A roundtable of super executives discuss APRA’s heatmaps and whether enough has been done to take account of different member demographics and investment objectives?
Protecting Your Super Package
Ahead of the latest legislation impacting insurance inside super, have lessons been learned and can the industry recognise future dangers?
Super funds
Why was this ethical fund one of the top-performing super funds of 2019?
TOP STORIES & FEATURES
Hume: Hayne recommendations are our priority
Implementing Royal Commission recommendations is the government’s priority while other super legislation will remain on the backburner
5 | Super returns make good start to 2020
The median growth super fund returned 1.9% in January, according to Chant West, with momentum continuing in February
7 | Superannuation funds receive ASIC rap over PYSP comms
ASIC has fired another shot over the bows of super funds over how they communicate with members
8 | Ethical super fund tops 2019 returns
An ethical superannuation fund with a low weighting to Australian banks was the top-performing balanced fund in 2019
6 | Universal Age Pension will incentivise Aussies to save
A universal Age Pension would reduce the cost of the projected superannuation tax concession and increase tax revenue
12 | Do heat maps work when one size does not fit all?
APRA may not have taken enough account of member demographics and investment objectives of super funds in developing heat maps, according to a super roundtable.
Can APRA get its heatmaps right?
The objectives of the Australian Prudential Regulation Authority’s superannuation heatmaps are laudable but the issues which arose last December make it imperative that the regulator does significantly better when it next assesses relative superannuation fund performance.
WWhen the Australian Prudential Regulation Authority (APRA) generates its next superannuation fund heatmaps it would do well to have addressed all the shortcomings identified after it published its first heatmaps in December, last year.
What has emerged in the many weeks since APRA published its first iteration of the heatmaps on 10 December, last year, is that there were gaps in its process and flaws in its data such that a number of superannuation funds appeared quite justified in challenging the assessments handed to them by the regulator.
And, hardly surprisingly, the likelihood of these very flaws were identified weeks before the regulator released the heatmaps, as indicated by participants in the Super Review roundtable conducted during last November’s Association of Superannuation Funds of Australia (ASFA) national conference, in Melbourne.
membership demographics with a number of superannuation funds quite legitimately focused on capital preservation.
“APRA heatmaps can only fulfil its role if the regulator can deliver a bulletproof methodology underpinned by bullet-proof data.”
Putting aside some of the inconsistencies identified in the inaugural heatmaps exercise, it is interesting to note that the roundtable participants accurately predicted where the anomalies were likely to arise – namely around the relative weightings given to investment performance versus service provision, versus insurance.
Anomalous data could not so easily have been predicted but this is an area that the regulator must address as a priority if its heatmaps are to gain the acceptance they need across the industry.
Also identified ahead of the publication of the heatmaps was the issue of the actual investment objectives of individual superannuation funds based on their
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The objective of APRA in developing the heatmaps was to improve superannuation transparency and accountability with the regulator’s deputy chair, Helen Rowell, claiming it was intended to help drive improvements across the industry by highlighting which MySuper products are underperforming and where they need to improve. These are laudable objectives but it has always been incumbent on APRA to ensure that its data and assumptions are accurate and that when it comes to assessing the relative of performance of superannuation funds it acknowledges that one size does not fit all and that the needs of most members of REST will be very different to those of, say, Catholic Super. In circumstances where APRA intends in the future to apply heatmaps to choice products, it is imperative that it satisfactorily and consultatively resolves the issues which have been identified with its first efforts around MySuper before moving on to a vastly more challenging exercise.
Australian superannuation fund members and consumers generally would greatly benefit from a non-commercial regime which allows them to easily compare superannuation funds but the APRA heatmaps can only fulfil that role if the regulator can deliver a bullet-proof methodology underpinned by bullet-proof data.
That is the test for APRA and Helen Rowell when the next heatmaps are released.
Increasing the maximum number of selfmanaged superannuation fund members to six is still a commitment from the Government but will come after the Royal Commission recommendations have been implemented.
