The Government’s Protecting Your Super (PYS) package which was finalised in April this year will do much to improve the superannuation system, especially for those members with low balances. It will lead to a significant reduction in the number of duplicate accounts, a cause ASFA has long supported, reduce unnecessary account erosion, and prevent excessive fees applying to low balance accounts.
But as funds work to implement these measures, it is becoming clear that these benefits come at a cost and in some cases work against the best interest of members. The most serious example of this will be those who need or value their insurance but lose it because they fail to make an election to maintain it by the 1 July deadline. Reasons for this could be either because they don’t understand the import of the changes or they never hear about them, possibly because their fund doesn’t have their current contact details, or they simply put aside the letter or email for a rainy day.
PYS public education campaign
To mitigate this risk, ASFA and the FSC are working together—along with certain funds, insurers and reinsurers—to create and deliver a fund member information campaign to alert members to the PYS package changes and encourage them to open their letters or other fund communications. Or, if they haven’t been receiving any and they think they’re affected, to check their super at myGov.
The campaign will rely largely on social media, as well as some broadcast media and PR, and is designed to complement individual fund’s more targeted communication campaigns. Agnostic about whether insurance should be maintained or not, the campaign simply aims to get members to check their super and insurance and make a deliberate and educated choice based on their circumstances.
PYS implementation and policy issues
The PYS package has several unintended consequences in other areas that do not always appear to be in the best interest of members. For example, the new low balance fee cap may apply to sub-components of what is otherwise a high balance account and there also appears to be potential for inadvertent or deliberate ‘gaming’ of the fee cap for high balance members. These fee cap refunds for such members must be funded somehow and it is likely that they would be drawn from fund members generally. The inequity of raising fees generally to protect members with high balances is clearly not what was intended and should be avoided.
Another example is the potential for low balance components of a high balance account to be transferred to the ATO under the inactive low balance account measure and if the account is active returned to it. Again, this is clearly not in members’ best interests.
In consultation with the industry we have compiled a list of implementation, technical and policy issues relating to PYS and will continue to raise these with the re-elected Government, Treasury and the regulators to explore avenues for getting these issues addressed or ameliorated.
The tight deadlines have also added pressure on funds as they and their service providers work hard to meet the implementation milestones. Given these challenges it is important that the regulators take a measured and considerate approach to their supervision as they monitor compliance with the PYS obligations. In the months following 1 July 2019 scenarios such as missing a communication deadline or failing to switch off insurance and then having to refund premiums should be viewed with discernment. The same scenarios in a year or two’s time might warrant closer scrutiny.
Trustees are required to act in members’ best interest, but I think it is often not adequately understood that to do so they need the help of Government and the regulators. I am confident we can all work together to iron out the practical challenges which PYS implementation has unearthed so that its basic purpose of safeguarding member benefits—especially for those who may be low income, in casual work, or have a long break from work for reasons like rearing a family—can be delivered in full measure.
Whether we like it or not we are moving to a world that demands flawless execution, where there will be little if any tolerance for errors. I have absolute confidence that we can rise to that challenge, but the Government and regulators should recognise their role in this endeavour and that we are in part dependent on them to deliver this result. It is only in this way that members’ best interests—by which in practice we mean a decent standard of living in retirement—can be furthered and protected.