Financial System Inquiry summary
Importantly, please note that the Federal Government has not yet responded to the Inquiry’s Report, or given any indication of which of the recommendations it may choose to progress.
AvSuper will continue to contribute to the debate on further changes and reforms on behalf of members. A full copy of the FSI Panel’s report can be found on the FSI website.
To help AvSuper members understand the key findings of the report, we provide the following summary of the main recommendations relating to superannuation, together with our view of potential impact (if any) for AvSuper and our members.
Enshrining superannuation objectives in law
The Inquiry recommends the Government enshrines in law the objectives of super, and to regulate that Government reports publicly on how policy proposals for changes in super law are consistent with achieving these objectives over the long term. The following broad objective is recommended:
“…to provide income in retirement to substitute or supplement the Age Pension.”
The report also recommends the Government should seek agreement on various subsidiary objectives to support the main objective, including:
– facilitate consumption smoothing over a person’s lifetime
– help people manage financial risks in retirement
– be fully funded from savings
– be invested in the best interests of individuals
– alleviate fiscal pressures on government
– be simple and efficient
– provide safeguards
AvSuper endorses the Inquiry’s recommendation, as we believe this will provide greater certainty for members and reduce the likelihood of short term policy changes to super which will also improve confidence in the system.
The need for default post retirement products
The Inquiry recommends that super fund trustees pre-select a default ‘comprehensive income product for retirement’ (or CIPR) for members. At retirement, the member would either give their authority to commence the default income product or elect to take their super savings in another way. No income stream would commence without instructions from the member.
AvSuper supports the principle of this recommendation, although the default arrangement (eg MyPension) needs a consultation process to finalise the details. AvSuper already provides retirement income products which are popular with many of our retiring members, so we envisage that this proposal can prospectively be accommodated by AvSuper, if the Government adopts this recommendation.
Mandatory retirement projections
Supporting its focus on retirement incomes, the Inquiry recommends that all accumulation super funds publish retirement income projections on member benefit statements.
AvSuper supports this recommendation, which will enhance the retirement income projections we currently provide to members upon request and via our online calculator. It will reinforce the message that super is about the provision of income in retirement and will provide more meaningful information to members when planning for retirement.
Governance and independent trustee directors
The Inquiry recommends that public offer super funds be required to have a majority of independent directors on the trustee board, including an independent chairperson. It opines that it is more important for directors to be independent, skilled and accountable, than for them to be representative of the membership base and nominated/appointed to the trustee board by employer and employee groups.
However, the Inquiry did not provide a clear and meaningful definition of what is meant by the term “independent director”.
AvSuper supports proposals which serve to enhance the governance of super funds, including the prospective inclusion of independent directors on the trustee board. AvSuper already requires that representative Director nominations from our employer (Airservices Australia) and employee (ACTU) groups are highly skilled (in super and related disciplines) and accountable, as well as able to meet a number of other “fit and proper person” requirements. This will make it difficult to assess the value that independent directors will add to the composition and decision making of the Trustee board.
We trust AvSuper members will find this information useful in order to understand the current position of the Financial System Inquiry recommendations. As always, we will provide updates to members as and when the Government responds to the report and provides information about which of the recommendations it will progress.
Email: email@example.com | Local call: 1300 128 751 | www.avsuper.com.au