The legislation to increase the maximum number of self-managed superannuation fund (SMSF) members from four to six will remain on the backburner as the Royal Commission recommendations remain priority.
Assistant Minister for Superannuation, Financial Services and Financial Technology, Jane Hume, spoke at the SMSF Association National Conference on the Gold Coast and said the Government was still committed to the legislation being passed.
“This proposed change increases the flexibility of our SMSF sector and will allow situations of families of up to four children to be part of a single family fund and it remains part of the government’s legislative priorities,” she said.
“But implementing the recommendations of Hayne Royal Commission is the number one priority.”
Hume noted the Government was also committed to improving the flexibility of the super system for older Australians by assisting them to save for their retirement such as the work test exemption, non-concessional contributions with the bring forward rule, and spousal contributions.
“The Government remains committed in passing this legislation ahead of the 1st July start date,” she said.
Don’t let consultants drive accountability outcomes says APRA
Superannuation funds and insurers should not rely too heavily on consultants to meet their obligations under the upcoming Financial Accountability Regime, according to the Australian Prudential Regulation Authority.
The Australian Prudential Regulation Authority (APRA) has cautioned superannuation funds and others against relying too heavily on consultants when it comes to implementing the proposed new Financial Accountability Regime (FAR).
APRA deputy chair, Helen Rowell, issued warning against letting consultants “drive” the process.
She stated that the regulator had observed entities were more likely to have challenges implementing the Bank Executive Accountability Regime (BEAR) requirements when they engaged consultants to do it for them.
“APRA observed that the entities more likely to face challenges implementing the BEAR requirements were those that engaged consultants to do it for them, including drafting their accountability statements and maps, rather than utilising consultants to facilitate structured internal discussion and assist (rather than drive) their development,” Rowell said.
“Institutions may well wish to use external advisers to facilitate, provide structure or challenge their internal dialogue, however it remains the responsibility of each institution to own and drive its understanding of how accountability works within its organisational structure,” she said.
“Furthermore, accountable persons should be involved early and deeply in the process as they are the ones who must meet their FAR obligations and ultimately bear the risk of breaches should they not do so.”
The APRA deputy chair also pointed to some of the opposition which emerged to expanding the BEAR beyond the banking industry to superannuation and insurance but pointed to the fact that the Royal Commission had “uncovered a number of issues in superannuation and insurance requiring improvement, including fees for no service and management of conflicts of interest”.
Bring forward rule becoming a headache for advisers
It is a real problem for advisers and clients that the bring forward arrangement in superannuation has not been passed into law yet, according to SuperConcepts.
Speaking at the SMSF Conference on the Gold Coast, SuperConcepts general manager for technical services and education, Peter Burgess, said it was difficult to advise clients who were turning 65 this year.
He said under regular circumstances advisers would wait until the year clients turned 65 and then trigger the bring forward rule to the maximum non-concessional contributions they could give.
“The problem we have now is that we don’t know when that final year is because the change is not law yet. What do you say to a client that is turning 65 this year and has the capacity to make the $300,000 non-concessional contribution?
“Do you play it safe and trigger it? Or do you assume the changes will be made and contribute $100,000 this year and next, and then trigger it at age 67?
“The fact that this has not passed law yet is a real problem for advisers and clients.”
Burgess noted that he thought there was every chance the government would pass the change through law by 1 July, 2020.
“These are pretty straightforward changes to legislation and I think it will go straight to a bill with no consultation,” he said.
“There are plenty of sitting days left to get this legislation passed. It wouldn’t be the first time super legislation being rushed through Parliament at the end of financial year.”
Super returns make good start to 2020
BY MIKE TAYLOR
Superannuation funds have hit the ground running in terms of investment returns in 2020, with the median growth fund returning 1.9% in January, according to research house, Chant West.
It said this was on the back of the median growth fund returning 14.7% in 2019, and with the momentum appearing to be continuing in February.
The major drivers for the January returns were Australian shares which were up 4.9%, while even a decline in international shares was offset by the depreciation of the Australian dollar and listed property was up.
