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Super’s big wins come with a sting in the tail

Labor and the superannuation industry are still running their victory lap, but concerns around disclosure and consolidation loom large in the background.

Stephen Jones, minister for financial services and shadow treasurer, received a warmer welcome than usual from the audience when he Zoomed in to the AIST’s Conference of Major Super Funds (CMSF) on Wednesday (September 7). Not for no reason. Labor’s first 107 days in office has been a sprint, Jones said, and even a disinterested observer will note that much of the work has been focused on superannuation.

A new disclosure regime has been introduced to (and scrutinised by) Parliament; big super’s nation building ambitions have met with a warm reception from a government that is, to use the common vernacular, skint; the Your Future Your Super (YFYS) test for choice products has been frozen, and is under review for MySuper products, with a draft consultation expected this week.

“When you have any major reform such as this, it just makes good sense that you would conduct a review after a period of implementation,” Jones said. “… We are particularly focused on the benchmark process. I want to make it quite clear that the Labor government supports performance measurement; the Labor government is unequivocally on the side of high-performing funds, and holding trustees’ feet to the fire to ensure that they deliver on their performance promises.”

“However, we will ensure that when we’re doing that, we aren’t introducing mechanisms that have unintended consequences.”

Stapling and the ATO’s comparison tool will also be on the agenda in the review, though it’s unlikely they’ll be thrown out completely. One other unintended consequence – depending on who you ask – is the pace of industry consolidation, which Jones recently raised concerns about in the press. The Labor government believes that YFYS mergers have been a positive outcome, and Jones said he’d like to see “some of the friction removed from the process” so that funds can merge faster.

But he was quick to tamp down suggestions that super funds could become ‘too big to fail’ in the same sense as the banking industry, and that systemic risks stemming from a large, concentrated industry – if there are any – are way over the horizon.

“We’re a long way from replicating in the superannuation industry the sorts of concentration that we see in the banking sector. A long way from that. And as far as funds being too big to fail goes, I think if we get to that point, we’ve really failed at a heap of other areas in the government’s and prudential stages of fund management.”

“I’m not concerned about that. I have included a question in the YFYS consultation process about the implications for market structure around accelerated and excessive mergers within the industry… it behoves any sensible government to have a mind down the track about what market structures might look like and how that might impact the deployment of capital, competition, and innovation in the sector.”

But if Jones offered the industry a bit of TLC, shadow minister for financial services Stuart Robert was all about tough love. Robert’s pre-recorded proclamation that the Coalition was proud of its superannuation reforms drew scattered laughter from some members of the audience, though even they seemed to concede that he had a point on the contentious new disclosure obligations that have drawn the ire of the Coalition, the Greens, the crossbench, and the press.

“I find it staggering that the Treasury’s first act of this incoming government was to water down transparency and integrity by watering down the disclosure elements of YFYS,” Robert said. “… I find it staggering that Treasury’s very first advice to a minister was that this needs to go. The reason I find it staggering is because it didn’t happen.”

“I find it staggering because it didn’t happen. I’ve been a Treasury minister for the last five years and I know exactly what the Treasury’s priorities are and not once did Treasury present that as any part of their priorities. They weren’t a Treasury priority. They were either a government priority or a superannuation industry priority.”

In political exile, the Coalition is now “100 per cent” committed to the compulsory nature of superannuation – but Robert believes that with great power comes great responsibility.

“The benchmark effect has worked and it has worked spectacularly well, ensuring that Australians’ money is in funds that are at least outperforming basic benchmarks. If a super fund is not outperforming the ASX200 for listed Australian equities, it’s not performing. If a super fund is not performing on its bond holdings compared to the Bloomberg index, it’s not performing.”

“The basic indices are designed to set a threshold that super funds should aspire to be above… The Coalition remains committed to ensuring that all super funds have to perform according to the benchmark. The Coalition does not support any watering down of the benchmarks or any watering down of funds because they are faith-based and don’t have to meet a benchmark… the benchmarks don’t know any religion or sex or gender. They’re simply benchmarks in the financial services industry, and they should be met.”

In responding to Robert’s comments, AIST CEO Eva Scheerlinck said it was “disappointing” that he chose to focus on disclosure rather than “some of the great opportunities and the challenges facing the industry.”

“Disclosure to members needs to be meaningful, and we’re talking about the notice to members about annual meetings. All disclosure shouldn’t happen in that one document, particularly if you’re talking about itemising every marketing expenditure. We already know how disengaged members are… to see just reams and reams of information isn’t particularly helpful.”

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