Labor is committed to the banking royal commission’s recommendation of “stapling” a default superannuation account to people as they move jobs, says the shadow financial services minister Clare O’Neil.
“We’re committed to stapling. Exactly what that looks like, I’m not sure. But certainly, we do need to abide by his recommendation and move away from the incredibly problematic issue with superannuation today, which is the issue of this multiplicity of accounts,” Ms O’Neil said after a speech to the Committee for Sydney on Tuesday.
Ms O’Neil said “150,000 people in Australia have six or more superannuation accounts. On all those accounts they’re paying fees, they’re paying insurance, it’s diabolical.”
She said “stapling” was not “diametrically opposed” to the industry’s alternative push for a “balance rollover” scheme.
A balance rollover approach, which the Royal Commission and the Productivity Commission did not endorse, would involve the balance of pre-existing super accounts being automatically transferred into a person’s new default account rather than the initial account itself following the worker.
Superannuation experts said the “devil would be in the detail” of how Labor implemented the change.
Xavier O’Halloran, head of advocacy at the Superannuation Consumers’ Centre at CHOICE, said balance rollover was not consistent with “stapling” accounts.
“Balance rollover adds a whole bunch of extra costs into the system and seems really inappropriate, and designed to satisfy industry and not consumer needs,” he said.
“Under the PC and Royal Commission model your fund follows you and that is more efficient.”
The Productivity Commission report found the automatic rollover model would cost $45 million a year in administration compliance for about 500,000 rollovers.
Commissioner Kenneth Hayne said in his final royal commission report that default arrangements in the best interests of members are essential because some employees, especially those who are young and working part-time, do not make informed choices about their superannuation arrangements.
Stapling would only apply to new workers or existing workers without accounts.
Ms O’Neil said that given the scale of the superannuation industry, the recommendation needed to be implemented with care and consultation.
“Some changes in the royal commission are quite easy and quick to implement, for example, the idea that financial institutions should provide documentation in a timely manner to APRA [the Australian Prudential Regulation Authority],” she said. “But super is a 3 trillion dollar industry. You don’t rush that. You make sure you get that right.”
Both ideas of “stapling” and “balance rollover” would represent a shift from the status quo, whereby employees must actively nominate pre-existing accounts to new employers if they want to avoid opening multiple accounts.
Grattan Institute policy fellow Brendan Coates said the auto rollover approach would ensure there’s a single super fund for any given member, “but would still tie the employee to a fund chosen by their employer as a default”.
“Hayne was explicit that the fund should be carried over – stapled – to members as they move jobs,” he said.
“This industry’s proposal would do the reverse – the fund would switch each time the employee moved jobs.
“It would reduce the proliferation of multiple accounts as people moved jobs, but introduce extra costs given number of rollovers that would be processed.”
Ms O’Neil also emphasised that “stapling” would not preclude people from making their own choices about switching accounts. Rather, the spirit of “stapling” was about protecting people who are not actively engaged in their superannuation arrangements.
“One of the biggest, simplest ways for us to help Australians be better off in retirement is to end the proliferation of accounts. The current proliferation is inexcusable and a major contributor to the fact that Australians are today paying far too much in superannuation fees – an incredible $30 billion a year.”
In her speech, Ms O’Neil said Labor was committed to implementing all but one of the 76 recommendations of the Hayne royal commission. She also noted that she found the message of Hayne’s final report to be as much – if not more – about culture and attitude in the financial services industry than it was about the need for law reform.
“Before I was elected to parliament, I worked at McKinsey and Company, which is a big consulting company which goes into other big companies and helps them solve their most difficult problems,” she said.
“And every study we did, not matter how complex or technical the strategy questions that we were trying to solve, we would always finish the study talking about people. And I can think of examples where there would be tens of millions of dollars on the table, and yet we would always end the study in the team room talking about how we were going to get Bob to stop buying widgets from Gary, which he’s been doing for the last twenty years. So it’s always this people stuff that’s the hardest to solve.”