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Blanket ban on advice fees from MySuper accounts puts members at risk
AIST has warned that the Federal Government’s proposed legislation for a blanket ban on deducting advice fees from MySuper accounts will deny many ordinary Australians access to high quality personal financial advice.
Noting that a great many Australians would struggle to pay for personal financial advice from their take home pay or savings, AIST wants the ban to be limited to ongoing advice so that MySuper members can continue to deduct fees for one-off advice.
Speaking at this week’s AIST/IFA Financial Advice Symposium in Melbourne, AIST’s head of advocacy Mel Birks said the complexity of Australia’s retirement income system – particularly in regard to the interaction between the age pension and superannuation at retirement – meant it was vitally important for ordinary Australians to have access to appropriate and affordable financial advice.
However, expecting most Australians to pay for personal advice out of their non-super savings was unrealistic, said Ms Birks, who pointed to ME research showing that nearly one in two Australian households had just $10,000 in savings outside super and 1 in 5 would struggle to raise $3,000 in an emergency.
AIST’s submission on the proposed legislation also raises concerns that the blanket ban could lead to members being incentivised to move out of a MySuper product into Choice products, so advisers can enter into ongoing fee arrangements with members. This is a concern given that MySuper products have on average outperformed choice products over the long term and that Choice products are often more expensive than MySuper products.
Ms Birks said a ban limited to the deduction fees for ongoing advice addressed the fundamental concerns raised by the Royal Commission about fees for no service and other issues regarding financial advice.
APRA to provide cross-industry guidance on climate risk
APRA has this week outlined plans to develop a cross-industry prudential guidance guide on climate risk.
The move follows encouragement from the super industry for the regulator to provide more information on industry practice on climate-related financial risks and greater clarity on its expectations.
In a letter to all APRA-regulated entities, APRA says the cross-industry guidance is not intended to establish new obligations, but rather will be designed to assist entities in complying with their existing prudential requirements, including Prudential Standard CPS 220 Risk Management. The guidance will cover areas relevant to the prudent management of climate change financial risks, aligned with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), including aspects of governance, strategy, risk management, metrics and disclosure.
The letter also outlines APRA’s intention to update superannuation Prudential Practice Guide SPG 530 Investment Governance, which includes paragraphs related to environmental, social and governance (ESG) investments.
APRA will consult on the draft PPG in mid-2020 with the aim to publish final guidance before the end of the year.
Employer amnesty on unpaid super could leave workers vulnerable
The Federal Government’s Bill providing employers with an amnesty to report unpaid super has passed through Parliament this week, prompting AIST to warn that this could see more workers vulnerable to super theft.
AIST has previously raised concerns that a one-off amnesty to employers who report unpaid super, could exacerbate the problem. International evidence suggests amnesties are rarely effective and can create a situation where previously honest employers reduce their compliance in anticipation of a further amnesty.
In a media release following passage of the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019, AIST CEO Eva Scheerlinck said the amnesty would reward poor employers while punishing good ones.
“Superannuation is deferred wages and, in a compulsory super system, members must receive their full entitlements when they are due. Rather than providing an amnesty, strengthening employer penalties for failing to pay super is needed,” Ms Scheerlinck said.
Strong growth in profit-to-member sector continues
Growth in the super savings managed by profit-to-member funds continues to outstrip both the retail and SMSF sector, according to the latest quarterly APRA statistics released this week.
During the three months to 31 December 2019, profit-to-member funds grew by more than 2%, compared to retail growth 0.96% and a fall in SMSF assets by 0.08%.
Profit-to-member has grown $30 billion in the last quarter and has now reached more than $1.5 trillion. At the end of the quarter, total superannuation assets reached $3 trillion, while total assets in MySuper products were $802 billion.