenditure “essential to the prudent operation” of a super fund would probably be fine, but that “discretionary or non-essential” spending is likely to face greater scrutiny.
Note that the explanatory memorandum also says the best financial interests’ duty is not subject to any “materiality threshold” – that is, it doesn’t matter how small the amount is (possibly like the modest sum that is currently being spent supporting The New Daily, which is owned by the industry funds through Industry Super Holdings, a holding company through which they also own IFM Investors, their funds management arm).
Also note that contracting out to related parties by retail super funds, which has been identified by APRA as a real problem, is not caught.
Absolutely nothing wrong with an annual performance test – it was recommended by the Productivity Commission – but at this stage it applies only to MySuper default funds, and therefore not to the majority of non-default retail funds, as well as to funds “identified by regulations” in future.
The explanatory memorandum says that this will include “trustee-directed products”.
Following that wording is a convoluted set of definitions and exclusions such as “single-sector investment options” and retirement income stream products, all of which the Productivity Commission explicitly said should be performance tested, but which the government has explicitly decided to ignore.
As for the burden of proof, the new law says: “In civil proceedings … in relation to a covenant set out in paragraph52(2)(c), it is presumed that a trustee did not perform the trustee’s duties and exercise the trustee’s powers in the best financial interests of beneficiaries, unless the trustee adduces evidence to the contrary.”
The only other laws I can think of where the onus of proof is reversed like that are to do with paedophilia and terrorism, and the nation’s lawyers have, as one, expressed concern about it.
Why do that with super? It can only be to make trustees more risk averse, so they think twice before spending money on advertising.
But, of course, none of that is in the ministerial press release heralding its passage through Parliament on Thursday, which was headlined by the provision that your superannuation will now follow you, so you won’t have multiple accounts from changing jobs.
“Stapling” a super fund to a person through their life is a good idea, as long as young employees are stapled to a decent fund, and not one of the hopeless retail funds with which an employer happened to do a cosy deal.
The stapling puts much more pressure on the monitoring of fund performance by regulators and actually doing something about it, and not just telling disengaged members that their fund isn’t doing well or, worse, giving them the option of looking at their fund’s performance on a website.
Most people won’t do that, and even if they do, they won’t understand it.
“Stapling” requires active and forceful intervention by APRA on performance to protect people from being stapled to a miserable retirement.
Alan Kohler writes twice a week for The New Daily. He is also editor in chief of Eureka Report and finance presenter on ABC news