After 40 years: Michael Rice reflects on super’s evolution

Michael Rice officially entered the wind-down period of his career last Friday (April 30) with the completion of the sale of Rice Warner, now to be known as Deloitte Superannuation.

All but a handful of administrative staff transferred, moving out of the heritage-listed 2 Martin Place office, around the corner and a few hundred metres away to the 44-storey Grosvenor Place, the Sydney office of Deloitte Australia.

Another handful of the 40-odd staff had already moved into the Chant West/Zenith offices nearby following the sale of Rice Warner’s Galaxy insurance information system to that group. There are about 30 staff going across to Deloitte, most of whom are researchers and consultants. Rice is pleased that the people part of the transition seems to have gone well. Three of his senior colleagues – Andrew Boal, the chief executive, and long-time consultants Steve Freeborn and Jenni Baxter – are becoming partners at Deloitte. Freeborn headed up super consulting at Rice Warner and Baxter headed up insurance.

Like so many of us, Rice started thinking about the next phase of his working life and beyond when he turned 60, a little over six years ago. For someone who has been the central component of the business for so long, and still the majority shareholder, such a transition is not a simple task.

Boal, another senior actuary and former head of superannuation at Willis Towers Watson, whom Rice had known for more than 20 years, was brought into the fold in 2019 with the principal job of finding the right buyer.

Deloitte has been expansive with its acquisitions policy in recent years and could point to two amalgamations relating to funds management which had gone relatively smoothly. One was the Australian backoffice advisory firm of Morse Consulting and the other the US-based investment bank which specialises in funds management, Casey Quirk.

So far, Rice’s only concessions to his personal transition to retirement are to start cataloguing his modest wine cellar – with a spread sheet showing when to drink, as you’d expect – and, for the longer term, some renovations to his home overlooking Georges River in Sydney’s south and time with his three children and five grandchildren.

He has committed to working part time for two years at Deloitte, where he hopes to concentrate on project work such as public policy research and submissions and providing regular commentaries.

As he reflects on an actuarial career spanning 40-plus years, it is the contribution he has made to public policy discussion and debate of which he is most proud. And the people with whom he has worked.

He says that notwithstanding the additional pressures on small-medium-sized businesses in difficult economic times, Rice Warner made no retrenchments in the two most recent significant challenges: from the impact of the global financial crisis in 2008 and covid-19 from last year.

After spending a few years as a sole actuary “in the suburbs”, Rice took the plunge, rented a nearby converted house in Hurstville, and launched MJR Consulting (for Michael John Rice) in December 1987, while the financial world was still reeling from the stock market crash of September that year.

Two years later he teamed up with Mark Kachor to form Rice Kachor Research which continued for 12 years as a complementary partnership whereby Rice concentrated on super consulting and Kachor on insurance.

The two big disruptions during that time, Rice says, were consolidation in the insurance sector and the advent of the internet, which changed the face of research. Rice sold his stake to Kachor and teamed up with former Mercer consultant Wayne Walker who, coincidentally, left in 2006 to join Deloitte as a partner based in Melbourne. Walker passed away last year. Kachor, as managing director and sole owner, renamed the insurance-focussed firm DEXX&R.

Jeff Warner, now the ‘product actuary’ at AustralianSuper, became Rice’s new partner for the renamed Rice Warner that same year. This was a year after the two had worked on the proposed merger of the former Australian Retirement Fund and Superannuation Trust of Australia which came together to form AustralianSuper. That merger is arguably the most successful seen in the Australian financial services sector since deregulation began in the early 1980s.

While he is open with his opinions on the relative merits of various types of superannuation structures and products, as well as overarching government policies, Michael Rice has always been agnostic as to the areas within the industry on which the firm focused.

He was among the first of the well-known actuaries, for instance, to recommend a corporate client join with an industry fund, in 1994, became the chair of QSuper’s investment committee in 2009 and worked on a strategic review for Health Super and the former First State Super resulting in their merger in 2011.

Perhaps because of all the figures available at his fingertips or perhaps because of his inclusive business style – probably both – he was always thoughtful of women’s careers in his own organisation and society in general.

Another milestone of which he is proud is that, in 2013, Rice Warner became the first organisation, possibly in the world, to pay women additional contributions to their super, as part of compulsory super. It called this its “Valuing Females” package.

“We had to get a special exemption from the Human Rights Commission so as to avoid breaching the sex discrimination law,” he says. “We paid an extra 2 per cent and encouraged them to contribute another 2 per cent on top of that.”

Today, he says, in conversation about the Retirement Income Review of 2020, “the biggest growth rate in poverty in Australia comes from single women [home] renters in retirement”.

