The evolving super framework

The superannuation system is subject to ongoing scrutiny from policymakers and regulators, given the importance of the regime on the overall stability of the financial system and in building and sustaining the wealth of Australians. 

The first chapter unpacked the early history of the super system with reference to key developments in the 1990s and early 2000s, which shaped the super industry into its modern form. But the evolution has continued, and in many ways accelerated, over recent years. 

So, what are some of the latest developments in the super space?

Retirement income covenant 

Last July, the retirement income covenant (RIC) came into effect, requiring all super fund trustees to:

• Develop a retirement income strategy for their members.
• Develop and offer comprehensive income products for retirement (CIPRs) to their members.
• Provide guidance and information to help their members choose a retirement income product that suits their needs and preferences. 

The RIC reforms, introduced off the back of the 2014 Financial System Inquiry, aim to ensure funds prepare members for life after retirement, rather than merely focusing on the journey to retirement age. 

Specifically, the RIC intends to:

• Enable individuals to increase their standard of living in retirement through increased availability and take-up of products that more efficiently manage longevity risk, and in doing so increase the efficiency of the super system and better align the system with its objective.
• Enable trustees to provide individuals with an easier transition into retirement by offering retirement income products that balance competing objectives of high income, flexibility and risk management.

The RIC reforms have been successful in enhancing member awareness of retirement income strategies and bolstering the availability of offerings. 

Changes to the concessional tax threshold

While the RIC is firmly in place, other key reforms are yet to be formally introduced but have the potential to reshape the industry. 

This includes a proposal to double the concessional tax rate for super balances exceeding $3 million, from 15 per cent to 30 per cent. Announced by the Albanese government in its 2023–24 federal budget, the proposal has polarised both industry stakeholders and the broader Australian community. 

The changes, which if ratified would take effect from 1 July 2025, would not be retrospective, applying only to future super earnings above the $3 million threshold. 

Sitting Treasurer Jim Chalmers described the proposal as a “modest adjustment, aimed at ensuring “generous superannuation tax breaks” are “better targeted and sustainable.” The government’s own figures suggest just 0.5 per cent of the population (80,000 Australians) would be impacted by the reform. 

However, these figures have been disputed by industry leaders, with the Financial Services Council warning approximately 500,000 Australians could be impacted if the proposed concessional tax rate is not indexed (adjusted for inflation). 

The Albanese government opened consultation on its proposal in October 2023 and is currently considering industry feedback before progressing the bill.

Payday super

The Commonwealth government has also proposed reforms requiring employers to make super contributions on the same day as wage or salary payments. 

The ‘payday super’ proposal, which if approved would come into effect on 1 July 2026, is tipped to improve overall outcomes for fund members. According to the government’s own estimates, a 25-year-old median income earner would have an additional $6,000 in their retirement balance. 

Other touted benefits of the reform include:

• The simplification of payroll management for employers by limiting the build-up of liabilities.
• Making it easier for employees to track their super payments.
• Reducing instances of exploitation by disreputable employers. 

The ATO estimates $3.4 billion worth of super went unpaid in 2019–20.

“The change will particularly benefit those in lower paid, casual, and insecure work who are more likely to miss out when super is paid less frequently. Women are overrepresented in this group,” Financial Services Minister Stephen Jones said. 

Treasury and the ATO have sought feedback from industry stakeholders as part of a consultation period that closed in early November. 

Allowing super funds to provide advice

Another key proposal with the potential to revolutionise the super system is a proposal by the government to allow super funds to provide “qualified advice” to their members. This proposal seeks to improve the affordability and accessibility of financial advice for the average Australian, given professional financial advice is often too expensive and constrained by limited resourcing. 

The proposal was announced in response to a recommendation from the Quality of Advice review (QAR), which sought to address pain points in the current advice model. 

“Superannuation fund trustees should be able to provide personal advice to their members about their interests in the fund, including when they are transitioning to retirement,” independent reviewer Michelle Levy said in her final report. 

“… The objective of this recommendation is to give superannuation funds greater confidence about the scope of advice they can give to their members and to encourage superannuation fund trustees to decide how to allocate the cost of providing advice between members based on the circumstances of their fund and their members.”

But Financial Services Minister Stephen Jones stopped short of allowing super funds to provide “personal advice”, and instead proposed a new class of advice which he dubbed “qualified advice” – employees of licences financial intuitions authorised to provide “simple” advice to consumers. Under this model, all advisers would be subject to the same standards prescribed by a new best interests duty – a regulatory obligation requiring advisers to demonstrate efforts to work in the best interests of their clients. 

According to Minister Jones, the new model would help super funds meet their unique obligations to members by:

• Clarifying the topics that super funds can charge for advice on and the circumstances they can consider.
• Allowing super funds to provide helpful “nudges” to members to drive greater engagement with super at key life stages. 

The Albanese government has committed to consulting with industry before developing legislation to implement the new model later this year. 

These regulatory developments are among a host of other proposals with the potential to reshape the industry and prepare both trustees and members for the next phase of super evolution, characterised by a more comprehensive service proposition and a more equitable super payments and concessions regime. 

Partner profiles: 
UniSuper 
CSC