DBFO should be shaped around retirement principles: ASFA

The Association of Superannuation Funds of Australia (ASFA) has backed the government’s retirement principles consultation, saying it “supports the fundamental intentions”.

However, like the Financial Advice Association Australia (FAAA), the super fund group highlighted that the interaction between the principles and the second tranche of the Delivering Better Financial Outcomes (DBFO) reforms needs to be considered.

In its response to Treasury’s consultation on best practice principles for superannuation retirement income solutions, the FAAA raised concerns that the draft DBFO measures were treated as though they are already in place.

“We note the intended interaction between the principles and the draft framework, with the government’s proposal to permit trustees to provide simple retirement advice, that is also personal financial advice, under the Delivering Better Financial Outcomes reforms,” it said.

“However, we are concerned about the inclusion in best practice guidance for retirement income solutions, principles based on the government’s DBFO proposals, to expand trustee collective charging arrangements to retirement advice, and allow trustee ‘nudges’ and ‘prompts’ to members on retirement.

“To our knowledge, the legislation for these proposals under the DBFO reforms has not been finalised and has yet to be scrutinised by the parliamentary process.”

While ASFA expressed a similar concern around the alignment of the government’s efforts in this area in its submission, it is less focused on needing to hold off on enshrining the principles until DBFO is legislated as it is avoiding asymmetry.

“Consideration of the sequence in which the principles are finalised and delivered will be necessary in ensuring successful delivery, and particularly in considering the ongoing development of the Treasury Laws Amendment Bill 2025: Delivering better financial outcomes (DBFO reforms), which only recently were the subject of public consultation and have the potential to impact on their application,” ASFA said.

“The second tranche of DBFO reforms encompass elements including intra-fund advice, fund member engagement, and client advice records. This means the operating environment for the principles is potentially susceptible to change, posing the risk of misalignment with future regulatory settings.

“ASFA recommends consideration be given to how the finalisation of the government’s DBFO reforms may impact the principles, in ensuring clear alignment and regulatory harmonisation.”

One of the key areas that requires this regulatory harmonisation is member communication, with the DBFO reforms set to enable more wide-ranging abilities for super funds to provide information to members through nudges or “targeted prompts”.

“Such reforms necessitate careful consideration regarding potential implications in delivering the proposed principles,” the submission said.

Somewhat ironically, given the push for a more principles-based approach to financial advice regulation that allows for greater reliance on professional judgement, ASFA is of the belief that some of the retirement principles are overly prescriptive.

Indeed, it argues that an “inflexible, ‘one-size-fits-all’ approach”, fails to recognise the “varying nature, scale and complexity of individual organisations, and may present a number of complexities in compliance”.

“ASFA recommends where references are made on providing members with access to certain products (e.g. LIPs), that the language be drafted to clarify that, where a fund does not offer the product, providing a pathway to that product where appropriate (e.g. identified through personal advice that considers their individual circumstances) will still be considered as meeting best practice,” the submission said.

“Further, we recommend ensuring that, when finalised, the principles exhibit appropriate language, flexibility and adaptability, and avoid unnecessary prescription and rigidity which could present complexities in their application.”