1 November 2018
Speech - #2018007, 2018

Address to the Self-managed Independent Superannuation Funds Association, Melbourne

Thank you for that introduction and thank you to the Self-managed Independent Superannuation Funds Association (SISFA) for hosting today's forum.

The Association plays an influential role in speaking on behalf of self-managed superannuation fund (SMSF) members and your voice is growing louder; the number of SMSFs and the value of SMSF assets are consistently increasing. 

For example, in 2016-17, there were more than 595,000 self-managed funds, and more than 1.1 million members in SMSFs.

During that financial year, total funds under management for SMSFs amounted to $750 billion, or 28 per cent of total superannuation assets.

What's more, SMSFs benefit our broader economy with the majority of assets being Australian listed shares, cash and term deposits.

Our Government recognises that SMSFs not only provide Australians with the freedom to be the masters of their own destiny, they also provide a competitive dynamic in the superannuation sector.

Additionally, given the benefits both to individuals and the broader economy, today I will reflect on Government's approach in providing the self-managed superannuation sector with greater flexibility, certainty and stability.

It's an approach consistent with the Government's plan in providing more choice for older Australians to live healthier, more independent and safer lives.

Flexibility

Members

For starters, we are increasing the maximum number of members allowed in self-managed superannuation funds from four to six.

This change is widely supported. It provides greater flexibility for joint management of retirement savings, in particular for larger families and most importantly, it provides an avenue for growth.

SuperStream

As a further measure, we are planning to extend the SuperStream system to SMSF rollovers requested on or after 30 November 2019.

SuperStream is the way businesses must pay employee superannuation guarantee contributions to superannuation funds.

With SuperStream, money and data are sent electronically in a standard and consistent format between employers, funds, service providers and the ATO.

This means that employers can make all their contributions in a single transaction, even if they are going to multiple superannuation funds.

It also means that contributions and rollovers can be processed faster, more efficiently and with fewer errors.

The ATO is continuing to work with the industry, including SMFSs, ahead of the commencement date to help ensure a seamless rollover process.

Stability

Franking credits

As partners of the Alliance for a Fairer Retirement System, some of you may be aware of my comments in recent days about the implications of removing refundable franking credits.

Labor's retiree tax is an attack on low-income earners and retirees.

Their tax will affect 900,000 Australians, who face losing their refunded franking credits.

In fact, 96% of people impacted by their tax have a taxable income of less than $87,000.

Their 'pensioner guarantee' does nothing to protect pensioners who benefit from franking credit refunds to their APRA regulated super fund, or pensioners that take out an SMSF in the future.

Citi Research has indicated the policy would diminish demand for Australian shares relative to other investments and the major banks' valuation could be impacted by as much as five to 10 per cent by the change.

As you know, this measure is there to benefit the union-aligned industry fund sector at the costs of SMSFs.

We believe this an important issue and that is why the Treasurer asked the House of Representatives Standing Committee on Economics to hold an inquiry.

Certainty

Whichever you look at it, certainty in the superannuation sector should not be underestimated.

Technical changes

For example, to provide more certainty we are moving to make a series of minor technical changes to superannuation and taxation.

As announced at the Financial Services Council breakfast yesterday, we will raise the threshold account balance from $50,000 to $100,000 and extend the timeframe for implementation so that trustees must have a retirement income strategy in place from 1 July 2020 but are not required to offer CIPRs until 1 July 2022.

By raising the threshold account balance, CIPRs will be required to be offered to those who will benefit most. By extending the transition period, the industry will gain more time to adjust to new requirements under the retirement income covenant and produce higher quality retirement products. This will lead to better outcomes for superannuation fund members.

Royal Commission

A major development in the past year has, obviously, been the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

To re-cap, the Government announced the Royal Commission on 30 November 2017 with a broad remit to inquire into the practices of financial institutions.

We established the Royal Commission to further ensure Australia's financial services are working efficiently, effectively and in the interests of consumers.

