While the changes to superannuation have been welcomed by many, workers in the gig economy and women remain at risk of being left behind.
The Hayne Royal Commission into Misconduct in the Banking and Superannuation industry left no doubt that superannuation law and regulatory reform was well overdue.
Apart from the astonishing revelations of bribery and corruption from day one of the hearings, the Royal Commission claimed the scalps of superannuation giants including AMP, famously caught for knowingly charging the deceased for life insurance that could never be collected.
The fallout in the banking and superannuation industry has been big.
Part of the government’s response was the Your Super, Your Future reforms in the 2020–21 budget. While people are divided on the result, all agreed that reform itself was way overdue.
Superannuation funds manage massive portfolios of collective assets and investments. They are driven by the compulsory superannuation scheme introduced by the Paul Keating-led Labor government in the 1990s.
According to the Association of Superannuation Funds of Australia (ASFA), at the end of the March quarter superannuation assets totalled $3.1 trillion. Total assets in MySuper products totalled $850 billion at the end of the March quarter.
ASFA’s July 9 economic snapshot reported a tightening of the job market — lowered unemployment statistics — but warned that a COVID-19 shock in labour supply and demand will add to the pressure on employers to raise wages.
But while the big end of town sees signs of recovery, this does not translate into a broader recovery for an increasingly casualised work force and for women.
Your Super, Your Future reforms
The good news is that the superannuation guarantee — which employers must pay — rose to 10% on July 1.
The government’s reforms include changes to the default system. First is the “stapling” of a worker to a single super fund (of their choice) from their first job. This prevents workers being forced into the industry, or other fund of their employer or industry’s choice, possibly against their best interest.
Previously, an employer could dictate which fund the worker used via payroll. If they had multiple employers (whether consecutive or subsequent) they would end up with multiple super accounts.
Overcharging on “administration” and other unconscionable fees was rampant and every year workers were ripped off.
Second is the new Super Comparison Tool, provided by the Australian Taxation Office. Similar to the loan comparison calculators all financial institutions were forced to publicly provide after the global financial crisis, it allows someone to go online and compare all 80 MySuper products, ranked by fees and net returns and which are updated quarterly.
The third key reform is the introduction of an annual performance testing for super funds. If a fund fails to meet the legislated performance criteria, it is not allowed to take on new members until the relevant performance issues are addressed.
This will prevent large, under-performing funds from dominating the market.
When the compulsory superannuation scheme was introduced, full-time permanent jobs were the norm. Over decades, part-time, casual and job sharing arrangements have risen.
Now, in the age of the gig economy and insecure work, more and more workers are in “app rostered”, paid-by-the-gig work, or paid by the likes of Uber at the lowest possible rates.
Gig economy corporations take great pains to ensure these workers are classified as “self employed independent contractors”, responsible for their own super and insurances.
The increasing number of casualised and precarious workers missing out on superannuation is a reminder of one fundamental problem: the superannuation scheme was put forward by a Labor government as a way of replacing or reducing expenditure on the age pension.
However, today, many workers still have to rely on the age pension because their superannuation balances are too small. Concurrently, the system is being used by the wealthy as a massive tax dodge.
According to Matt Grudnoff, senior economist at the Australia Institute: “Superannuation tax concessions were initially designed to help Australia become less reliant on the aged pension, but with the rapid increase in the concessions they will soon become even more costly. These tax concessions are big, getting bigger, and plainly unfair.
“This represents a spectacular failure of policy as superannuation tax concessions designed to reduce the budget cost of the aged pension have themselves grown rapidly and look to soon cost taxpayers more than the aged pension itself.”
The Actuaries Institute (AI) said there are significant problems with some of the new regulations, including the underperformance test which is applied to super funds. In its submission to Treasury, AI said the proposed test is not fit for purpose, partly due to how it is calculated.
AI’s Superannuation Practice Committee, Tim Jenkins said: “Asset allocation is the largest driver of total net returns, yet is disregarded by the test. The proposed test narrowly focuses on how a trustee has implemented an investment option’s disclosed asset allocation, not on member outcomes.”
There are also significant issues with the quality of data relied upon by the Australian Prudential Regulatory Authority (APRA).
“APRA has said it needs to significantly enhance the comparability and consistency of reported data,” Jenkins said.
AI is also concerned that the basic nature of the Australian Tax Office’s Your Super comparison tool will potentially lead to inappropriate consumer choices. In the context of “stapling” employees to one fund, the reforms may mean members inadvertently lose valuable insurance in superannuation benefits.
This is of particular concern for members entering dangerous occupations.
With delivery drivers regularly dying on the job and the corporations they work for determined to avoid any corporate or financial responsibility, it remains to be seen if the new Your Super, Your Future reforms fail the very workers who need it the most.
[Suzanne James has a background in writing policy, governance, risk management and regulatory compliance frameworks and in legislative compliance application.]