Cooper Review - the good, the bad and the ugly

Only some of the recommendations of the Cooper Review are worthy of adoption by a Government seeking re-election. The rest should be consigned to the dustbin of policy hypothesis, writes Mike Taylor.

Irrespective of submissions to the contrary and abundant evidence that market forces have generated their own dynamic, the chairman of the Cooper Review, Jeremy Cooper, has remained wedded to the notion of industry consolidation.

Thus, as the Government mulls over the recommendations contained in Cooper’s final report, it will be presented with a stark choice. It can pursue policy initiatives that give impetus to further consolidation or, more sensibly, it can allow normal market dynamics to prevail.

In making its decision, the Government should not allow itself to be distracted by Cooper’s rather simplistic rationale: the desirability of scale.

Rather, it should look at the consolidation that has occurred within the superannuation industry over the past decade and the relative performance of funds.

The number of superannuation funds operating in Australia has diminished substantially over the past 10 years, but while mega-funds such as AustralianSuper have certainly performed well, their absolute scale has not delivered them substantial outperformance.

What is more, it would be wrong to assume that AustralianSuper had been successful simply because it has become very large.

Its success has been driven as much by synergy as by scale, proving that the best superannuation fund mergers are born of mutual interest and desire rather than government policy prescriptions.

Anyone who has closely monitored the complex mating rituals that normally precede superannuation fund mergers would know that many such efforts are stillborn, floundering on the rocks of competing egos and competing interests.

In a speech delivered earlier this year, Cooper discussed the desirability of Australia having fewer but larger superannuation funds in the context of them being able to compete for the ownership of major assets.

He did so by referencing the Canadian pension funds that sought control of the Australian infrastructure giant, Transurban.

However, there would be many who would argue that, irrespective of a fund’s scale, such a large investment in a single company would not be in the best interests of members.

Equally, there are many in the Australian superannuation industry who have good reason to argue that their members would gain little from entering into a merger with another, larger fund.

Why would the trustee board of a fund that returned its members 15 per cent last financial year feel compelled to find a merger partner in the interests of gaining scale?

Perhaps just importantly, why should those same trustees be compelled to seek a merger just because a Government has, arbitrarily, set some sort of minima with respect to membership and funds under administration?

While Australia has a number of under performing funds (which, it might be hypothesised, would perform better if they were the subject of a merger), no one seems to have suggested that consolidation be forced on the basis of investment performance.

If that were the case, then the former darling of the ratings houses, MTAA Super, would have to be included in the mix.

Given the Government’s Cabinet changes and the fact it is moving towards an election, its interests would be best served by taking a pragmatic approach to the Cooper recommendations and doing the sensibly doable — while discarding the disruptively conceptual.

On that basis, it is eminently sensible for the Government to adopt the recommendations that go towards simplifying and improving the superannuation back-office through e-commerce solutions, electronic funds transfers and the use of tax file numbers.

However, a much more measured approach needs to be adopted towards the Cooper Review’s recommendations with respect to the MySuper default proposals, and towards further industry consolidation.

A Government bruised by its arguments with the mining industry would be most unwise to further unsettle superannuation industry investors as it seeks re-election.