Commenting on the investment results, Chant West senior investment research manager, Mano Mohankumar said that while the domestic share market was strong, global share markets slowed amid mounting fears over the spread of the coronavirus.
“This resulted in a flight to safely, pushing domestic and global bonds up 2.3% and 1.8%, respectively,” he said. “Global investors seem to have regained their confidence in February, with both Australian and global share markets recording gains so far.
“So, the year has started positively despite some lingering uncertainties. The biggest unknown is the potential spread of the coronavirus and what that might mean in economic terms. Travel and tourism-related businesses are already feeling the effects, as are others with strong trade links to China such as health food exporters.
“Investors are now weighing up which other sectors may suffer if the contagion continues. Australia is in the forefront here, because not only is China a major export market, it also supplies many parts and finished goods that Australian businesses rely on.”
Opt-in insurance in super irresponsible
BY JASSMYN GOH
The arguments calling for the removal of insurance from superannuation are baseless, according to Maurice Blackburn.
In a submission to the Government’s Retirement Income Review, the law firm said these calls were flawed assumptions.
The calls were:
• That people do not derive value from insurances in superannuation;
• That insurances in superannuation merely discourage people from seeking tailored insurance cover on the open market; and
• That Workers’ Compensation systems provide a sufficient safety net to cover the income foregone through injury
“There is a growing body of evidence that the disengagement of consumers with their financial situation in general makes them less likely to opt into insurance, even if it is entirely appropriate for their circumstances (for example, if they have dependants),” the submission said.
The firm pointed to a Rice Warner analysis that found if group life insurance were to become opt-in, many individual’s only recourse would be to seek retail type insurance and would act to reduce their access to insurance or make it only available at unaffordable premium rates.
“This shows that disparity in workers’ access to insurance is not restricted to availability. The premium cost impact of functionally removing insurances from superannuation has the potential to be profound for some,” Maurice Blackburn said.
“The underinsurance problem in Australia has been well documented. Member disengagement data would indicate that worryingly few consumers consider their insurance arrangements at all.
“Further, for those who do decide to seek their own coverage, it cannot be
assumed that the product they end up with will be in their best interests.”
The law firm said insurance in super had a critical role in helping the underinsurance problem by providing a safety net of affordable default group cover.
“It would be irresponsible, from a retirement savings perspective, to simply leave it to individuals to proactively obtain their own insurance. The consequences of doing so would be to the detriment of retirement comfort and security,” it said.
On Workers’ Compensation systems, Maurice Blackburn said it could not take the place of insurances providing for retirement income, should a working aged person become injured.
It said this was because:
• In some jurisdictions, Workers’ Compensation will only cover a worker if their employment is a significant contributing factor to the injury. Total and permanent disability (TPD) coverage has no such requirement. In our experience, more than half of all TPD claims we assist with have nothing to do with the work environment, so would not be covered by any state or federal workers’ compensation scheme;
• Workcover is focused on wage replacement while the injured worker is engaged in rehabilitation and return to work programs. TPD and Death coverage are focused on circumstances where the worker cannot return to any suitable work due to injury or illness or death;
• Workers’ compensation schemes vary greatly from state to state, and many are inadequate in their long-term support for injured workers; and
• The Fair Work website tells us that:
“Some awards and registered agreements may give employees an entitlement to superannuation while they’re away from work on workers compensation”. Obviously, from this we can conclude that some don’t.
Universal Age Pension will incentivise Aussies to save
BY JASSMYN GOH
A universal Age Pension would reduce the cost of the projected superannuation tax concession, increase the level of take-home pay, and increase tax revenue, according to Mercer.
In its submission to Treasury for the Retirement Income Review, Mercer said the universal Age Penson was means-tested and the superannuation guarantee (SG) would need to increase to 12%.
The firm called for a universal Age Pension to be considered, to scrap the means test, and simplify the Australian retirement system.
Mercer senior partner, Dr David Knox, said a universal Age Pension with the right tax structure would be feasible without a substantial impact to the budget.
