Appearing in a personal capacity before the Senate economics references committee inquiry into improving consumer experiences, choice, and outcomes in Australia’s retirement system on Friday, Michelle Levy said superannuation funds and their trustees are being asked to “do too much and more than they are equipped to do”.
The Quality of Advice Review lead criticised the existing regulation for overburdening trustees with unrealistic obligations, which diverge from their original purpose of managing retirement savings.
“I look at the way the SIS Act and the prudential standards have multiplied the expectations, and not just expectations, but obligations that sit with trustees, and it actually makes almost no sense,” Levy told the committee.
“We have a system that was set up to invest savings for people’s retirements, and we are now at a point where we are asking trustees to solve really difficult problems of how people retire and have a safe and secure retirement.”
In her submission to the inquiry earlier this year, Levy argued that super funds, as trusts rather than legal entities, face significant constraints and potential conflicts in providing personal advice, as trustees must navigate separate duties under the Corporations Act and SIS Act.
She raised concerns about the increasing demands on trustees, who may lack the necessary resources and legal clarity, potentially leading to mistakes and liabilities that could impact fund members.
“In providing that advice, the trustee has duties under the Corporations Act to the individual member which are separate from (and sometimes in conflict with) the duties it has to members under the SIS Act,” she said.
“[Financial services royal commissioner] Hayne recommended that a trustee not be able to have a duty to act in the interests of another person, other than a duty that arises in the course of performing the RSE licensee’s duties, or exercising the RSE licensee’s powers, as a trustee of a registrable superannuation entity. The restriction is subject to an exception for providing personal advice.”
This exception, Levy said, suggests that trustees may not act in their trustee capacity when providing personal advice, but noted that this is a legal question yet to be clarified by courts or regulators.
Speaking before the Senate committee, Levy elaborated that super funds’ lack of capacity to provide individualised retirement solutions makes it difficult for them to meet the RIC’s demands.
“They don’t have the capacity or the information to do individual things. Funds are funds, they’re set up to invest large amounts of money to get returns, and that’s what they’re good at,” she explained.
“Retirement I think needs individual answers and individual responses and trustees, and again, funds, are not set up to do that. So, I think that’s another reason why they really struggle with the Retirement Income Covenant, because no amount of cohorting is actually an answer.”
Looking more closely at the RIC and the criticism funds have faced for displaying a “lack of progress and insufficient urgency” in embracing the RIC, Levy argued that trustees are not doing more because they “are not equipped to be able to do that”.
Namely, under the RIC, super funds are tasked with developing a retirement income strategy, including a product, to improve the long-term outcomes of their members at or approaching retirement.
“The answer isn’t with a product. I think it’s a much more holistic response, and so that of itself, I think, is a concern, and so I do worry about adding to that burden,” Levy said.
She added that the reason product answers have not been successful is largely that “people don’t want them”.
“People don’t want them because I think they have personal concerns and issues which are not necessarily the same as the objectives that we see in the Retirement Income Covenant,” Levy explained.
“One of those is leaving a legacy. Now that may be an objective that the government or governments don’t want to allow or pursue, but it makes it really hard for a superannuation fund to design a product which then answers the needs of the objectives in the Retirement Income Covenant and the needs and objectives of their members.”
When this issue is coupled with the provision of advice, Levy said, there is a conflict between the RIC and members’ wishes.
“I think giving advice throughout the life of a member of a superannuation fund is vitally important to getting them to a really good place in retirement,” she said.
“But if you’re giving that advice, that personal advice, and the person says, ‘actually, what I want more than anything is just to leave money to my children so that they can buy a house’, then the trustee is not in a position to help.
“To say, ‘actually, you should take up this product that I’ve got here, which will make sure that you have this income drawn down over the balance of your life’, these two things are inconsistent.
“So that, to me, is one of the fundamental problems with trustees and the Retirement Income Covenant is trying to use trustees and covenants to achieve as best I can see, an objective of government which is not shared by members.”
