Superstream is regarded as an unquestioned success but there exists a strong underlying view that MySuper was neither warranted nor worth it. This is part four of a roundtable.
Mike Taylor (MT) (chair) – managing editor, Super Review
David Haynes (DH) – policy director, Australian Institute of Superannuation Trustees
Andrew Proebstl (AP) – chief executive, legalsuper
Brian Zanker (BZ) – head of business development, Mercer
Robin Petrou (RP) – chief executive, Energy Super
David Bardsley (DB) – director, superannuation, KPMG
Jocelyn Furlan (JF) – consultant, former Superannuation Complaints Tribunal chair
MT: Stepping back one step, and again David you kind of make the point, of the reviews that have led to where we are and I think the Cooper Review particularly has led us to a situation where you’ve got MySuper and a range of other factors which encourage disengagement.
I mean before the Cooper Review every time I came to one of these conferences it was all about how do we get our members to engage more and take responsibility for their super. Post-Cooper it was MySuper, you didn’t have to worry too much about it, it was a default, that’s just where you were going to end up. Listening to you guys it sounds like MySuper and a lot of the recommendations of the Cooper Review have not really worked out the way everybody might have hoped. I’m starting with you this time Andrew.
AP: Well I think a lot of us when we implemented MySuper, not all but many of us perhaps felt that we really weren’t doing anything other than changing the name of our existing default option and rewriting material.
RP: And reapply for a licence.
AP: Yeah. And I think in many ways what that said is really the industry funds mostly had already got where MySuper was trying to get to ironically.
So look I think in our case, for us, 49 per cent of our total assets are in MySuper so it’s not for us the name game. Most of our members have exercised choice and moved their money elsewhere and we continue to focus on [what] we think it’s really important – that people choose an option that’s more appropriate or better for their circumstances. So we’re really quite focused on reducing the level of investment in MySuper, so increasing engagement in that sense.
Perhaps our fund lends itself more to active investment choice, we’ve got the higher levels of financial literacy and higher balances and all this sort of thing. But all those dynamics – and that’s one of the reasons why you have a fund that focuses on a particular cohort because you can harness the benefits of that cohort and ultimately the benefits of that group of members. So I sort of think MySuper was maybe a process that endorsed where we were and we’ve built on it since.
RP: I agree Andrew and I think from an industry super point of view it was actually a cost. And the idea was that there was going to be a 40 per cent reduction in the operation costs I think was the number wasn’t it David? Something like that? And I don’t think it’s actually achieved anything like that, if not increased the cost. And that’s what I’m saying, we should actually have a look to see what it actually did to the industry dynamics.
DH: Well actually most of the cost savings have come through taking advice out of super, built-in advice out of super, and the implementation of SuperStream. They have been the two big areas of cost savings. And the cost savings in both of those areas are in the billions of dollars. So there are very significant financial benefits to the whole Stronger Super process, but perhaps less directly attributable to MySuper.
AP: But David, on that point I’m going to ask the question, in terms of the productivity gains that come out of the SuperStream and the efficiency of the back office, most of which are sitting in fund administrators, not the funds, and then to what extent is the cost savings that come from all those productivity gains making their way ultimately through the funds to members?.
DH: There’s been some recent work on that and we’re sort of getting off the topic a little bit here but there’s some research that’s recently been undertaken that suggests that the overall investment in MySuper has been in the order of about $1.6 billion. The year on year benefits of SuperStream is in the order of about $2.4 billion – so very significantly with about $800 million a year of benefits being attributable back to mainly employers and to a lesser extent super funds, although it gets a bit confusing because you’ve also got people moving towards straight through processing which has got its own efficiencies. But with most of the benefits actually being at a member level through better data quality, better member identification, less lost members and so on.
RP: But it’s built an extra cottage industry that was also part of the Cooper Review. So there was a lot of things that were supposed to have been solved by a lot of these things which actually created I guess more of the things that they were trying to discredit. So I mean the clearing houses weren’t able to be achieved by administration at the very early piece and they actually had to – we had to use separate clearing house solutions.
DH: Well clearing houses weren’t recommended by Cooper and they weren’t part of the original design for SuperStream. It was just that looking at the whole question about which is the most efficient way to manage transactions between employers and super funds, you have either the choice of having a hub, and the ATO [Australian Taxation Office] didn’t want to do that, or having some other intermediary in place which is where the concept of gateways came in.
DB: I think there’s been substantive economic benefit to the system as a whole. So all of the participants within our superannuation sector have benefited from Stronger Super and MySuper initiatives. I don’t think that many of those benefits flowed through to members and I don’t think if you’re looking at the members you can point to and say these are the significant cost benefits that we can attribute to you as a result of these changes in the system, save for I think financial planning, the removal of some of that inbuilt cost.
RP: But that’s just a matter of time.
DH: That’s not just incidental though. I think you’re talking about savings there of about $1.5 billion a year for consumers about decoupling advice from super. So there are an awful lot of people who were paying for advice that they didn’t use who are now getting a financial benefit.
DB: So I wonder about then decomposing the benefits and applying them to where the costs were applied. So I think that funds incurred substantive cost around satisfying MySuper requirements both on an upfront and an ongoing basis and I’m wondering about the benefits that can be attributed to members and the trade-off between those two, leaving aside significant cost benefits in administration and other parts of the system.
DH: Well my personal, and not AIST view on this, is that it was unfortunate in a way that it had to be given a name of MySuper. It would have actually been better simply to have said we need to raise standards within the industry, we need to apply a higher level of obligation on trustees, we need to institutionalise the need to maximise long-term returns over the long-term, and apply that across the board.
DB: So I think that it comes back to then the first conversation we had around productivity and that is how prescriptive will the new findings be and the expectations be? Will they be directional, will they be restrictive?
RP: So you’re talking about financial standards right? So financial standards, absolutely, right. They weren’t tied to MySuper. The MySuper product itself was not a great idea. SuperStream is a great idea. The prudential standards that APRA brought in were a strong –
DH: Which is also part of Stronger Super.
RP: Yeah but MySuper came in as part of the prudential requirements. But the prudential standards, as you said David, were right and could stand alone and it would have raised the governance for all super funds without the MySuper fund.