Knox said it would also give Australians an incentive to save for retirement as this “isn’t the case today”.
“While the Age Pension would be taxable, there would be a clear benefit to the individual for every extra dollar contributed into super, ensuring the three pillars of the system – the Age Pension, compulsory super and voluntary contributions – are complementing each other,” he said.
The submission noted funding costs that needed to be considered were:
• Taxing the Age Pension for all those who receive it, which could be achieved by basing the Age Pension tax rate on the balance of an individual’s tax-exempt pension accounts;
• Given every eligible aged Australian would receive the Age Pension, modifying the tax arrangements for super, such as introducing a limited tax on the investment income generated in the pension phase; and
• Drawing on some of the fiscal headroom expected since the projected cost of public pensions in Australia will be one of the lowest of any OECD country by 2050.
The submission said the universal Age Pension would:
• Ensure financial decisions made by retirees were not informed by how to best maximise their access to the Age Pension;
• Provide retirees with greater security of income with the knowledge of longevity protection, leading to a better quality of life;
• Provide stronger incentives to downsize from the family home, improving housing affordability for younger families; and
• Enable a simpler, more efficient system with reduced administration costs incurred by the Government from the means-tested Age Pension.
Deducting financial advice fees from member accounts gets thumbs-up
BY MIKE TAYLOR
The Government should consider reviewing the delivery of financial advice within superannuation as well as single-issue advice outside of superannuation, in circumstances where there is a lack of good data about how well the system is working and the quality of financial advice varies between funds.
Actuarial research house, Rice Warner has used its submission to the Government’s Retirement Income Review to point to the lack of good data and to cite the “obscurity of current legislation” which makes it difficult to deliver advice efficiently.
However, on the question of how that advice is paid for, and contrary to the recommendations of the Royal Commission, Rice Warner is arguing that it is reasonable to deduct adviser fees from member accounts, provided the advice pertain to the member’s superannuation.
“Many funds allow members to authorise them to deduct fees for services from a financial planner relating to superannuation. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended prohibiting such fees being made from MySuper accounts,” it said.
“The logic appears to be that a member in a default structure does not need advice. However, there are many members in MySuper products who have chosen to join them either directly or based on financial advice. Even those in their employer’s default MySuper might still want advice on their total financial affairs including monitoring of their superannuation,” the submission said.
The Rice Warner submission also recommended simplifying the processes around the delivery of advice in retirement with the goal of reducing costs and increasing member usage.
“As members approach retirement, it becomes more difficult for superannuation funds to assist members. As there is no default retirement product, each member needs to be placed in an investment strategy which is ideally determined only after provision of a comprehensive financial plan. The cost of delivering such a plan (usually $2,500 to $5,000) is more than most members will pay,” it said.
“Within the retirement phase, most regular advice is about budgeting and appropriate levels of withdrawals. This retirement counselling is valuable, and all funds should provide this as part of their account-based pension product.
“Like the work of money or finance coaches outside superannuation, this activity does not fall under the financial advice regime. Consequently, it should be possible to deliver the service cost-efficiently using technology and retirement counsellors within call centres.
“Funds could then offer event-based advice to their account-based pensioners periodically based on the need of each retiree. Such events would include the death or divorce of a partner, the need for a late life annuity or home equity release, and the need for Aged Care services. This advice could be delivered for a flat fee by a financial adviser (not necessarily related to the fund).”
Superannuation funds receive ASIC rap over PYSP comms
BY MIKE TAYLOR
The Australian Securities and Investments Commission (ASIC) has fired another shot over the bows of superannuation funds over how they communicate with members, using a new report to suggest that some funds may have acted without balance with respect to members retaining insurance inside superannuation.
The new ASIC report (REP 655) was based on an ASIC review of a sample of superannuation funds and found that “several of the insurance cancellation notices we reviewed failed to provide balanced content for keeping and reviewing cover – some were factual but focused only on reasons to retain cover”.
