The Government will unveil its long-awaited response to the Cooper Review of the $1.3 trillion super sector today, and back calls to require super funds to provide members with a low-cost super account option to be called MySuper.
The low-cost MySuper fund was a key recommendation of the Cooper report, which was conducted last year by Jeremy Cooper.
The report proposed that a simple, low-cost super option be provided as a default option for the 12 million Australian workers who currently have their super paid into a default super fund option.
The Cooper Review estimated the establishment of MySuper (and a raft of other changes designed to make the super sector more efficient) should reduce fees paid by an average super fund member by 40% over the long-term, and add $40,000 to the balance of a 30-year-old who stays in the workforce for 37 years.
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Under the Government’s proposals, super funds will be able to provide MySuper options from July 2013, and the accounts will eventually become a replacement for the “default” option used by most super funds.
The Government will start consulting with the super sector on the MySuper changes from next year.
Financial services Minster Bill Shorten, who will formally announce the super proposals today, told the Australian Financial Review the reforms would help boost Australia’s savings pool.
“Every dollar Australians save from the removal of unnecessary fees and charges will directly boost their retirement savings, increase their wealth and boost national savings.”
However, it will find some opposition to the MySuper changes. Bodies such as the Financial Services Council have previously labelled the MySuper proposal as “paternalistic” and some superannuation research houses have questioned whether super funds will really be able to deliver costs savings to fund members.
But the Association of Super Funds of Australia has welcomed the move, saying the establishment of a single option will make it easier for members to compare costs, investment performance and items such as insurance coverage.
“MySuper will provide a ‘ring fence of protection’ for those members who do not want to engage in their super,” ASFA chiet Pauline Vamos says.
“The reforms will also provide greater transparency of options for those members who choose to take more control of their investment and insurance choices.”
“The reforms are about recognising that Australians are not all the same and that all types of members, engaged or disengaged, pre- or post-retirement, should receive optimal outcomes.”
In total, the Government will support 139 of the Cooper Review’s 177 recommendations in its Stronger Super package.
Many of the changes relate to improvements in the way the super system is administered, under a package of measures called SuperStream.
Most of the changes revolve around the use of tax file numbers as the primary way to indentify an account holder. This is seen as a key way to ensure information flows faster through the system, and moving from one super account to another is easier.
“Given the ability to use the TFN as a unique identifier, funds will now be able to identify employees more easily and reduce multiple accounts. The payment system for employers will be more efficient and they will be able to make use of standard forms,” ASFA’s Pauline Vamos says.
“Fund members will be able to move between funds more easily, through the use of simple rollovers. Enhanced disclosure requirements will give fund members a better understanding of fees and costs.”
The SuperStream changes are all scheduled to be in place by July 2015, which is somewhat slower than the industry had hoped.
The Government estimates its reforms will add $60 billion to the national savings pool by 2035.