The Royal Commission report will likely be seen as a key fork in the road for the superannuation industry. It highlights a number of issues, many of which have been known to the industry for some time, but more importantly it creates a clear imperative for industry players to take meaningful action to address them. The report and its recommendations cover both historical and structural issues that have been endemic to the industry, such as grandfathered commissions and duplicate accounts, but they also raise potential challenges that if not properly addressed could pose significant risks to sustainability in the future.
The solutions may involve a degree of complexity, and certainly they will not be implemented overnight, but they will be necessary to the future health of the system. Australia’s retirement industry is growing rapidly, and this is bringing greater sophistication but also inevitably additional layers of complexity that is not always easy for funds, members and regulators to navigate. Maintaining as much simplicity as possible while allowing members to benefit from greater innovation and a more dynamic retirement sector is the key challenge. Progress is being made but more needs to be done.
In particular we expect to see structural changes within many retail fund providers as they evolve their models for the future. MySuper product quality filters are expected to be lifted, which should help provide a more effective safety net for disengaged members. At the same time, with the changes in trustee expectations, we will undoubtedly see continued rationalisation in the number of providers in the market through fund mergers.
For consumers, the Royal Commission has highlighted the cost of not being engaged with your super. For many Australians, failing to engage and check in on their retirement savings may already have had an impact on their future retirement outcomes, whether through below-average returns, high fees, duplicate accounts, or inappropriate insurance. For every super member, getting engaged and taking an interest in how your retirement savings are managed is the best thing you can do. Ultimately, the success of superannuation depends on members having a stake in their own retirement.
On the financial advice side, the Royal Commission is proposing some important structural changes that should help create a better deal for advice clients. Combined with new education standards for advisers there should be an ongoing shift in quality, but a key challenge remains the high cost of providing advice, which is ultimately passed on to clients. Will financial advice become a luxury that only the few can afford, or can the industry evolve so that all those exposed to capital markets through their super can access affordable advice? This is a critical question and one that will require a balanced approach to ensure that members can get the certainty and comfort they need in retirement.
With a federal election due this year, and an early budget pegged for early April, the path to implementing these changes should become increasingly clear. The Royal Commission has revealed the deep desire Australians have to fix the system, but it is up to us to work through the changes. We have an opportunity to make real and lasting improvements that will make super more sustainable and hopefully create a better value proposition for members. But we cannot ignore the complexity of the task ahead. Success will mean balancing a number of competing goals – including cost, sophistication, choice and simplicity – while ensuring members understand what they need to do to get the most value from their super.
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