The ASIC report also said trustees had tended to emphasise the ‘value and benefits’ of insurance with some conveying a sense that paying the insurance premiums would have minimal impact on member’s day-to-day financial situation.
“There was little attempt by some trustees to link the changes to the objectives behind the Protecting Your Super reforms, or to emphasise that even if the payment has little impact on a member’s current financial situation, it will have an impact on their retirement savings,” the report said.
The ASIC report also suggested that superannuation funds should be careful about relying too much on their group insurers in communicating with members.
“Trustees should be mindful if they are receiving guidance from group insurers before developing their key messages. Those messages may be consistent with a group insurer’s priorities but not necessarily in members’ best interests,” it said.
Retail
superannuation funds in decline
The relative decline of retail superannuation funds over the past decade has been laid bare by the latest Australian Prudential Regulation Authority (APRA) annual superannuation bulletin which confirms them as holding the smallest percentage of assets of any category.
The data reveals that retail funds hold just 21.7% of assets, placing them behind industry funds with 25%, self-managed super funds (SMSFs) and small APRA funds with 26%, public sector funds with 23.2%.
Corporate funds continued their decline to
hold just 2% of assets.
The APRA data reported total superannuation industry assets as being $2.9 trillion as at 30 June, 2019, last year.
The commentary attached to the data said that over the 10 years from June 2009 to June 2019, the number of SMSFs grew by 50.2% from 399,281 to 599,678, and the number of APRA-regulated funds decreased by 56.1% from 4,486 to 1,967.
It said the decrease in the number of APRA-regulated funds consisted of 228 APRAregulated funds with more than four members and 2,238 small APRA funds.
Watchdog puts SMSF auditors under fire
BY JASSMYN GOH
The corporate watchdog has put self-managed superannuation fund (SMSF) auditors under the microscope and has made a disqualification, suspensions, and conditions imposed on a number of SMSF auditors.
The Australian Securities and Investments Commission (ASIC) said the actions followed concerns regarding failure to meet requirements including independence standards and auditing standards, failing to comply with continuing professional development requirements and otherwise not being a fit and proper person.
• Philip Shugg of Victoria has been disqualified for not being a fit and proper person as he was bankrupt;
• Greg Marlow of Northern Territory has been suspended for significant deficiencies in auditing the ownership and valuation of fund assets, lease agreements, whether transactions were on an arm’s-length basis, and compliance with personal use and collectable asset rules. He also issued an audit report in an incorrect form, and did not obtain signed financial statements;
• John Redenback of New South Wales had conditions imposed for deficiencies in maintaining auditor independence, and deficiencies in audit work on the ownership and valuation of fund assets and whether a transaction was on an arm’s-length basis;
• Lenneke Serjeant of New South Wales had conditions imposed for deficiencies in maintaining auditor independence, and deficiencies in audit work on the valuation of fund assets, lease and loan agreements, execution of trust deeds and reviewing the investment strategy by trustees;
• Angelo Covelli of Victoria had conditions imposed for deficiencies in audit work on the valuation of fund assets, limited recourse borrowing arrangements, lease agreements and rental statements; and
• Darren Tappouras of New South Wales had conditions imposed for deficiencies in audit work on the ownership and valuation of fund assets, in-house asset requirements, limited recourse borrowing arrangements. He also did not obtain signed financial statements and did not comply with CPD requirements.
Ethical super fund tops 2019 returns
BY JASSMYN GOH
An ethical superannuation fund with a low weighting to Australian banks was the top-performing balanced fund in 2019, according to data.
AAustralian Catholic Super’s Socially Responsible fund option was the best-performing mixed asset –balanced superannuation fund in 2019, according to FE Analytics.
Despite the politically tumultuous and economically uncertain year, the fund managed to return 18.5% over the year to 31 December, 2019.
The fund is currently managed by Australian Ethical due to its “excellent environmental, social, and governance (ESG) charter and great performance. They were appointed after an extensive search to replace AMP”, according to Australian Catholic Super’s chief investment officer, Michael Block.
