EDITORIAL

YFYS: Next steps are crucial

The Your Future, Your Super (YFYS) reforms have been passed. There has been passion, research, controversy and lobbying aplenty. Overall we think consumers will benefit. The degree of benefit will depend on what happens next. The next steps taken by policymakers, regulators and fund trustees will weigh heavily on consumer outcomes, and ultimately determine the success of YFYS.

Solving the multiple account problem at its source is a great outcome. Congratulations Minister Hume and Treasurer Frydenberg for pushing through with these reforms. I know from conversation with Treasurer Frydenberg that they are proud of what has been achieved, especially the benefits to consumers. The government considers these reforms to be transformational and appears intent on modernising superannuation. I’m certain it will keep pushing ahead with this mandate. It appears that retirement, via the Retirement Income Covenant, is the next part of their ambitious plan. Minister Hume has always engaged strongly with the super industry and you should expect to see Treasurer Frydenberg engage more (I think we can all agree that he has been busy).

With the stapling model now determined, we think an important policy step will be a broad review of insurance in super, as recommended by the Productivity Commission. This should address the ability of all public offer super funds to provide appropriate insurance arrangements to all their members, in the process addressing concerns well-raised by CBUS and HESTA.

Throughout we have maintained that the performance test is deeply flawed. The benchmark changes ensure that most funds will not be drawn too far from the investment strategy they believe best for their members. A ‘past sins’ test will deliver rough justice to some funds. A handful will feel (rightly) let down by the crude nature of this retrospective test, while the test ignores the significant changes made by many funds to improve their forward-looking prospects (partly an impact of APRA’s Heatmap).

Now it is incumbent on industry and regulators to minimise the many potential negative consequences of the YFYS reforms. Regulators will need to be on their toes to identify a new range of agent-driven behaviours which could result in poor outcomes to members. Many funds will need to update their position around merging in the best interests of their members. Surely now is the time for the many mergers that fail through chair and trustee self-interest to end. Similarly, industry bodies should reconsider their model and indeed their existence – collective revenues of $100m per annum just doesn’t fit in a YFYS world.

Choice and engagement are elevated by YFYS. But quality engagement is the desirable outcome, which entails informed consumers being provided with appropriate, well-framed information and tools. Unfortunately, we fear that the YFYS consumer portal may struggle to meet this standard unless it can balance return information with better insight into risk.

It is likely that in a stapled fund world B2C will be front of mind for many funds. This will be fascinating to watch but it will be a poor outcome if the result was greater system expense.

YFYS has the potential to deliver sizable consumer benefits. The degree of benefit will depend on next steps. Hopefully, all stakeholders choose to step forward constructively and with consumer outcomes front of mind.

Colin Tate AM, Conexus Institute chair & Conexus Financial chief executive.