We set up the Royal Commission on the premise that all Australians have the right to be treated honestly and fairly in their dealings with financial service providers.

The Government provided $75 million to enable the Royal Commission to undertake its work. And to date, the Royal Commission has held six rounds of hearings and received more than 10,000 submissions — some 12 per cent of those submissions relate to superannuation.

On 28 September, there was an important juncture with the Royal Commission releasing its interim report.

Among other things, the interim report highlighted that entities and individuals in the industry have been motivated by financial gain or short-term profit at the expense of basic standards of honesty.

I note the interim report does not make any specific recommendations but it does address policy questions and case studies of misconduct that have arisen in the first four rounds of hearings.

The Government will, of course, carefully consider the Royal Commission's final recommendations — and we will do so with the highest level of priority.

It is also imperative that we consider any recommendations in light of the significant reforms that the Government has recently implemented or are currently in train.

Financial advice professional standards

Our recent work in raising the education, training and ethical standards of financial advisers is one example with professional standards coming into force from 1 January 2019.

As the population ages and client needs shift, the role of financial advice will play a more important role than ever, particularly for SMSF members.

Unfortunately, repeated instances of inappropriate financial advice have decreased consumer confidence in the financial advice industry.

This reduction of trust acts as a barrier to consumers seeking financial advice, which is a poor outcome for both consumers and the industry.

The Parliamentary Joint Committee's inquiry into proposals to lift the professional, ethical and education standards in the financial services industry and the Financial System Inquiry identified that the existing professional standards for financial advisers are too low and do not ensure that all financial advisers have the necessary skills to provide high-quality advice to consumers.

The Royal Commission has also raised important questions about the ability of the industry to appropriately manage conflicts of interest and ensure appropriate customer outcomes.

It is in this context, the Government established the Financial Adviser Standards and Ethics Authority. The new authority will set professional, ethical and educational requirements that will apply to financial advisers.

Productivity Commission Report

In another significant development, we are expecting the Productivity Commission's final report into the efficiency and competitiveness of the superannuation system in late December 2018.

This is the third and final stage of the Commission's comprehensive review to make sure Australia's superannuation system is delivering the best outcomes for members.

The draft report, released on 29 May 2018, contains 22 draft recommendations and more than 40 draft findings.

The report found there was room for improvement in all parts of the system, with a long tail of underperforming products in both choice and MySuper segments.

A key set of PC recommendations proposes a new default allocation system that involves an independent panel facilitating employee choice via a best in show shortlist of up to ten funds.

For example, it highlighted problems with duplicate accounts and erosion of small balances by fees and charges and recommended change to default insurance in superannuation.

The draft report also found that many SMSFs with smaller balances were underperforming large APRA funds in terms of net investment returns.

Last week, the Commission released a supplementary paper that responds to feedback on the draft report, and paints a more positive picture of SMSF performance.

The revised analysis still finds that scale is very important in determining net returns for the average SMSF, although the Commission acknowledged that averages conceal variation and some smaller SMSFs may be performing well despite their small size.

In general, a number of the Commission's draft recommendations are broadly consistent with measures that form part of the Government's Protecting Your Super package.

The Government's other reforms, currently before the Senate, to strengthen APRA's powers, introduce a stronger outcomes test and remove restrictions on choice of fund, also received endorsement in the draft report.

Closing remarks

In finishing, our Government values the importance of self-managed superannuation to both individuals and a stronger economy.

We appreciate the Association's objective in working with the Government and regulators to obtain fairness, consistency and stability in superannuation for its trustee members.1

And events like this provide a platform to not only discuss recent developments but also the challenges and opportunities on the horizon.

Indeed, I welcome the opportunity to outline the Government's agenda for the self-managed superannuation funds and some of the broader issues for the superannuation sector.

The Government recognises the importance of providing more choice for older Australians to live healthier, more independent and safer lives.

And we recognise the importance of a strong and vibrant SMSF sector in helping to achieve that.

Thank you.


1 - https://www.sisfa.com.au/sisfa-objectives