He noted that there was no reason why they would not diversify the socially responsible investment option if fund inflows continued to increase.
Australian Ethical’s chief investment officer, David Macri, told Super Review that the fund had performed well in 2019 due to the outperformance of its domestic and international equity portfolio.
“The domestic equities portfolio outperformed (26.6% v 23.4%) due to the relatively low weighting to the underperforming banking sector (+9.4%) and the relatively high weighting to the outperforming healthcare (+43.5%) and IT (+32.2%) sectors,” Macri said.
“The international equities portfolio outperformed (29.5% v 28.0%) due to the zero weighting to the energy sector (+11.3%), which was the worst performing sector over the year, and the relatively high weighting to the IT sector (+47.5%), which was the best performing sector.
“The screened exposure to the financials sector also contributed positively with our allocation
returning 32.3% v benchmark’s return (for the sector) of 26.8%.”
Of the top five performing super funds last year, three were Suncorp funds.
The Australian Catholic Super fund was followed by Suncorp Corporate Investment Super Balanced fund at 18.4%, Australian Super Balanced Option at 17.7%, Suncorp Super Bond Balanced, and Suncorp Super Lifesaver Balanced both at 17.6%.
Chart 1: Top performing multi-asset balanced superannuation funds over the year to 31 December 2019 v sector
SOURCE: FE ANALYTICS
Do heatmaps work when one size does not fit all?
The Australian Prudential Regulation Authority may not have taken enough account of the different member demographics and the different investment objectives of superannuation funds in developing its heatmaps, according to a roundtable of senior superannuation executives.
AAs the superannuation industry has moved in 2020, executives and trustees have continued to express concern about how the Australian Prudential Regulation Authority’s (APRA’s) inaugural heatmap exercise may have misrepresented the performance of some funds.
ATTENDING:
Russell Mason
Superannuation partner, Deloitte
Paul Schroder
Chief risk officer, AustralianSuper
Ben Facer
Chief operating officer, NGS Super
Alex Hutchison
CEO, EISS Super
Andrew Proebstl
CEO, LegalSuper
Paul Cahill
CEO, NESS Super
Andrew Boal
CEO, Rice Warner
Jeff Fernandes
ANZ country head, Tech Mahindra
Chair: Mike Taylor, managing editor, SuperReview
A roundtable conducted by Super Review during the Association of Superannuation Funds of Australia national conference in Melbourne and ahead of APRA’s release of the heatmaps revealed that some of the industry’s most senior executives had legitimate concerns about the regulator’s approach, not least whether APRA could or would recognise that one size does not fit all.
The broad concerns of the executives of the roundtable, sponsored by Tech Mahindra, were reflected by NESS chief executive, Paul Cahill, who said there needed to be a clear understanding of what constituted performance for superannuation funds.
“Performance from an investment perspective is one thing, but what about insurance, what about
governance and other matters,” he said. However, he said that the importance of investment performance should not be under-estimated.
“If you can generate good performance, people will follow,” Cahill said. “Good performance will drive a lot of members through the door.”
NGS Super chief operating officer, Ben Facer, agreed with Cahill but said that while investment performance was obviously a key fact, it was not the ultimate determinant.
“Obviously it [investment performance] should have very heavy weight because it is a key driver of outcomes but we should not be looking at just absolute performance,” he said. “Funds are different with respect to profiles and objectives. If there are two funds with two separate sets of objectives you would expect them to perform differently.”
EISS Super chief executive, Alex Hutchison, said he believed any assessment of superannuation funds should not ignore the concept of “social license”.
He said that, on that basis, he believed financial and non-financial metrics should be given equal weight.
“We [EISS Super] are an outlier fund. Our members have balances which are three times greater than the industry average and we have lots of reginal members within an industry that is going through structural change,” Hutchison said.
“How do you measure social license? Well, when I’m in Broken Hill I don’t see any of the ‘reg tech’ funds coming out there to service members, but we’re there,” he said.
