Appearing before the Senate Economics Legislation Committee this morning, Mercer implored the government to consider a delay to the implementation of the super fund stapling mechanism slated to come into effect from July 1.
In opening, Mercer senior partner and national leader for research David Knox echoed the sentiments of the firm's submission that the current draft bills are light on detail in many respects, including the stapled fund approach which will require Australian employers to be heavily involved in the onboarding process of every new employee.
Knox said the 1 July 2021 start date is "impractical" for employers, many of whom will simply not be ready, particularly when it comes to payroll systems.
As it stands, the mechanism through which payroll officers will need to register an individual employees' information with the Australian Taxation Office (ATO) will be manual until 1 July 2022, at which time it will switch to a digital system.
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"We would recommend delaying the whole new system until 1 July 22 when the ATO's digital system can be made more efficient and we can eliminate that two-step process," Knox said.
In discussing the impending performance test, as further reason for delay Knox highlighted that a consultation period on draft legislation is still yet to occur, saying: "We hope that's a reasonable period... three or four weeks... so we can think about how it would apply to a range of funds. Yes, we're concentrating on MySuper but this is going to apply across the whole industry."
When asked how the lack of detail offered so far has impacted Mercer's ability to serve its clients, superannuation and insurance leader Richard Boyfield said any advice currently being dealt by Mercer comes with a caveat that its super fund clients' investment strategies may have to be looked at and tested once the regulation is available.
"Obviously that acts as a constraint in providing advice and enabling trustees to develop their long-term investment strategies for which - potentially - if this is enacted from July 1, they're already essentially being tested on the strategy they're putting in place," Boyfield said.
In its submission, Mercer also recommended the introduction of a second test, saying it was concerned some funds may fail the test if they have taken certain decisions in the interests of members, offering the example of de-risking in an over-inflated market.
"This approach should reduce the probability that good performing funds or products are deemed to be underperforming, which can occur under the current proposal... We recommend using a risk-adjusted measure as this will allow for deviations from the benchmark that have been made for risk management purposes," Mercer said.
Knox also told the committee that communication to members of underperformance will likely lead to those members that are engaged looking to switch funds, while those who are disengaged remain in the underperforming fund. This approach hurts the members when the issue is actually one of governance, Knox said.
"We have made some suggestions as to how the underperformance should be rectified through the involvement of APRA and involvement of the trustees to improve performance rather than hurting the actual members - we think it's the wrong way around," he said.
Those suggestions include implementing an action plan, including the appointment of an independent chair of the trustees and tendering outsourced services causing underperformance. If, two years later, the fund then fails both tests again then a successor fund transfer should be compulsory, Mercer said.
Returning to the discussion around stapling, Boyfield said it is likely superannuation funds will begin to target their advertising and marketing campaigns to young workers in a bid to nab new members.
To combat this, Boyfield said a framework should be implemented that clearly outlines what marketing and communications materials to members should contain, namely transparency around "potentially better terms they could obtain".