The Government’s and regulators’ views on the future of the super system are not entirely in-step with the industry’s, as was in evidence at the annual SuperRatings/Lonsec awards night in Melbourne last Wednesday (November 30). Jane Hume, the assistant minister, and Jeff Bresnahan, the SuperRatings founder, presented an interesting dichotomy.
Senator Hume, the assistant minister for financial services, superannuation and financial technology, said the super system was beleaguered with complexity and opacity. She said there were two main sides: “the investment performance side and the fees side”. Average administration and investment fees in Australia were 0.8 per cent, but in The Netherlands, for example, they were only 0.1 per cent, she said. “Fees and costs disclosure continue to be an issue. APRA is now finalising plans to publish a ‘heat map’ for MySuper products. As Helen Rowell (APRA deputy commissioner) has said, the ‘heat map’ will be a starting point and will be able to be understood by people who don’t have a degree in applied mathematics.”
She listed the Government changes and initiatives of the recent past, such as its attempts to change the system for employer selection default funds, the changes aimed at protecting small balances by fee erosion and, similarly, by unnecessary insurance, and the banning of exit fees by super funds.
“We have all these ‘naff’ names for legislation: ‘Protecting Your Superannuation’ this year and the ‘Putting Member Interests First’ bill,” she said. “But opting into, rather than out of, insurance will save millions of Australians billions of dollars… Superannuation is the most partisan of sectors,” she said. “Industry funds hate commercial funds and commercial funds hate industry funds and everyone hates SMSFs… Each sector advocates for its members very well, as they should. But there is nobody out there advocating for all members. It’s our job, as government, is to manage the system for all members and all sectors.”
She said that what she wanted the super sector to look like in 30 years was to be:
- efficient, competitive and truly dynamic
- for disengaged people to be defaulted into well-performing funds, while more people become engaged
- that the system delivers the best outcomes during retirement as well as the Government support
- that the gap between men and women in retirement savings narrows significantly, and
- “Above all, that the system delivers the best possible outcome for members,” Senator Hume said.
Later in the evening, Jeff Bresnahan gave his annual ‘state of the industry’ address, taking issue with the assistant minister on several fronts. For starters, he said, in the last 10 years there had been nine assistant ministers representing super. He said, though, it was refreshing to have a minister who had worked in the industry (Hume previously worked at AustralianSuper in an executive role).
With fund consolidation, which APRA seems very keen on, notwithstanding growing questions about whether such a strategy is in the members’ interests, Bresnahan said it was critical if there were more mergers that the funds should do so for the right reasons and with the right partner. (See separate report this edition on what Helen Rowell said on the topic at the Fund Summit, also in Melbourne last week.).
With APRA’s proposed ‘heat maps’, Bresnahan said: “APRA has always collected a lot of data. Lonsec reserves its judgement on that. Data is only as good as how it is assessed.”
And with the never-ending discussion on fees, from the regulators and politicians in particular, Bresnahan said: “The fee debate ended 10 years ago. It was a race to the bottom. If you want a 10bps investment management fee, then give it all back to the Government to manage. Over the past 27 years [just before the SG was introduced, in1993] we’ve seen 729 per cent growth and only three negative years in returns.” He said that, when you look at APRA’s actions, what the regulator was doing could cause more damage than good.
On the bigger picture, Bresnahan said, Australia was a long way from the ‘holy grail’ of having fully engaged members. But he said that the superannuation system had worked “incredibly well” over the past 27 years. “Anyone who argues that the system doesn’t work is in the land of fantasy,” he said.
“At SuperRatings and Lonsec, we’re here for the long haul,” he said. “We have about 120 people in our business. We continue to listen and we continue to learn.”