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Australian Superannuation Fund Developments

October 3, 2017

Australia’s superannuation structure is praised for having a creative mix of public and private systems that utilize high savings mandates through employer contributions. 

More than 90 percent of Australia participates in some form of superannuation fund. Employers are required to contribute 9.5 percent of salaries to “super accounts.” This helps achieve high savings rates at relatively low cost to the government. 

Various Australian government bodies are initiating measures to further increase the transparency of super funds. 

Advantages of Australian Superannuation Funds

The structure of Australia’s pension system may offer advantages over traditional defined benefit pension systems, which are associated with high costs. Some unique features of Australian super funds include:

  • A pooled approach to investing, which allows plan members to benefit from top investment talent. In contrast, most U.S. contribution plans are self-directed, which means that plans can often be overseen by persons with little investing experience.
  • Investment in alternative assets, including infrastructure and real estate. This helps to minimize fees while still having efficient returns.
  • A competitive environment, which forces funds to find innovative and creative ways to keep pace with asset growth.

While the competitive nature of the Australian super fund industry may cause it to shrink, the conceptual approach of Australian retirement funds may serve as an example for an alternative pension system model. However, recent findings by the Australian Tax Office (ATO) have uncovered instances of employer misconduct in relation to superannuation contributions. 

Employers Failed to Fulfill Contribution Requirements

The Australian Tax Office reports that many employers have been failing to uphold their obligation to contribute the mandatory 9.5 percent of employee earnings to a super fund. Australians may be missing nearly $18 billion in contributions, spread across some 6.3 million accounts. 

Some employees may not be aware that they have been affected. It is possible for people to become disconnected from their super funds due to major life changes, such as changing jobs, moving residences, or major company shifts. A failure to update personal details with their funds can complicate matters further.  

Australian Government Measures Increase Fund Transparency 

ATO Taskforce 
In response to the lost superannuation, the Australian government is creating an ATO taskforce to help regulate employer non-compliance. Some of the steps to tighten regulation and enforcement include:

  • Closing legal loopholes used by employers
  • Requiring employers to make monthly contributions, which will help the tax office identify non-compliance
  • Seeking court-ordered penalties when employers are caught repeatedly violating superannuation obligations

ASIC (Australian Securities and Investments Commission) Measures
The ASIC will begin enforcing measures to make super fund fees more transparent and easier to understand. New regulations will state what information is to be included in funds’ Product Disclosure Statements (PDS). In 2018, regulations will dictate not only what type of information is included in a PDS, but how it is presented to consumers.  

ASIC will make amendments to ensure greater certainty regarding the relevant requirements, and will undertake compliance checks to ensure funds are fulfilling their reporting obligations. 

The Future of Australian Super Funds

There may not be major flaws inherent to the concepts behind Australia’s superannuation fund system. Like any system, it can be subject to misuse. Responses from the ATO and ASIC will be helpful in ensuring greater accountability from employers and defining more specific reporting parameters. 

In the short term, fund managers can foster the proper culture from within businesses, funds, and investment groups. As superannuation funds adapt to new regulations, they must also work from within to address issues like transparency and implementation of environmental, social, and governance (ESG) best practices. 

The issues facing pension funds and other large institutional investors require special attention.  If you have any questions or concerns regarding government regulation, fiduciary litigation, corporate wrongdoing, or related topics, contact us at Kessler Topaz. Our team is focused on promoting active engagement to ensure that funds fulfill fiduciary obligations while maximizing value and financial security.