2021 National Conference Special Address | Senator the Hon Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy

Thank you. It’s terrific to be joining you again. This conference is always a great way to start the year and a welcome opportunity to outline the government’s plans for the self managed super sector.

But first, I want to recognise and acknowledge the Self Managed Super Fund Association’s work –  particularly during the COVID-19 pandemic – in representing an integral part of the Superannuation ecosystem.

As at September last year, there are more than five hundred and ninety one thousand self managed super funds, accounting for $728 billion – or around a quarter of all funds under management. As your research shows, the driving force behind these numbers is Australians desire to be masters of their own destiny, to control their personal retirement incomes. And that’s something we as a government wholeheartedly endorse; we want more people to take an active interest in their personal finances and retirement savings.

Establishing and running a self managed super fund is a significant undertaking. It’s also rewarding, and it provides trustees with greater flexibility and control over their savings. Self managed super fund trustees take personal responsibility and maximise their choices to achieve comfortable living standards after lifelong efforts and hard work.

I am encouraged to see ASIC’s new estimates of the cost for the average user have been refined, and now more in line with people’s expectations. We also know now that the costs of running a self managed super fund have decreased since 2013. 

Rice Warner’s report found that self managed super funds with balances as low as $200,000 are now able to be cost competitive with APRA regulated funds. I’m pleased to say that developments in technology and in the fintech sector have been driving many of these costs down and they will continue to do so. 

FinTech solutions, lower administration and costs, and in turn lower the costs of running a self managed super fund; the lower the cost of running a self managed super fund becomes, the more people are attracted to the sector and the bigger and more vibrant the sector becomes.

Taking factors such as flexibility and costs into account, all people should have the ability to make choices about what suits them, and our compulsory super system should allow them to be as engaged as they wish. The government’s role in this is to get the policy settings right. So today I will discuss some recent developments and what’s coming up for the self managed super fund sector. 

The Retirement Income Review, which was released in November confirmed the importance of superannuation to our retirement system. It found that the system, based on the three pillars of the age pension, compulsory superannuation and voluntary savings – including home ownership – is delivering adequate retirement incomes for the majority of Australians and will be viable for generations to come. 

The Review found that the current system is effective, sound and broadly sustainable. But it also confirmed that there is room for improvement.

One of the key government policies that the Review highlighted was the Retirement Income Covenant. Having postponed the introduction of the Covenant during the COVID-19 response last year and to allow further time for consultation, the government is now continuing to progress this important reform, and we look forward to working closely with the Self Managed Super Fund Association on the Covenant in the near future.

It’s imperative that trustees of all funds support their beneficiaries by developing strategies that carefully consider the retirement needs and preferences of different cohorts of their members, and that is what the Covenant is all about. Having a strategy for retirement is as applicable to self managed super fund members as it is to members of large funds.

Indeed, many Australians choose to set up a self managed super fund precisely at the point of entering retirement when they have more time to engage – to manage their savings – but of course, trustees don’t need to wait for that Covenant to be legislated to take action. There’s nothing stopping trustees from developing strategies that meet their members retirement needs right now, and I’d encourage them to do so.

The Covenant is just one of many measures that this government has delivered to directly assist Australians to engage with their super outcomes; to maximise their savings and secure their standard of living into the future.

The government has already legislated to eliminate exit fees and protect superannuation savings from excess charges and costs, such as by making insurance opt in for accounts with balances less than six thousand dollars and for individuals under 25. And providing choice of fund to all Australian workers, including the right to direct your contributions to a self managed super fund via the Your Super / Your Choice legislation passed last year.

One announcement that you may have missed, but which is pertinent to many. In December 2020, the government stated it would be amending the law to ensure that retirees who have commuted and restarted certain market linked pensions, life expectancy pensions and similar products, are treated appropriately under the transfer balance cap.

As you may recall, the changes that the government made in 2016 resulted in an unintended outcome that meant individuals who had commuted and restarted one of these products, may have inadvertently been caught in a perpetual excess transfer balance cap position, which couldn’t be resolved. So this measure will enable retirees with these products to make the necessary partial commutation to remove the excess.

The government will also ensure that excess transfer balance tax for retirees in this situation, will not apply until after the amending legislation has received royal assent.

Of course, the big ticket reforms that will be the feature of the early part of the parliamentary year, will be the Your Future, Your Super changes.

It’s estimated that these important reforms contained in the Your Future, Your Super package, will benefit super members by around $17.9 billion over the next 10 years.

From July 01 this year, accounts will follow employees as they change jobs, thus minimising the creation of unintended multiple accounts.

It will also be easier for account holders to choose better funds with a new interactive online YourSuper comparison tool that will encourage funds to compete harder for members’ savings.

Funds will also be accountable for persistent underperformance by requiring MySuper funds to meet an annual objective performance test, those funds that fail will be required to inform members and persistently underperforming products will be prevented from taking on new members – this measure will extend beyond MySuper products to trustee directed products in 2022.

And for those of us that are gathered here today, the element of the Your Future, Your Super package that is particularly relevant to self managed super funds is the best financial interests duty. 

Superannuation funds should be held to the highest standards of accountability and transparency and self managed super fund trustees are no exception. To that end, the best interest duty will be amended to be the best financial interests duty to remove any doubt about how super fund trustees should use members’ money.

This change will ensure that super funds are more accountable for their decisions and prioritise members financial outcomes.

You may also recall that last September, the government introduced a bill to parliament to increase the maximum number of members in a self managed super fund and also in small APRA funds from four people to six people. Now, this measure is about increasing choice and flexibility, particularly for larger families who don’t currently have the option of including all family members in their self managed super fund.

As you will all be aware, families with more than four members must now create either two self managed super funds – incurring those extra costs – or place their superannuation savings in an APRA-regulated fund.

The government understands that this is a barrier and is committed to seeing passage through the Senate of this legislation this year. This measure will support families of all sizes to use self managed super funds as a vehicle for controlling their own Superannuation savings and investment strategies.

As the Retirement Income Review pointed out, it’s quite remarkable that a country the size of Australia – the world’s 13th biggest economy and only number 52 by population – has the 4th largest stock of superannuation assets in the world.

Those Australian savers – including self managed super fund members – collectively own close to three trillion dollars in assets. Now that’s larger than the market capitalization of the Australian Securities Exchange, and larger than Australia’s GDP.

Our retirement income system is well placed to deal with economic shocks as we saw when the COVID-19 economic crisis hit. For me, the Early Access to Super scheme rolled out during COVID-19 also demonstrated a strong and welcome indication that Australians are becoming more engaged with their superannuation and retirement planning.

We have a system that we can be proud of, but it’s not perfect. In the year ahead, the government will continue to take a practical, common sense approach to policy with the best outcomes for superfund members front of mind at all times.

I’m honoured the Prime Minister has appointed me as Minister with responsibility for Superannuation, Financial Services and the Digital Economy. Each of these areas is critical to the future of our economy, especially as we continue to manage the COVID-19 pandemic. Our work continues, as does yours, and I look forward to working with the Self-Managed Superfund Association.

The SMSF Association has transcribed the authorised recording presented at the SMSF Association virtual National Conference 2021, making all reasonable efforts to ensure the accuracy of information.