Government reviews take their toll on confidence in superannuation

This year’s ASFA conference is taking place amid the continuing uncertainty engendered by multiple Government reviews and the increasing policy assertiveness of the regulators.

The timing of the annual Association of Superannuation Funds of Australia (ASFA) conference makes it not only a forum for the discussion of events in the superannuation and investment industries, but also a retrospective.

The timing of the Australian electoral cycle means the ASFA conference has, de facto, also offered a forum for politicians to showcase their strategies and policy prescriptions.

Thus, the conference has often provided superannuation fund trustees and executives an opportunity to walk away with some concrete views on the direction in which their industry is headed, allowing them to plan accordingly.

This will not be the case in 2009.

The next federal election is, by most measures, at least another 12 months off, yet the underlying mood of ASFA 2009 will be one of uncertainty — an uncertainty driven by the number of inquiries and reviews that remain incomplete.

While it might be hoped that the Parliamentary Joint Committee on Corporations and Financial Services (the Ripoll Inquiry) may have reported to the Parliament by the time of the opening session of the ASFA conference, the Cooper Review and the Henry Tax Review will still be on foot. Indeed, the chairman of the Cooper Review, Jeremy Cooper, will be addressing one of the opening plenary sessions.

While Cooper will undoubtedly provide delegates to the conference with some useful insights into the direction in which his inquiry is headed, they will not be able to take certainty from his words because the Henry Review remains the greater unknown.

Whatever the Cooper Review may recommend with respect to encouraging greater pricing efficiency will be nothing more than embroidery on the fabric ultimately manufactured by the Henry Tax Review.

The Henry Review will be dealing with the fundamentals — the tax settings, the level of the superannuation guarantee, the thresholds and the broader legislative and regulatory incentives that have given super its attractiveness as an investment destination.

While Cooper will undoubtedly possess better than average intelligence on the thinking going on within the Henry Review, he would, equally, be aware of the myriad of loose ends and unknowns that emerge on major policy as Governments move further into the election cycle.

For superannuation fund executives, trustees and ordinary fund members the general debate around the Cooper Review, the Henry Review and the Ripoll Inquiry has also been complicated by the degree to which the regulators themselves have weighed into the debate.

ASIC, for instance, was not slow in apportioning responsibility for some of the corporate collapses which marred the financial planning and funds management sectors, while APRA has also been far from reluctant in expressing its views.

While the analyses provided by the regulators have, without doubt, proved interesting, their advocacy of particular positions with respect to the policies they must ultimately be expected to police would seem to break new ground in Australian public administration.

Officers and executive members of APRA have emerged as particularly adept at canvassing broad-ranging policy issues in the context of what they might mean in terms of the approach adopted by the prudential regulator. There have been multiple occasions on which APRA spokesmen have asserted a preference for ‘low cost funds’ over retail master trusts.

The most recent APRA spok-esman to espouse such views was executive member John Trowbridge, who used an address to the Institute of Actuaries to put the view on the lessons life companies and associated superannuation funds might take from some of the fall-out from the global financial crisis.

He said “… there are some lessons for retail superannuation funds, many of which are within life companies or within groups that own life companies”.

“APRA is the collector and publisher of super statistics and so is a force for transparency in the industry.

Along with increasing evidence that low-cost funds on the whole tend to perform better than higher cost funds, debates are emerging about the unbundling of sales and advice expenses from distribution and other operational costs, and about the suitability and sustainability of various commission arrangements.”

Some might view Trowbridge’s words as being a simple enunciation of emerging industry trends, however, when those views are interpreted side-by-side with earlier comments by APRA’s deputy chair, Ross Jones, the messages emanating from the regulator might be viewed as less than impartial.

In circumstances where impartiality has necessarily been the cornerstone of public administration in Australia, perhaps discussion at this year’s ASFA conference should traverse the constructs of regulatory independence.

Quis custodiet ipsos custodes?