Jurisdiction - Australia
Australia – Final Report: General Advice Superannuation And Life Insurance.

10 December, 2014  



The following recommendations apply across all financial services sectors (including superannuation and life insurance) and will, if implemented, have a significant impact:


  • the recommendation that there be a targeted and principles-based product design and distribution obligations,
  • the recommendation that ASIC have a ‘proactive’ product intervention power, and
  • the recommendation that the law be amended to remove regulatory impediments to innovative communication of product disclosure information.


These are discussed elsewhere and are not repeated here other than to note the significant impact on product manufacturers liability if the final recommendation is implemented.


Superannuation And Retirement Incomes


The Report found that the superannuation system is not operationally efficient due to a lack of strong price-based competition and high costs. Given the size and importance of Australia’s superannuation system, the Report makes a number of recommendations aimed at improving the strength, stability and efficiency of the superannuation system.


Some of these recommendations include:


  • in relation to superannuation directors who are not subject to civil and criminal penalties for breaching the best interest duty, considering whether there is a case for aligning the penalties with those that apply to managed investment scheme directors,
  • improving governance by requiring that superannuation trustee boards to have a majority of independent directors and aligning the director penalty regime with the regime for managed investment schemes,
  • that all employees be able to choose the superannuation fund for their Superannuation Guarantee contributions (thereby removing some of the exceptions for awards and enterprise bargaining agreements),
  • delivering better member outcomes by introducing a formal competitive process to allocate default fund members to MySuper products,
  • greater use of risk pooling to increase retirement incomes generated from accumulated balances – thereby increasing efficiency by taking advantage of the size of the system and its asset pool. In this regard, the Report recommends removing barriers to new product development, providing retirement income projections on member statements and using ‘behavioural biases’ and trustee pre-selection of products to encourage the use of risk pooling products,
  • abolishing new limited recourse borrowing, and
  • considering whether to align the earnings tax rate across the accumulation and retirement phases.


Life Insurance


The Report notes the importance of aligning commercial incentives with consumer outcomes and makes a number of recommendations aimed at improving consumer confidence in life insurance. These include:


  • in relation to the directors of life insurance companies who are not subject to civil and criminal penalties for breaching their duties to policy holders, considering whether there is a case for aligning the penalties with those that apply to managed investment scheme directors,
  • requiring that an upfront commission for life insurance advice is not greater than ongoing commissions,
  • that money payable under a life insurance policy be unclaimed monies only if it has been ‘inactive’ for 7 years, rather than 3 years, and
  • the introduction of a mechanism to facilitate the rationalisation of legacy products (products that have become uneconomic or rendered out of date by changes to market structure) in the life insurance and managed investments sectors, to reduce consumer disadvantage.


General Advice


There is a strong emphasis placed on improving consumer outcomes in financial advice. The Report notes that consumers may misinterpret the distinction between ‘personal advice’ and ‘general advice’ and place an undue reliance on ‘general advice’, due to the use of the word ‘advice’. Accordingly, the Report recommends renaming ‘general advice’ but does not propose any alternative.


The Report also recommends higher minimum standards for those advising on Tier 1 products, including a relevant tertiary degree, competence in specialised areas such as superannuation (where necessary) and ongoing professional development.




1. ASIC Funding, Resources, And Powers

2. Bank Funding, Prudential Regulation, And Disclosure

3. Consumer Outcomes For Product Issuers

5. Innovation And Technological Change


herbert smith Freehills


For further information, please contact:


Michael Vrisakis, Partner, Herbert Smith Freehills

[email protected]


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