Superannuation funds struggle to keep up with the pace of reform

The pace of reform that has been imposed on the superannuation industry is posing considerable challenges in the current economic environment. A recent Super Review roundtable examined the hurdles the industry is facing.

Mike Taylor, managing editor, Super Review: I’m going to move the debate along a bit, because I think we’ve exercised that one fairly well.

One of the things I think Michael Dwyer actually raised, which is the pace of change that has been imposed on the superannuation industry, and it has in the last three or four years, I don’t think I’ve ever seen associations and organisations busier than they have been, to such a degree where even Russell Mason's golf handicap has …

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So you mentioned earlier that the pace of change was causing a certain amount of member confusion, how challenging is this current environment?

Michael Dwyer, CEO, First State Super: I think it’s enormous.

It’s enormous for associations and I’m involved in nearly all of them, in terms of considering policy and regulations.

Big funds like ours, have actually had to sort of take a stand on their position, say for future financial advice, or any of the legislative issues – the prudential standards and the regs won’t be out till December.

So you actually … if you are going to implement some of these legislative changes, you’ve actually got to take a stand and a policy position (in terms of the fund) well in advance of knowing what the rules are.

So you’ve actually got to say, this is the way we will approach for example, financial advice.

And I think that’s probably not the best system to go forward in terms of certainty for members, and therefore the advice to members can be based on the known facts, “this is where we anticipate things will be going”.

I mean, I know through AIST [Australian Institute of Superannuation Trustees] and ASFA [a href="http://www.superreview.com.au/tag/asfa">Association of Superannuation Funds of Australia], the turnaround that they’re looking for – for both directors and members in comment on policy – is phenomenal, and is putting those resources under incredible strain.

In days gone by, we used to defend and promote the product no matter what the product that was coming down was, you know, reasonably well structured, well thought out.

But I think there’s such volume at the moment, that we’re having to do that at too fast a pace, and we don’t have the same degree of confidence we would in days gone by.

It doesn’t mean some of the changes aren’t good, it’s just the volume of them coming is too quick.

Pauline Vamos, CEO, Association of Superannuation Funds of Australia (ASFA): There were 17 pieces of major legislation in train at the moment, 17 pieces.

That’s not including the 10 or 11 APRA [Australian Prudential Regulation Authority] standards.

And they range from just about to get more of them sent to exposure drafts, and in between there you’ve got first tranches, second tranches, you’ve got a possible third tranches.

So the … when you look at the breadth of those 17 pieces, and they go from Stronger Super, your SuperStream, your MySuper, to the change in tax policy, you have people over 300,000, all of those sorts of … all of those elements of legislative change as well.

And this is what is crippling the industry at the moment, and on top of that you have got APRA levies, that even the industry levies have gone up another $44 million, not CPI, $44 million because that extra $44 million is not taken out of consolidated revenue for APRA.

And then you’ve got your SuperStream levy – an extra $467 billion over the next couple of years.

So you’ve got massive costs, you’ve got implementation, but you’ve got that uncertainty.

And that’s what we’re in at the moment, plus the political uncertainty.

That’s why it is so tough, and investment returns are a challenge.

Mike Taylor, Super Review: Fiona, have you ever been busier?

Fiona Reynolds, CEO, Australian Institute of Superannuation Trustees (AIST): No, I have never been busier, never ever.

Look, I agree with what Pauline said, that look, none of the tranches of MySuper are through yet, you know, and there will be a fourth tranche to tidy up, yet it’s supposed to be implemented on 1 July 2013.

And even more importantly, from October you weren’t going to be able to accept default money – so that’s pretty significant for most funds that are really, where they get the majority of their contributions is through the default system.

So we really wanted to see a start date of 1 July 2013, but since we have just gone into the winter recession in Parliament, and all of the bills didn’t get through, and so God knows when that’s going to happen.

Our view is now that we need to delay, there has to be a delay to the start date by a year.

So to 1 July 2014, at least to … I mean funds who are ready, by all means they should be able to get up and operate, and then in actual fact that might be a really good competitive advantage for them, if they’ve got everything done.

But I think there’s going to be some things that are just not through.

And you know, as Pauline said about the political uncertainty as well, I just think if we go through all of this and there is a change of government, and the first thing that they do, or one of the first things that they do is to have a review into superannuation – as every government does – I don’t know what I’m going to do, just to think that I’m … I just don’t know, I think I’ll go and jump off a building or something, or scream at the top of it at least, not jump off it.

