Changes to Superannuation Reporting.
There appears to be some welcome changes into how superannuation funds will be scrutinised in the future, hopefully as early as July 2021.
The government is working on making funds more transparent in an attempt to expose those making poor returns for those contributing to them. The Australian Prudential Regulatory Authority (APRA) will be responsible for testing each fund and any fund that fails the test two years in a row will not be allowed to take on new members. The testing will be carried out over a rolling eight-year period to smooth out any unusual performances by funds.
The funds will also be more accountable to their members in much the same way ASX listed companies must be to their shareholders. Details that will need to be disclosed in the proposed changes include: political donations, marketing expenditure, sponsorships, remuneration to executives and payment to industry bodies, trade associations or related parties.
An annual general meeting to face members may also be on the agenda, again, much like publicly listed companies.
A welcome change for super contributors will be the ability to take one superannuation fund from employer to employer, without having to create new accounts that some employers insist on. This could have a dramatic effect on industry based super funds which have strong ties to unions.
The Productivity Commission has been working on how the testing will be done and Treasury is confident that the methodology will be right.
An issue that will need to be addressed will be the complexity of the reporting system that the funds will be required to do. Fund members’ eyes could roll back in their head if standard financial reports are issued for them to consume. A simple reporting system that is easy to read and understand for those that don’t have a financial background will be required if it is to have any meaning.
Another change that should be welcomed by fund members will be the requirement for funds to act in the “best financial interests” of its members. Previously they only had to act in “the best interest”, which was far too broad a term for it to be truly meaningful.
But what about the government’s responsibility to those contributing to funds?
The maximum someone can contribute to a fund in one financial year is $25,000, after which they are taxed heavily for any additional funds deposited. If we take a fund member who is approaching retirement, has no debt and accumulating cash in a bank account, why can’t they contribute more?
Currently, banks are offering virtually no return on deposits when compared to even a conservative superannuation fund. What if the member could salary sacrifice a large portion of their salary into their fund and exceed the $25,000 threshold? The government could still tax the excess but at a modest level compared to what it is now, and the person would be receiving far greater returns than what the bank is offering.
Afterall, one of the ideas of superannuation is for the person to fund their own retirement without having to rely on any government welfare to get them through. The long-term savings for the government could be immense for a little pain in the present. They could limit the pain by only making this option available to those over 60 who are approaching retirement age and more likely to have disposable income that they would like to use to secure their financial future.
Of course, there is also argument about the current and future levels of super contributions by employers. Some want the level increased at a quicker rate than what is being forecast while others don’t want it increased at all. For most the argument is about which option is going to be best for them.
Another argument is to abolish superannuation altogether and let individuals manage their own money. The pros and cons of this are too great to tackle here and it is sure that everyone will have an opinion on this.