The Australian government is looking to improve the superannuation system with respect to “excessive fees”, “inappropriate insurance premiums” and “inefficiencies”, according to the new Minister. Good luck with that. Neither governments nor their regulators have a great track record in any of those areas.
In his first major speech to the industry, at the SuperRatings/Lonsec ‘Day of Confrontation’ conference in Melbourne last week, Stuart Robert, an MP from southern Queensland, who has been assistant treasurer in the new Scott Morrison ministry for less than two months, turned out to be a surprise package. He actually seemed to know what he was talking about and was unusually frank.
Interviewed by Jeff Bresnahan, SuperRatings founder and chair, Robert told the audience that he also wanted to see an improvement in the boards of big super funds. The issue became a minor contentious point in the current Royal Commission over questions whether trustee directors were looking after their own interests ahead of members when resisting merger overtures.
“Under our proposed changes, APRA will be able to take action at an earlier stage,” Robert said. “Our intended ‘reforms’ are to make all super funds more accountable with how they manage members’ money.” The Government will take at least four and maybe five bills to the Parliament this month.
Bresnahan quizzed him on the Productivity Commission’s proposal to have a limit of 10 super funds which would act as default funds and the list would be decided by a panel. The industry has questioned the idea on various grounds. The audience took hear from Robert’s response which indicated his opposition to the idea too. “The issue is that all super funds would try to look like them,” he said. “There’s a danger in that.”
Bresnahan said: “Who would be on the panel and who will decide that?” Robert replied: “I also struggle to understand how it would work. I can’t seeing it working with transparency.”
Bresnahan pointed out that there had been six inquiries into the suoper system in the past 25 years. Robert responded that there had been 11 assistant treasurers in this government. Robert said: “in the last 33 budgets there has been 33 changes in super. Super could well be the most disengaged financial product in the country… We don’t need more laws. We should have simpler, better-defined laws.”
He added, though, that APRA had the power to withdraw MySuper licenses, and it should look at that for the worst-performing funds – say the bottom 30-or so of the 220 APRA regulated large funds. The 220 funds figure, though, is a bit misleading. More than half of them have outsourced all of their important functions. APRA also regulates about another 1,000 small funds which have elected to have an outsourced professional trustee, unlike the vast majority of SMSFs.
Kirby Rappell, SuperRatings executive director, later flagged some big issues coming up for super funds, which were now in their seventh consecutive years of negative membership growth. The good news, he said, the fall has slowed and was possibly trending upwards again.
But a big looming revenue problem will be the loss of low-balance inactive members to the ATO. SuperRatings says that on average 9.4 per cent of the membership base has balances of less than $6,000, the proposed new level at which they will be transferred to the ATO if inactive.
“What does that mean for your revenue base if you are reliant on the [average] $78 member fee per year?” Rappell asked. “And how much longer can you expect growth in investment returns?”
SuperRatings estimates that about 25 per cent of the industry, “funds of all shapes and sizes”, have unsustainable operating expenses.
“Fees have been converging and are no longer a differentiator for not-for-profits or commercial funds,” he said. “The value of member retention will increase.”
Greg Bright is publisher of Investor Strategy News (Australia)