Underperforming superannuation funds will be blocked from taking on new members if returns are not improved, forced to publicly disclose poor returns on investments and required to prove they are acting in the best interests of Australians.
The Morrison government will require funds to take an annual performance test from July 2021 and those which fail to produce good returns for members will be publicly listed as an underperforming fund on a new online comparison tool, to be known as "YourSuper", until they do better.
The test initially applies to "MySuper" funds — lower cost balanced investment options — but will be extended to other super products in 2022.
The difference between the worst MySuper product and the best performing is up to $98,000 less for an average worker and these tests are estimated to help workers accrue an extra $10.7 billion over 10 years.
The funds will also be subject to a new requirement ensuring they act in the best financial interest of their members in a bid to improve accountability and transparency.
Liberal Senator Andrew Bragg, a vocal critic of the super funds, recommended in his book Bad Egg that there should be measures to improve transparency, including disclosing payments to unions and related financial institutions in annual reports and online.
Senator Bragg recently criticised the Australian Prudential Regulation Authority for not policing the "sole purpose test", which requires funds to spend members' money only to directly help their retirement incomes, and warned there could be additional laws introduced to crack down on behaviour he believed fell outside this requirement.
The Morrison government's changes will also see workers tied to their super fund, meaning employers will pay into existing accounts each time someone gets a new job, rather than risk creating multiple accounts that can leave balances eroded by fees. Workers currently pay $30 billion a year in superannuation fees.
About 4.4 million people currently hold 6 million accounts, totalling $450 million in unnecessary fees. The federal government estimates there will be 2.1 million fewer accounts created over 10 years, saving $2.8 billion for workers. Earners can still switch super account as they like.
Treasurer Josh Frydenberg and Assistant Minister for Superannuation Jane Hume said in a joint statement that Australians are expected to pay $45 billion in superannuation fees annually by 2034.
"At the same time, Australians hold 3 million accounts in underperforming funds managing over $100 billion of their retirement savings," they said.
"The current system is letting too many Australians down."
Major lobby group Industry Super Australia, along with former prime ministers Paul Keating and Kevin Rudd, have criticised the Morrison government for attacking the superannuation system this year following an emergency early access scheme introduced at the height of the pandemic to let struggling workers access up to $20,000 from their retirement funds.
Senator Hume previously said the federal government wanted to improve the system and make it more efficient rather than dismantle superannuation.
Superannuation fund sources had speculated the 2020 budget could include extra measures they warned would "undermine" members' balances, such as an extra tranche of withdrawals, and have been concerned the government might use an as-yet unreleased Treasury review of the retirement system to justify sweeping changes.
In particular, there has been speculation about a delay to the legislated superannuation guarantee rise, which is set to rise from 9.5 per cent to 12 per cent and was an election promise made by the Morrison government. Prime Minister Scott Morrison said in September he would reconsider the increase depending on the state of the economy nearer the time, with the first increase of 0.5 per cent due in July 2021.
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