The Federal Government is consulting on several pieces of legislation in response to the Hayne Royal Commission, one of which will make major changes to how Australians can pay for financial advice.
As one of Australia’s largest superannuation funds, we applaud the Government’s commitment to responding to the Hayne recommendations and endorse any measures that improve the transparency, governance and accountability of the Australian financial services sector.
There is one proposed change though, that while good in intent, has the potential to result in significant unintended consequences. As such we cannot support this proposal. The recommendation proposes to remove the ability for Australians to pay for financial advice through a MySuper product; while enabling it for Choice products.
Financial advice is not about a product, it is about providing essential support and guidance for members to achieve the best retirement outcome. We believe the rules governing advice should be the same, no matter which superannuation product you are in.
The implementation of the proposed legislation runs the risk of creating a two-tier system between the wealthy and many low to middle-income earners who may not be able to afford financial advice any other way.
“Any legislation that creates a barrier for Australian superannuation fund members to access quality financial advice is not in our members’ or the community’s best interests”
– Deanne Stewart, First State Super CEO
Planning for retirement is not simple
In an increasingly complex retirement system, underpinned by the Age Pension, but challenged by decreasing levels of home ownership, increasing household debt and new ways of working such as the gig economy; knowing how to prepare for and maintain a comfortable retirement lifestyle is becoming more challenging.
This is why access to financial advice through superannuation can make such a positive difference to our members.
The importance of financial advice
Our members are teachers, nurses, police, firefighters, paramedics and other government workers. They often tell us that their goal is simply to pay down debt and have enough saved to have peace of mind knowing they can pay their bills, maintain their standard of living and importantly their connection to family, friends and their local community.
Members like Rohit^1, a 62-year-old shift worker with limited work hours, who was not sure how he would support his wife and university-aged daughter on his little savings, and feared eviction.
With the help of one of our financial advisers Rohit set up a transition to retirement plan, enabling him to unlock some of the benefits of his superannuation to pay the bills while he waited for more shift work.
Another member Jane^1 was struggling with the demands of her nursing career. In her late 50s, Jane was coming to terms with the passing of her husband and felt she would need to work until nearly 70 to save enough for retirement.
With the help of an adviser, she set up a plan to work towards her retirement a little earlier than she thought. Knowing she had a plan, made going to work easier too.
A third of our members, like Rohit and Jane, who seek advice while still working, pay for it out of their MySuper product and may not have been able to afford it any other way.
“First State Super has Australia’s largest member-owned financial planning business and every day we see how the right advice, at the right time really does change our members’ lives. The research clearly shows that most Australians think they need financial advice, but the biggest barrier to seeking it, is the cost.”
– Deanne Stewart, First State Super CEO
Paying for advice through super gives more Australians access to advice
Getting access to trusted and affordable financial advice can make a real difference. Research conducted by ASIC found that 41 per cent of us intend to seek some sort of financial advice, with superannuation and retirement the most sought-after topics.
However, one of the major reasons we don’t is because we believe it’s too expensive and more suited for wealthier people. Many Australians don’t realise that the up-front cost of financial advice can be paid directly from their super, and there are now no ongoing commissions being paid to advisors to worry about.
For many of our members, getting financial advice can mean the difference between achieving their relatively modest retirement goals and needing to work in an often-demanding role for longer than they feel able, simply to make ends meet.
A report by Vanguard showed that advice adds 1.5% to net returns – and this can add up to something substantial over time.
The challenge we face, is ensuring that all Australians who want and need quality advice have access to it to help them navigate the complexities of the Australian retirement system and achieve the kind of retirement they deserve.
The proposed changes to the advice system will only increase the divide between those who can and those who can’t afford access to financial advice. The majority of Australians are in a MySuper product and will lose their ability to pay for this essential service through their super.
Inhibiting Australian’s access to quality financial advice is not in our members’ or our community’s best interests.
The unforeseen loophole
Not only is this proposed legislation not in the best interest of many Australians, but it could create another unintended consequence which would be even more detrimental to our members’ retirement outcome.
The legislation only prevents payment for advice through the MySuper products, not through Choice products. So, some members may be compelled to move from the high-performing MySuper product to a less appropriate Choice product.
The Productivity Commission found that MySuper products performed on average 0.84 percentage points better than Choice products.
This would mean an average 50-year-old male would be $56,000 better off in retirement in an average MySuper product, while a 50-year-old female would be $40,000 better off. Moving them to an average Choice product would potentially cause significant loss in retirement income for those who can least afford it.
While MySuper products were designed to be simple; this simplicity should not be mistaken for being inferior.
Just because a member is in a MySuper product does not mean they don’t require advice. Advice is product agnostic and is a critical service that should ultimately provide peace of mind and confidence to members, in addition to a better financial outcome.
The rules governing all superannuation products, Choice or MySuper, should be the same so no matter your income or circumstances, all Australians have access to quality financial advice to help them achieve a better retirement.