“Our promise to members is preservation and so on a pure investment return point of view, we are bottom of the table because we are about capital preservation. My fear is that because we are an outlier we will not be appropriately measured [in terms of the heatmaps],” Hutchison said.
“Hopefully, there can be a mature dialogue about how that is measured and treated,” he said.
Rice Warner’s Andrew Boal said he believed that a risk-adjusted approach was
critical to the acceptance of the heatmaps
“Whether objectives are achieved ought to be the main issue,” he said. “A fund meeting its own objectives should be adequate for the heatmap. There should not be undue reference to other funds.”
Boal said that funds should be measured against their own objectives and their own benchmarks recognising that diversity was important.
“I don’t think it is healthy to have all funds looking the same and trying to do the same thing,” he said.
AustralianSuper’s Paul Schroder said that notwithstanding some misgivings around the heatmaps, he welcomed the involvement of APRA in measuring fund performance and believed the industry needed to accept it as an iterative process.
“We’ve had a history of Morningstar, Chant West and SuperRatings all trying to rate funds. We should welcome APRA trying to do this,” he said. “Whether it is initially accurate is one thing, but we welcome the idea that APRA is going to become
involved in this discussion because the general public has no idea and they need someone to help guide them through it.”
“I think the general idea that APRA is going to use general data that is explained is a positive, but the first outing won’t be 100% right,” Schroder said.
Deloitte’s Russell Mason said that it was imperative that APRA both communicated and consulted with trustees and that funds had every opportunity to put their case and remove any misconceptions that APRA might hold.
“My concern is to avoid alarmist media commentary,” he said. “Just because a fund is deemed poorly-performing in APRA’s eyes doesn’t necessarily mean that members’ money is at risk given the secure nature of our system.’
“We have got to make sure that members don’t become alarmed that their fund is just another pyramid building society losing money,” Mason said.
Continued on page 14
Protecting Your Super Package –lessons learned or ignored?
Ahead of the Government embarking on the next tranche of legislation impacting insurance inside superannuation, industry participants are concerned that lessons have not been learned or the future dangers recognised.
The consensus of the Super Review roundtable was that the implementation of the Protecting Your Super Package (PYSP) had been rushed and that both funds and insurers had been given insufficient time to ensure the best interests of members.
Reflecting this view, EISS Super chief executive, Alex Hutchison, said he hoped that the appropriate lessons had been learned.
“We were confronted with unrealistic time-frames which created unrealistic pressures on participants in the value-chain and created in unnecessary risks,” he said. “I don’t think anyone would have been able to implement PYSP as they would have liked to.”
“Our fund, because of how we run, was able to ring every single person affected. We were able to do that but in the end the numbers of people opting back in [to insurance inside superannuation] appears to have been same as elsewhere in the industry,” Hutchison said.
“So, my fear is that in the future the not having insurance effect will have an effect.”
Deloitte’s Russell Mason said that he believed there should be concern around the longer-run impacts of
the Government’s changes.
“The real impact could be five or 10 years down the track when members start to die or become disabled and say ‘I did not understand and I was not properly informed. I now realise I do not have insurance cover which I wanted to maintain all along’,” he said.
Mason said such occurrences were not unusual when superannuation funds merged and members did not act to maintain cover through the process and the bottom line was that the many determinations handed down by the Superannuation Complaints Tribunal (SCT) had seen cover reinstated.
“People don’t appropriately understand the issue,” he said. “If you went out there in the community and asked people if they had any understanding you’d be impressed if 5% could give a vague explanation.
AustralianSuper’s Paul Schroder said that a binary debate had evolved with respect to the value of insurance inside superannuation – on the one side it was ‘insurance bad, get out’ while on the other side it was ‘insurance good, keep it’.
He said the bottom line was that what had occurred was a radical
departure that would inevitably increase the price of insurance and make it less attractive to some people.
“So, we have this debate about is it good or bad? I think we are on the precipice of having to rethink the value of insurance inside superannuation,” he said.
