Spotlight on Super

The Cooper Review – what it means for you

The Government has released the final report from the Cooper Review – the review into Australia’s superannuation system.

The Cooper Review makes 177 recommendations aimed at making superannuation simpler, safer and more efficient. At this stage they are only recommendations, the Government is yet to determine which recommendations it will endorse.

The Cooper Review recommends a ‘choice architecture model’ which classifies members into three main types — MySuper, choice and self-managed superannuation funds — on the basis of whether the member has made a choice about their superannuation and the nature of the choice.

MySuper is aimed at providing a simple, cost‐effective product for the vast majority of Australian workers who are invested in the default option in their current superannuation fund. MySuper is designed for members who take no real interest in their superannuation (at least not initially) or who choose to be in a fund where the investment strategy is determined by the trustee. MySuper trustees will be responsible for selecting a single, diversified investment strategy for all members of the fund. Trustee duties will be designed to increase transparency regarding costs and performance, enabling easier product comparison. MySuper funds must provide a retirement income stream.

Choice is aimed at allowing members who want to exercise choice over investment strategies to be able to select an appropriate superannuation fund. These members can select either MySuper or choice funds. Under the new regime, superannuation fund trustees will have a responsibility to apply a greater level of scrutiny to the sorts of products that are offered to super fund members. However members would still bear substantial responsibility for the investment or fund choices they make.

Self-managed superannuation funds are designed for those who want to be responsible for both the investment and administration of their superannuation fund. The Cooper Review found that self-managed super funds were largely successful and well-functioning, however they have recommended some tightening of compliance, audit and adviser education standards. The report also recommended some changes to investment rules such as banning the acquisition of collectibles, personal use or in-house assets.

Other recommendations:
• Superstream which is designed to modernise the back-office of super for the 21st century resulting in substantial fee reductions.
• Advice regarding superannuation should only be provided on request, with costs deducted from a member’s account with the member’s written agreement.
• Members should only be provided with advice about superannuation under arrangements that require the member to renew the advice service each year on a renewal notice.
• Choice funds should not be able to charge entry fees. Exit fees can only be charged on a cost recovery basis.
• Members will be able to opt-out of Life and TPD cover in MySuper products.
• No up-front or trailing commissions in respect of any insurance offered by any superannuation entity.
• Binding nominations to be invalidated when certain ‘life events’ occur. Binding nominations to be valid for 5 years.

Extension of 50% minimum annual payments for account-based pensions

On 30 June 2010 the Government announced it would extend the 50% minimum annual payment for account-based pensions for the 2010/11 financial year.

This means, as in the past two years, the 50% minimum annual payments will continue for account-based, allocated and market-linked pensions.

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