Labor will reject the superannuation reforms in last week’s budget unless changes are made to fix a “massive design fault”, the shadow assistant treasurer has indicated.
On Monday, Stephen Jones warned the changes intended to improve the transparency of super funds’ performance “only measure half the fees” employees are charged and therefore fail to protect consumers by weeding out poorly performing funds.
The comments foreshadow a further fight on super even before the Morrison government decides on the future of legislated rises from 9.5% to 12% compulsory super, set to begin in July.
Under the proposed changes, super accounts will no longer be automatically created every time an employee changes jobs.
Instead, an existing superannuation fund will be “stapled” to a member so their savings follow them from job to job without the creation of duplicate accounts.
For new employees, the tax office will develop a tool to compare and select a super fund from the MySuper shortlist.
From July 2021, the Australian Prudential Regulation Authority will conduct benchmark tests to find funds that underperform for two consecutive years, then block them from receiving new members until they improve.
Jones told the Australian Institute of Superannuation Trustees that “no under-performing fund will find safe harbour in Labor” but said there was a “huge gap” in what the government is proposing.
The Coalition’s proposals did not measure all charges on members, did not compare all super funds and “failed to put in place critical consumer protections”, he said.
Jones said Labor agreed with benchmarking fees and charges, but the government’s model in the budget papers measured only investment fees, not administration fees.
“This is a massive design fault which runs the risk of enabling funds to divert costs and charges from one line item to another without addressing the underlying problem of high fees.
“In other words, members can and most likely will still lose out from oversized fees … They will have to fix this glaring anomaly.”
Jones also warned the benchmarks encouraged super funds to make passive investments in shares rather than bigger investments in infrastructure.
Superannuation funds “should be put to work” helping build infrastructure as part of the recovery from the Covid-19 recession, he argued.
“[The changes] encourage short-term returns and a ‘hug-the-index’ investment approach, rather than a long-term, multi-decade view.
“This is crazy at a time when our tradies need work, our nation needs rebuilding and the next generation of retirees need dependable returns.”
Jones said the reforms failed to introduce anti-hawking provisions for superannuation, recommended by the Hayne royal commission into banking and financial services.
Jones said Labor supported lower fees, more transparency and fewer duplicate funds, but the government had a “big job of work” to improve the package.
“We don’t support a system which would see members stapled to under-performing funds with no compulsion for the fund to lift those members to a more suitable product or to merge with a higher performing fund.”
The changes will also include legislation to ensure that super funds’ “expenditure is motivated solely by the best financial interests of members and ensuring they disclose how they are spending members’ money”.
Industry superannuation funds see the proposal as a means to attack their advocacy work, which includes advertising about their better performance than retail funds and funding for news website the New Daily.
Coalition backbenchers including MP Tim Wilson and senator Andrew Bragg have also criticised industry funds’ payments to unions, which are primarily for services, including for director remuneration, marketing and sponsorship.
Jones accused Coalition members of using parliamentary inquiries to conduct “partisan attacks” on the industry super sector and called for an end to the “phoney war”.
The Coalition is under pressure from its own backbench to abandon legislated increases that will lift compulsory super contributions from 9.5% to 12%.
The assistant minister for superannuation, Jane Hume, has given the group comfort by declaring she is “ambivalent” about the increases and arguing it would be “irresponsible” to allow them to go ahead without considering if they come at the expense of wages. The government has deferred a decision until next year.