Corrupted Retirement Savings: Unfulfilled Promises by Australian Superannuation Funds to Numerous Citizens
In this article, we delve into the regulations and protections that safeguard individual investments in Australia's superannuation (super) funds and financial advice sector.
Regulations and Protections for Super Funds
Australian super funds are primarily regulated and protected by two key bodies: the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).
APRA oversees super funds, scrutinizing how these funds spend member money to ensure decisions are in members’ best financial interests. APRA intensifies its oversight on expenditures, emphasizing governance, stewardship, and clear rationale behind spending to protect members' retirement balances.
Members’ contributions are subject to rules around concessional (before-tax) and non-concessional (after-tax) contribution caps, with specific tax implications and potential government co-contributions for eligible individuals with lower incomes.
For self-managed super funds (SMSFs), specific legal obligations include notifying the Australian Taxation Office about changes, maintaining liquidity to pay benefits, and adhering to investment strategy requirements. SMSF trustees can pay for financial advice related to investments, and special rules govern certain asset types like collectibles.
Financial Advice and Misconduct Risks
ASIC regulates financial advice quality and enforcement, addressing misconduct including misleading advice, especially around superannuation switching and risky investment schemes. There is an increasing number of complaints related to advisory services and SMSFs, with some advisers not acting in clients’ best interests.
ASIC promotes consumer protection via public awareness campaigns and reviews of industry practices to prevent high-pressure sales and unrealistic return promises, aiming to ensure advisers deliver suitable, best-interest advice for super fund members.
The Importance of Independent Advice and Testing
Organisations like CHOICE play a crucial role in safeguarding consumers by offering expert reviews and independent product testing. By joining CHOICE, consumers can make smarter decisions, get the answers they need, and never be alone when something goes wrong or a business treats them unfairly.
Unfortunately, not all investment schemes are tested by the regulator. For instance, the First Guardian Master Trust scheme, offered by four super funds via investment platforms, wasn't tested by the regulator. The liquidator for First Guardian Master Trust has confirmed that investors are unlikely to get much of their money back, leaving many everyday Australians who lost their life savings in a precarious situation.
Moving Forward
The federal government needs to plug the gap in protections for retirement savings if they are serious about protecting Australians' retirement savings. The ATO super comparison tool can be used to compare products, providing information about fees, performance, and whether the product passed the independent performance test.
However, the compensation scheme may not be enough for older investors who lost their life savings. Checking the Financial Advisers Register to see if an adviser is licensed and qualified to provide advice is also essential.
To share thoughts or ask questions, visit the CHOICE Community forum.
In the realm of personal-finance decisions, it's vital to seek advice that aligns with one's best interests, as financial advisers, regulated by the Australian Securities and Investments Commission (ASIC), can offer guidance on investing, but there have been instances of misconduct within the sector. On the other hand, independent organizations such as CHOICE can provide expert reviews and testing to ensure consumers make informed, safer choices when it comes to investments, thereby minimizing potential losses.
