Significant pieces of super legislation, known as the Protecting Your Superannuation package, passed the Senate on Thursday, making them likely to be the first reforms passed into law in the wake of the royal commission.
While the bill will now need to go back through the House of Representatives, and will possibly be amended, the thrust of the legislation is clear.
What are the changes?
The financial services royal commission’s final report recommended new superannuation measures be put into place, especially in order to prevent high fees from eating away at low balances.
- Fees will be capped at 3 per cent for low-account balances containing $6,000 or less.
- Exit fees will also be abolished, ensuring Australians can switch and consolidate funds without penalty. The Government has claimed that measure combined with the fees cap will save Australians $570 million in the first year.
- After 1 July 2019, those low-balance accounts will also be auto-consolidated if left inactive for a period of six months. With one-third of super accounts in the system estimated to be unwanted additional accounts, it’s a significant move forward.
Life insurance furore
While eventually passed by the Government with help from the Greens, the Protecting Your Superannuation package underwent significant amendments before doing so.
The rare agreement between the Coalition and the Greens came about as a stoush over insurance premiums rages on.
There was another separate measure, eventually dropped, that would have seen Australians under the age of 25 no longer automatically charged life insurance premiums inside their super.
Given the fact this demographic very rarely has dependents, this insurance is often unnecessary, Michael Roddan, Canberra-based reporter at The Australian, told TICKY.
“In the end [though] those insurance measures were just tossed aside in order for the government to get through the [bill] on the fee cap and the consolidation measures,” he said.
The Government is now expected to attempt to have those measures added back to the bill although it is unlikely it will pass.
“This would generally save young people around $2.5 billion every year in largely unnecessary fees but Labor was reticent to agree to it in full,” Roddan explained.
“They wanted to exempt workers in high-risk industries such as construction and the like and the Greens didn’t want to see it go through at all because they thought it would leave vulnerable people uninsured.”
Royal Commission measures
On top of the auto-consolidation and fee cap measures, two of the recommendations championed by Commissioner Kenneth Hayne’s final report were also adopted.
They were aimed at curbing bad behaviour and largesse in the industry.
“We saw during the royal commission and it has been known for a long-time that super funds just do not act in the members’ best interest, but if ASIC or APRA wanted to pursue it… there were no penalties for [it],” Roddan explained.
“This is attaching civil penalties for it.”
The second measure will stop super funds from lavishing gifts or extra benefits on large employers that are with the fund.
“During the royal commission, we heard that HostPlus was taking a bunch of employer groups to the tennis every year at a cost of around $300,000 a year so that they didn’t move their funds away,” Roddan said.
However, these conflicts of interest are widespread across the industry, he added.
“It’s going to affect everyone…there are special deals and cozy kick-backs that are rife in all parts the sector, not just when you go to the tennis or corporate sporting events.”