Disclosure rules for Australian pension funds have been so watered-down that it will be impossible for savers to understand the true risks of a portfolio, according to experts who said the country is failing on financial regulation.
Introduced after a decade of delays, the rules to implement a 2012 law do not require a full “look-through” to underlying pension assets, leaving individuals uninformed about where their money has gone.
The regulations mean that Australia’s enormous superannuation sector — the world’s fourth-largest pool of pension assets, behind the US, UK and the Netherlands — remains one of its most opaque, exposing savers to investment risk and potential overcharging.
“Where the government has landed means there is no way investors could use the . . . data for portfolio comparison, nor is there a way you could use this data to understand the true risks of a portfolio,” said Grant Kennaway, head of manager selection for Morningstar in Melbourne.
Morningstar, which has repeatedly ranked Australia last for investment disclosures among 26 global markets, said the outcome had “not been worth the wait”.
Under the supporting regulations released last month, pension funds will only be required to disclose information about assets they hold directly or through related parties, meaning that investments outsourced to third-party fund managers — a large chunk of the market — are exempt.
Simon O’Connor, chief executive of the Responsible Investment Association Australasia, said the “unnecessary carve-out” was disappointing, with Australia an “absolute outlier” regarding disclosures.
“It’s really baffling to understand. It’s baffling and frustrating because you look around globally and everyone is doing this,” O’Connor said.
The disclosure laws were created by the Labor government in 2012, shortly before it lost office. For most of the past decade, a conservative coalition government has issued rolling exemptions, which critics blamed on heavy lobbying from the superannuation sector.
“There [have] been efforts behind-the-scenes all along to prevent what are sensible changes,” said Matthew Linden, deputy chief executive of Industry Super Australia, a professional body representing funds that operate not-for-profit pension vehicles.
The issue of investment disclosures is particularly relevant because the system is compulsory: employers must direct 10 per cent of workers’ pay into a pension fund, usually of the employee’s choice, where it cannot be accessed until retirement age.
Disclosures around simple asset classes such as bonds and cash are opaque to the point of being meaningless, said Kennaway. The only asset with clear portfolio disclosures was listed equities, which was already one of the least problematic and well-regulated markets, he added.
“I can’t fathom why [the disclosures] would have been walked back. If they don’t know what bonds they are holding and they can’t disclose them quickly, we should be alarmed,” he said.
Kennaway’s criticism carries particular weight as the “explanatory statement” the government released with its regulations cited Morningstar’s disapproval of the Australian system.
Andy Schmulow, an expert in financial services law at the University of Wollongong, agreed that the superannuation system was poorly regulated. “They used to say Australia is like Sweden but with better weather,” he said. “In our financial industry, we’ve become Russia with better weather.”
Prime Minister Scott Morrison’s government, which has suffered in opinion polls and must hold a general election by May, proposed more comprehensive disclosure requirements this year before withdrawing them following an outcry from parts of the industry.
Announcing the changes last month, Treasurer Josh Frydenberg said the rules provided a “major boost to transparency”. He added that pension funds had “become a systemically important part of our financial system”.