The RIC was primarily created as a FUM retention tool for union super funds. If members withdraw in full once they reach a condition of release there is less money available for the unions to skim off, and greater liquidity constraints on unlisted assets (such as union controlled construction projects).
With the SAPTO effective tax free threshold now around $36K, there is no significant tax advantage leaving money in super (accum or ABP) for balances under about $500K. Union funds tend to have a high volume of relatively low balance members, most with less than this.
Suspect Treasury will bring back some sort of maximum withdrawal limits on Allocated Pensions etc if all fails. Seem someone has been very accommodating on retention of FUM in downturns – reduced Minimum’s gets pulled off the shelf quick as in a market downturn – and during Covid – reduced drawdowns so people could spend less and the Governments were spending money and giving it out to keep the economy going – clearly looked to me to be competing policies? Contribute to age 75 now – no problem – all leading the money into the pot?
The matter is this:
The client has an advice relationship and contractual agreement with their Financial Adviser/Planner.
It is a relationship based on trust, judgement and an intimate and detailed understanding of that client’s circumstances, objectives, personality, strengths, weaknesses and goals.
A Superannuation Fund is a product by which may or may not be recommended as suitable to that client.
The Trustees role is to manage that product in the best interest of it’s members.
It is not the Super Fund’s role to monitor, assess, approve or disapprove of the advice provided to that client and make a decision as to whether the client can elect to pay for that advice from their superannuation account.
The Super Fund does not know the client, does not understand the client and does not have the right to accept or reject the clear instruction from a member to facilitate payment to a third party whom the client has confirmed they have received advice from.
This whole process or idea of Super Funds being the gatekeeper to client’s monies to the point of rejection of a clear and concise instruction is ludicrous and is all about control and retention of client monies.
The advice relationship is NOT with the Super Fund.
It is merely a vehicle to use in order to facilitate a strategy to maximise a client’s potential accumulation or retirement funding if suitable.
End of story and cease trying to complicate the process out of existence.
Levy speaks truth and common sense – that’s why no one will listen.
It’s like asking Woolworths or Coles to do a full dietary plan for each of their customers
Wonder if Mr “fixer of hot messes” Jones was listening in to this????
The “fabulous mixer of hot messes” is listening to 2 voices, which are really only one voice. The ISN funds are dreadfully scared that baby boomers investments will walk out the door after 65, depriving the ISN funds of their little “clip”,and ultimately depriving all those Labor “luvvies” who serve on industry superfund boards, and then donate part or all of their board fees back to their unions and thus on to the Labour Party electoral bag.
The other voice in Mr Jones’s ears are Treasury, who of course are extremely sympathetic to industry funds as part of their bias against independent self-employed financial advisers, with the obvious exception of their good mate Daryl Dixon. All of the key Advice positions in Mr Jones office are occupied by Treasury officials. He must get up every day and read the script on what to say today.
Ms Levy is correct in argueing that super funds, as TRUSTS rather than legal entities, face significant constraints and potential conflicts in providing PERSONAL RETIREMENT ADVICE, as trustees must navigate separate duties under the Corporations Act and SIS Act.
Unlike a lot of my contemporaries, I always felt the concept of the industry super had merit. But like everything else in the financial services “industry” , it’s been watered down and stuffed up by vested interests.It should have been an arm’s length industry devoid of political interest and protected from the greed of the old hands in the big end of the town,Including banks, Life insurers and fund managers.Some snouts took a while to get in their noses into the trough, then they are there now.
As they say, industry funds only had one job: save for workers retirements in a non-profit manner. Instead we had a conga line of smart operators attaching themselves to industry funds as “boutique service organisations” sucking on the teat.
You believe ISN could actually make good with payment to the Baby Boomers? That is a lot of cash to come up with – I would not be surprised to see these internally valued assets in large property type assets be very very hard to sell at the values they have? But I could be wrong.
The Gov, Treasury, Industry Super & product manufacturers have their own agenda. Levy, advisers & the general public are not part of that.
Yep-spot on!