Rice Warner made a submission to the Review and was mentioned 95 times in its report. But Rice feels the review panel should have had consultations with the industry and the firm took issue with the assertion shared by several commercial pension product providers that retirees are, on average, too frugal with their super balances. He notes that some statistics were based on QSuper numbers, which reflect unusually high account balances for the industry.

While the Review’s report made no recommendations, Rice believes that some of the “observations” favoured the conservative side in the divided political opinion on the SG’s adequacy. The Review thought 9.5 per cent was sufficient, assuming various other reforms were introduced.

In a blog published on March 31, entitled “Using Retirement Funds More Efficiently”, Rice Warner says: “Despite the overall quality of the RIR Report, its comment that people don’t draw down enough of their superannuation is based on some small studies which coincided with high investment returns.  The overall dependency on the Age Pension does increase with age but some simple steps could be taken to improve the expenditure patterns in retirement.”

The firm says these steps could include:

• Increasing the drawdown rate from 5-6 per cent between ages 65 and 75 to encourage higher drawdowns from a tax privileged environment earlier in retirement.

• Making those over age 65 drawdown from their accumulation accounts as well as pension accounts – this will reduce those funds not needed for retirement but held in a tax-privileged environment.

• Introducing default CIPRS for those with more than (say) $200,000 account balances at retirement to encourage smoothing of their retirement income over the remainder of their life.

Rice has also been a vocal critic of the Government’s ‘Your Future, Your Super’ proposed legislation involving APRA’s fund performance test and the “stapling” of members to super funds. Rice Warner was part of a working group organised by the Conexus Institute which looked at the performance test and found it wanting in several ways. The actuaries republished the group’s detailed paper and summary on the Rice Warner website on February 16.

Rice Warner says: “Based on the analysis, the working group has strong concerns that the YFYS performance test will be ineffective at identifying poor performing funds while introducing a range of undesirable outcomes. The working group believe the detriments of the YFYS performance test may easily outweigh the benefits.”

The issues within ‘Your Future, Your Super’, which is supposed to take effect from July 1 – but that now seems highly unlikely because of the political bottleneck – have been widely discussed in the industry. In a rare display of unanimity, all major industry bodies have voiced extensive concerns with the legislation’s unintended consequences as presented but APRA has continued to defend its details.

Rice says: “In recent times the Government has introduced significant legislation without consultation. They are not being pragmatic. They are being bloody minded.”

[Note: APRA announced later last week, April 28, that it would make two changes to the YFYS legislation,. Namely to allow the inclusion of some unlisted investments in the performance calcualtions and to allow the inclusion of administration fees. See separate report this edition.]

Rice Warner is known to have assisted various not-for-profit organisations, such as Women in Super, and individuals, including politicians, as part of its pro-bono work. In the public policy field, the firm is paid for its project work for Treasury and industry bodies, such as the SMSF Association, FSC and Institute of Actuaries but sees the pro-bono jobs as “brand building”. The firm has never had to advertise, Rice says.

Personally, he believes that SMSFs will continue to expand as an industry sector while the APRA-regulated large funds will continue to consolidate. He is predicting there will be about 10 funds, each with more than $150 billion under management, within about five years. There will be SMSFs and mega funds.

One of Rice Warner’s most popular regular reports is its annual ‘Superannuation Market Projections Report’. The most recent one, published last December, lists nine significant trends for the future. They range from consolidation through outsourcing, retirement solutions, capital adequacy requirements, transformation of retail, funds targeting whole families and offering non-super investment services.

Life in a big multi-national professional services firm, such as Deloitte, is bound to be different. Audit services remain an important part of its revenue, for instance, and there are rigid rules around what else can be performed for audit clients. There also tends to be more sensitivity around what partners say publicly in a political context at very large firms. And compliance processes tend to be more onerous at large firms, especially global ones dealing with many jurisdictions.

Russell Mason, Deloitte’s head of superannuation, himself an industry veteran not far off retirement, says the Rice Warner team will bolster Deloitte’s strength in the space and make it if not the largest in the industry, then very close to it. “We’re very pleased to have them here,” he says.

With Rice Warner there will be a team of about 120 which fits into a wider group of practices including super, actuarial, health care, life insurance and general insurance.

“We have an enormous range of expertise at Deloitte that our new colleagues will be able to draw from,” he says. These include knowledge and skills in relation to tax, audit, technology, M&A advice and economic analysis through Deloitte Access Economics.

Mason is also familiar with the history of super in Australia. A lawyer by training, he championed the industry fund sector as a potential growth area, alongside other defined contribution funds, in the 1980s and 90s while at Mercer, where he worked for nearly 24 years starting in 1987. He became a partner and national industry fund leader as well as Asia Pacific leader of DC consulting before joining Deloitte in 2011.

Greg Bright

Greg has worked in financial services-related media for more than 30 years. He has launched dozens of financial titles, including Super Review, Top1000Funds.com and Investor Strategy News, of which he is the former editor.