The Productivity Commission has published its Report on Superannuation: Assessing Efficiency and Competitiveness.

Its overall assessment is that structural flaws in the form of inadequate competition, governance and regulation have created problems that drag down the system’s performance and lead to very mixed performance across the system.

It found that there would be substantial benefits if there were no unintended multiple accounts (and the duplicate insurance that goes with them).

It also found that not-for-profit funds, as a group, have systematically outperformed retail funds. This outperformance cannot be fully explained by asset allocation, tax or expenses. Much of it is likely due to differences in asset selection (within asset classes) between the segments. Not-for-profit funds outperformed retail funds on average within most major asset classes over the 10 years to 2017.

The Treasurer said the Government will carefully consider the recommendations and will await The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s Final Report before finalising its response to the Productivity Commission’s report.

The Productivity Commission‘s 31 recommendations include:

• Default superannuation accounts should only be created for members who are new to the workforce or do not already have a superannuation account (and who do not nominate a fund of their own).
• A single ‘best in show’ shortlist of up to 10 superannuation products should be presented to all members who are new to the workforce (or do not have a superannuation account), from which they can choose a product. Clear and comparable information on the key features of each shortlisted product should also be presented. The shortlist should also be easily accessible to all members at any time, including when starting a new job.
• The Australian Government should legislate to require all APRA-regulated superannuation funds to undertake annual outcomes tests for their MySuper and choice offerings.
• The Australian Government should seek the passage of legislation to require the auto-consolidation of superannuation accounts with balances under $6000 and 13 months or more of inactivity. Trustees should be required to transfer these accounts to the ATO for auto-consolidation with a member’s matched active account.
• The Australian Government should require funds to publish simple, single-page product dashboards for all superannuation investment options.
• The Australian Government should immediately amend the Corporations Act 2001 (Cth) to ensure that the term ‘advice’ can only be used in association with ‘personal advice’ — that is, advice that takes into consideration personal circumstances.
• The Australian Government should automatically accredit superannuation funds to be eligible to receive (following member consent) information held by banks under the Open Banking Initiative.
• The Australian Government should require that all fees charged by APRA-regulated superannuation funds are levied on a cost-recovery basis. Using fees to cross-subsidise between members should be prohibited. These rules should be implemented and enforced by regulators in such a way that avoids gaming by funds and does not pose new barriers to member switching. The Australian Government should ban trailing financial adviser commissions in superannuation, to take effect as soon as practicable.
• The Australian Government should seek the passage of legislation to make insurance through superannuation opt-in for members under 25 years of age, and to require trustees to cease all insurance cover on accounts where no contributions have been made for the past 13 months (unless the member provides express permission that the cover is to be retained).
• APRA should immediately require the trustees of all APRA-regulated superannuation funds to articulate and quantify the balance erosion trade-off determination they have made for their members in relation to group insurance and make it available on their website annually.
• The Australian Government should immediately establish a joint regulator taskforce to advance the Insurance in Superannuation Voluntary Code of Practice and maximise the benefits of the code in improving member outcomes.
• APRA should amend its prudential standards to be prescriptive in requiring trustees of all superannuation funds to have and use a process to effectively assess their board’s performance relative to its objectives and the performance of individual directors, and to disclose this process annually.
• The Australian Government should require trustee boards of all APRA-regulated superannuation funds to disclose to APRA when they enter a memorandum of understanding with another fund in relation to a merger attempt.
• The Australian Government should legislate to make permanent the temporary loss relief and asset rollover provisions that provide relief from capital gains tax liabilities to superannuation funds in the event of fund mergers and transfer events.
• The Australian Government should pursue a clearer articulation of what it means for a trustee to act in members’ best interests under the Superannuation Industry (Supervision) Act 1993 (Cth).
• APRA should focus more on matters relating to licensing and authorisation, ensuring high standards of system and fund performance.
• ASIC should focus more on the conduct of superannuation trustees and financial advisers, and on the appropriateness of products (including for particular target markets) and disclosure.
• The Australian Government — with the benefit of this inquiry report and that of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry — should clarify the roles of APRA and ASIC in relation to superannuation.