Super Nation is a fortnightly column that examines, explains and analyses key issues in one of Australia's largest, fastest-growing and most important industries: superannuation.
A superannuation fund contacts retiring members and mentions that they will pay no tax on earnings if they convert from the accumulation phase to the pension phase.
This could be considered general advice, but whether it is allowed by law depends on a variety of factors, including the context of the communication.
However, the same fund is not allowed to recommend that members convert to a pension because it would be personal advice - which funds are outlawed from providing if they are not licensed to do so and not directly charging fees for it.
What may seem like a fine distinction between the two scenarios could disappear when legislation is passed in the Australian Parliament, a situation that cannot come a moment too soon for many funds and organisations.
If the bill is as industry members expect, it will enable funds to ‘nudge’ members with targeted communications at key stages of life to encourage them to make a decision, such as converting to a pension.
One body looking forward to the change in law is the Super Members Council (SMC), which recently welcomed the release yesterday of two new major consultation papers on the retirement phase of super, which is when members most need advice.
The peak body for profit-to-member funds said financial advice was the “big missing piece of the retirement puzzle”, referring to the Delivering Better Financial Outcomes (DBFO) reforms to make advice more affordable, accessible and higher-quality.
Comprehensive financial advice can cost thousands of dollars per year, putting it out of the reach of most Australians, and the number of people able to provide it has been falling as advisers leave the industry because of the compliance burden.
The reforms are the Government's response to the Quality of Advice Review, which made 22 recommendations, including that funds be allowed to provide more personal advice, which is financial product advice that takes into account a client’s personal financial circumstances.
“But the real gamechanger will be making simple, affordable financial advice available through super funds. That’s the missing piece for members — and it should be legislated urgently,” SMC said in its Super Wrap email.
Waiting for details
The first tranche of DBFO reforms received Royal Assent in July 2024, but the legislation for the second of the three tranches remains in draft form with no date set for consideration in Parliament, where Labor relies on the Greens for upper house support.
Draft legislation seen by the industry indicated ‘free’ intra-fund advice could be extended to take account of a member’s full financial circumstances, to determine eligibility for the age pension, and a spouse’s financial position.
Superannuation trustees and financial advisers can currently provide ‘intra-fund’ advice on issues like insurance, investment options, early access to super and contributions if it relates to members’ super accounts and is collectively charged to all members.
The urgency of passing the second tranche was emphasised by the Association of Superannuation Funds of Australia (ASFA), which has a similar membership to SMC.
“To be unequivocally clear, this legislative package should pass as soon as possible and without further delay,” ASFA said in a submission.
The peak bodies may be disappointed because, although the second tranche legislation is expected to be released for consultation and feedback this year, it is unlikely to be passed in 2025.
The Government has made clear it has higher legislative priorities, including in superannuation, where it wants to legislate requiring employers to pay super with wages and salaries, and increasing the tax on balances over A$3 million.
The key elements of the new second tranche are expected to be:
- allowing funds to ‘nudge’ members with targeted prompts
- replacing the Statement of Advice with a streamlined Client Advice Record
- defining what services funds can be collectively charged to all members, and
- creating a new class of adviser.
Helping members
ASFA Chief Policy & Advocacy Officer James Koval said funds were currently restricted from providing advice around important issues that members often asked about, but the new legislation may change this.
He said a new class of advisers might be able to answer members’ questions about investments, how much super they need to retire and insurance.
“Not necessarily everyone will need to receive comprehensive, independent financial advice because for some people it can be expensive and for others it might also not be accessible,” Koval said.
“At the moment your options are either general information or comprehensive advice. So having something in the middle for people to work up that ladder of advice and engagement, that’s where we see the opportunity.”
Mercer Financial Advice Technical Services Manager Anthony Williams believes nudges could help fund members who would not usually receive financial product advice and may not be highly engaged with their super and investments.
Funds can divide members into different cohorts and provide them with targeted prompts to make decisions about their retirement funding.
“There’s still a significant proportion of the Australian population who never receive financial product advice,” Williams said.
“If that’s the case these types of nudges could have a significant positive effect.”
The SMC also said it supported superannuation nudges to help member ‘engage’ with, and make informed choices about, their super and plan for retirement.
“The objective of nudges should be to give trustees the opportunity to have a greater and more meaningful engagement with members than is permitted under the current advice regime,” it said in a submission.
Nudges should not be allowed where an investment, product or fund switch is being recommended, but they should include retirement income projections and use of calculators.
HESTA is among the funds advocating for the legislation to include the ability to nudge members about specific retirement products.
It wants a two-step approach with prompts linked to specific fund products and aligned with regulatory oversight for ‘engaged’ members, and default retirement solutions coupled with member interaction for those who are less engaged.
“With suitable consumer protections in place, these prompts can help members to be better equipped with the right tools and information to make confident, informed decisions for their future,” a HESTA spokesperson said.
