When Federal Treasurer Jim Chalmers hands down the budget on 14 May, the pressing need for fiscal responsibility is likely to trump spending programs.
In an era of fake news, it’s getting more difficult to separate fact from fiction. Yet it’s imperative we do so because the consequences for being deceived can be enormous.
Australians lose $16B in retirement savings to legacy investment products: FSC
Removing barriers that prevent fund managers and superannuation funds from moving clients to more modern investment products would add $16 billion to Australians’ collective retirement savings and lift their income by $22 billion, according to new research from the Financial Services Council (FSC).
Calling for a product modernisation framework based on the results of its Product Modernisation Research Report, prepared by EY, the FSC says acting on its recommendations would also strengthen the government’s fiscal position by nearly $1 billion over the net 10 years and by $21 billion through 2050, by lowering Age Pension outlays and raising new tax revenue.
“A product modernisation regime would allow superannuation trustees and fund managers to efficiently move customers to modern equivalent investment options when it is in members’ best interests, without triggering the early application of tax obligations,” the council said.
According to FSC CEO Blake Briggs, $132 billion invested in super and other investment options could benefit from modernisation, affecting more than $1.8 million customers.
“Allowing superannuation trustees and fund managers to move consumers to modern products would result in consumers having $16 billion more in their retirement by 2050, delivering $21 billion in additional retirement income for Australians,” he said.
The research showed a 40-year-old with an $80,000 current balance could have another $200,000 by the time the retire “if superannuation trustees were permitted to move them to contemporary products without incurring tax penalties or regulatory barriers if they are currently invested in a legacy product”. Under current regulations, the above individual would have $484,000 upon retirement in 2050; that should be as high as $684,000.
The FSC further argued that the government’s Your Future, Your Super (YFYS) reforms support product modernisation. YFYS has highlighted that consumers often become stranded in legacy products due to government-imposed tax and regulatory barriers, with trustees left to “appropriately conclude” that moving them out of those products would not satisfy the best-financial-interest duty.
“The FSC supports performance testing of superannuation products; however, flaws in the current design of the Your Future, Your Super framework are having adverse consequences for consumers,” Briggs said.
“The FSC encourages the government to act to protect consumers from being trapped in underperforming products that APRA has publicly identified, by implementing a product modernisation framework that allows superannuation trustees to transfer consumers to modern products.”
