The Federal Government has deferred any decisions about banning individual risk commissions in superannuation.
In releasing its response to the Super System (Cooper) Review recommendations, the Government has said it will instead consider the question of banning individual risk commissions in superannuation within the consultation process it is presently conducting as part of its Future of Financial Advice (FoFA) reform proposals.
The bottom line regarding risk commissions in superannuation is that the Government supports the banning of commissions on group risk products in future default (MySuper) funds, but any decision about the future of commissions on individual risk products inside superannuation will become part of the proposed legislation stemming from the FoFA reform proposals.
The Government’s full response to the Cooper Review includes a number of references to the question of risk commissions within superannuation. These references are contained in its responses to recommendations made regarding MySuper and choice architecture (Chapter 1) and in more detail in Chapter 5 – Insurance in Superannuation.
Specifically, Cooper Review Recommendation 5.12 states:
“Up‐front and trailing commissions and similar payments should be prohibited in respect of any insurance offered to any superannuation entity, including to SMSFs, regardless of rules on commissions that might apply outside superannuation.”
The Government’s response to this recommendation was ‘Noted’ (while most other recommendations were itemised as either ‘Support’ or ‘Support in Principle’):
“Noted. Trustees of MySuper products will not be able to pay premiums for insured member benefits that include commissions in relation to the group insurance product. The Government is considering this recommendation further in consultation with the industry through the Future of Financial Advice process.”
… the jury is still deliberating over the future of commissions on individual risk products in super
In other words, while the verdict is to ban group insurance commissions in MySuper funds, the jury is still deliberating over the future of commissions on individual risk products in super.
Elsewhere in several of its responses, the Government uses almost identical language to that contained in its response to Recommendation 5.12. For example, Recommendation 1.14 in relation to MySuper states:
“Trustees of MySuper products should not pay premiums for insured member benefits that include or fund an up‐front or trailing commission or like payment.”
The Government’s response:
“Support. Trustees of MySuper products will not be able to pay premiums for insured member benefits that include commissions in relation to the group insurance product. The Government will consult with industry on the treatment of commissions for individual risk insurance products through the Future of Financial Advice process.”
There are further implications for superannuation trustees, the financial services sector and for consumers as a result of the Government’s response to the other Cooper Review insurance recommendations.
Advisers can click here to access the full Government response to the Super System Review recommendations, including:
- Chapter 1 (MySuper), responses to recommendations 1.11, 1.14, 1.24, 1.26
- Chapter 5 (Insurance), all responses
- Chapter 8 (Self-managed super), response to recommendation 8.29
Within the broader Government response to the Cooper Review recommendations, Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, outlined what he saw as the three key issues identified in the Cooper review:
- That fees in superannuation are too high
- That choice of fund in superannuation has failed to deliver a ‘competitive market that reduces costs for members’
- That there is too much tinkering in superannuation
Major initiatives ratified by the Government to address these issues are the introduction of the new, no frills, default MySuper funds as well as the implementation of a more efficient back-office process, marked by better use of technology, in what will be known as SuperStream measures.
We look forward with interest to the first quarter next year, where industry funds, superannuation trustees, industry associations and other stakeholders make their final arguments in the FoFA consultation process prior to the draft FoFA legislation being released in mid 2011.