While not disagreeing with Schroder, Rice Warner’s Andrew Boal said that the industry had made mistakes and would need to ensure these were not repeated.
“The industry has made some mistakes along the way which have made it easy to be criticised because we have overcharged some cohorts,” he said.
NESS Super’s Paul Cahill said that while the implementation of the PYSP had been challenging, superannuation fund contact centres had been the difference between success and failure in circumstances where there had been stories of some administrators giving up.
He said that from monitoring his own fund’s call centre, he had noted that the most frequent callers had been the mothers of young members who wanted to ensure their sons’ best interests were being protected.
The value of endorsement
Rollover reckons it’s no secret that a number of Government backbenchers and, indeed, a number of front-benchers have been questioning the compulsory nature of Australia’s superannuation regime.
Among those who have sought to participate in the debate have been the likes of former Financial Services Council (FSC) policy apparatchik, Senator Andrew Bragg, former IPA staffer, Senator James Patterson and, apparently, the somewhat lesser known and recently-elected Queensland Senator Gerard Rennick.
Rollover doesn’t know much about Rennick, but a quick Google search reveals that he holds a Bachelor of Commerce from the University of Queensland and a Master’s degree in Taxation Law from the University of Sydney having grown up in that epicentre of progressive thought, the Queensland Darling Downs. Oh, and he also apparently believes superannuation is a “cancer”.
Rollover also notes that Rennick has earned the admiration of a chap in New Zealand named Branton Kenton-Dau whose website states he is “interested in understanding complex systems to the point where their structure reveals itself with childlike simplicity”.
And being noticed by Kenton-Dau should be counted as a feather in Senator Rennick’s cap particularly if he is the same Branton Kenton-Dau who in 2002 wrote an open letter to President Bush offering US investors
free access to his firm’s (MetaWealth) ratings of over 100 US firms. He is possibly also the same Branton Kenton-Dau who in 2008 was being interviewed as part of VortexDNA which was looking into the human genome and who in 2012 was reported in Super Review itself as having lauched a tail-risk product for the ASX200 based on data gathered by NASA on space weather patterns.
RATINGS AND THE URGE TO MERGE
Where have all the superannuation ratings houses gone?
Remember when there was SuperRatings standing proudly as a ground-breaker in providing ratings to superannuation funds? Remember when the sometimes irascible Warren Chant set up Chant West?
Well, as readers have probably already noted, these days SuperRatings is all part of research and ratings outfit Lonsec while, in mid-February, we learned that Chant West has been acquired by another research and ratings outfit, Zenith. Of interest ought to be that
the combining of SuperRatings and Lonsec resulted from the private equity involvement of Mark Carnegie, while Zenith’s embrace of Chant West follows from Zenith itself having taken on board some significant private investors.
Rollover reckons that the clear message in all these transactions is that the ratings game is getting tougher and having a foot in both the wholesale and retail markets is an advantage.
The competitive pressure may be rising, but Rollover doubts super funds will be seeing any reductions in fees.
Where have all the super millionaires gone?
For as long as Rollover can remember, some sections of the media have been writing about superannuation being a tax rort for high income earners. In terms of anti-superannuation stories it has become a “hardy annual”.
And the truth is that, in the past, the tax and regulatory structures did give rise to people holding multi-million dollar balances but those who believe this continues to be the case have significantly under-estimated the revenue-appetite of successive Federal Governments.
And you know that times are tough when it is the accountants who are complaining about the erroneous nature of reports about multi-million dollar balances.
CPA Australia wants no one to be misled about super millionaires, declaring: “Discussion in the media of the handful of superannuation accounts with balances over $100 million ignores the reality that due to the imposition of the transfer balance cap, only a maximum of $1.6 million can remain in the pension phase of superannuation”.
“It also disregards the reality that current high balances are an aberration which will wash out of the system as the limit to contributions via the total superannuation balance limit increasingly has an effect.”
Rollover feels sure that while CPA Australia has laid out the facts, those facts will not stand in the way of the next superannuation millionaire horror story.
