The superannuation industry is ready to move on change.
THERE is, understandably, a fair degree of excitement and optimism among superannuation fund members when they read that the Cooper review recommendations will put more money in their pockets when they retire.
The optimism extends to the superannuation industry. We have not been dragging our heels on driving greater efficiencies. In many respects, we have been hampered by the lack of a legislative framework that would support a more efficient, responsive industry.
Now, Cooper has given us a rallying call. There are recommendations on the table that can offer immediate results for fund members and, as such, should be pushed through immediately. These include ways to reduce costs. Fees can be lowered only if the cost of doing business is lowered significantly.
The projected $40,000 increase in average retirement savings comes from an assumption that bigger MySuper funds and other changes will lead to a 40 per cent fall in costs. While this is a commendable target, it may be difficult to hit. A dramatic reduction in the number of funds and increasing the size of each fund will not come quickly or easily.
Will the new regime result in lower operational costs for funds? Yes, but individual recommendations cannot be viewed in isolation - some will bring higher costs. If the system is to be safe, funds must invest in key areas such as governance and reporting. What we have here is a package. But can we introduce some things early? Where are the no-brainers?
It's clear many aspects of Cooper's SuperStream efficiency proposals should have been adopted years ago. We have dragged our heels on providing employers with the tools they need to standardise payment of super guarantee contributions. As a superannuation industry, we admit we have not embraced technology widely enough to streamline the process.
The recommendations will set a minimum standard for employers and require funds to receive data and contributions electronically. The industry is establishing a governance body to oversee this and drive a system so stakeholders can deal with us efficiently.
What about MySuper? There are clearly varying views about the merits of this proposal.
If it were to be adopted, most fund members would see little difference - they're already in a default investment portfolio. Many already have access to intra-fund advice, while basic insurance and post-retirement products, such as allocated pensions, are already part of the value-add by funds.
So what is MySuper really about?
It's wrong to think it will be a catch-all for people not engaged with their super. We know there are widely varying levels of engagement among fund members. Association of Superannuation Funds of Australia research shows much of the population has chosen its fund and about two-thirds exercised or want to be able to exercise investment choice. MySuper is ultimately about investment choice, with the fund member electing the trustee to make all investment decisions on their behalf.
Many of the MySuper recommendations are about setting a benchmark that most trustees already meet. It will, however, create standardisation of reporting to the Australian Prudential Regulation Authority and to fund members. This will allow members to compare the MySuper portfolios offered by different funds. In their pure form, these portfolios go back to the fundamental principles of a true investment fiduciary - managed in line with the time horizon of group members, with assets allocated accordingly.
It is a mistake, though, to focus purely on cost. If our only point for comparing super funds is to find the cheapest MySuper offering, there would be no measuring of value or return compared with risk. The focus on longer-term net investment return through asset diversification must be the point from which we start and end.
It would not be in the best interests of fund members if all options, particularly involving insurance, are lost. This may be an unintended consequence of MySuper.
The Australian superannuation industry is worth more than $1.2 trillion and, in just six years, it will be more than $2 trillion. The super industry has been given the privilege of providing the retirement incomes system for all Australians. It must be fully accountable to its fund members and to the government. Cooper has helped the process by recommending a sensible, robust and transparent structure.
We have 177 recommendations to work through. Let's focus on the quick wins that will deliver immediate benefits to members and start reducing costs for funds so they can invest in other parts of the structure and system.
Pauline Vamos is chief executive of the Association of Superannuation Funds of Australia.