Michael Dwyer, CEO, First State Super: And speaking as a fund that’s just gone through a merger, try merging funds, which a number are happening, and have this overlay of regulatory uncertainty.

I mean it’s just challenging beyond belief.

And confidence in our product is what we as a panel, I’m sure, are concerned about, and I think the confidence in the product beyond the compulsory amount is really a big challenge for the industry.

Russell Mason, partner, Deloitte: It would be nice to look at the changes and say, let’s implement those changes that actually add value to members, that make their benefits more secure, that somehow improve returns.

Funds have spent an enormous amount of money on MySuper, and I’m yet to see what value it adds.

Most will opt with their current default option, there’ll be another layer of costs as a result of MySuper.

Who bears those costs? There’s only one group that can bear the cost – that’s the member.

So every single fund I’ve spoken to or dealt with is going to be faced with significant increases in costs, and yet where’s the value to the members.

If that makes their benefits more secure or improves their situation, I’m all for it.

But I think we should be looking at change – not for change sake, but for actually adding value to the members.

Mike Taylor, Super Review: Colin McGuinness, the APRA levy, pretty fearsome this year … people are very polite about it today, but what do you really think?

Colin McGuinness, strategic manager, Auscoal: Well we’ve got to a ridiculous stage at our board strategic planning, where we put the levies aside because they’re so significant, but to try and gauge management’s effect on the fund, and the ability to keep our costs under control, or even drive efficiencies, and drive greater productivity – you can’t do it, when you consider the levy, you know, they’re up there in the number of BPS these days, where the fund has to charge.

So it’s ridiculous, just from that perspective alone, for the Government to come out and sell some of the handouts that are being given because they’ve taken away a levy that they imposed in the first place, I mean that’s almost ridiculous – well it is ridiculous.

So it’s a difficult environment to really work in and manage a fund, and manage costs – especially when you’re looking at Stronger Super legislation which came out – as in, it’s first guise, and they haven’t moved away from the fact that they want to create a better value product to the members, what was sold as a cheaper product – I think Fiona used that word – in the initial stages, and yet now we’re at … almost like 270 degrees off where we started.

Most of the services that we were going to have to strip out, are now back in, and you’ve got the added problem now of, from a communications point of view, we’ve carefully tried to communicate simple messages to the members – how do you simply put that you’ve got MySuper, and the only thing that’s going to be different between that and choice is the fact that you can actually choose other investment options.

It’s mind blowing.

Pauline Vamos, ASFA: One of the big issues with the APRA levies – and we have been looking at this the last couple of years and doing a comparison – is that we all think that the levy is going to pay for prudential supervision, whereas in the end, less than 30 per cent, I think, actually goes to APRA.

You have got a significant portion that goes to Australian Securities and Investments Commission, the Australian Taxation Office, part of the super levy is going to innovation and science, because they’re doing some research apparently on super streams; there’s a fair bit going to Treasury as well.

So you’ve got to look at where the levies are going and what they are paying for.

I actually think, when you look at what is going to APRA, it’s not too bad.

But if you’re at the other areas, that concerns me.

And from that, what concerns me even more, is that we all had one week’s consultation period on the levy, and we were totally ignored.

When you look at the ministerial determination that came out on Friday, I’m sure that was written before the consultation paper went out.

You don’t get to that sort of level with the minister signing off within a day.

I think, again, we’ve got to think about what does it mean for us as an industry, and what are we going to do about it.

Fiona Reynolds, AIST: Well I think first of all, the APRA levy isn’t an APRA levy – it’s just collected by APRA.

So I mean … and we have said … I agree with Pauline.

The fact that we got a week’s notice to choose three options, and then they didn’t go with any of the options that were actually in the paper that they gave us, they went with a hybrid option.

We went and strongly argued for the 467 SuperStream levy, that self-managed super funds sector had to pay its share.

We dragged out every press release that Self-Managed Super Fund Professionals' Association had put out that said how good SuperStream was going to be for the self-managed sector, and how much they had hoorayed it, and said well they need to pay their share because we need to reduce ours, and they are going to get benefit from this system, and it is not fair.

I actually thought we’d won the argument, I got a really good hearing on this from the minister’s office, from all of those things.

And I was totally shocked to then see, within ... how quickly that levy, and this tells you something too, all this other legislation, we’ve been waiting for ages and ages, collection of money, phew, done, in a week, out. And usually also the industry sort of gets advanced notice about things, and that sort of came out on the weekend, very quietly, and I didn’t get any advanced notice about it either.

In actual fact, I nearly missed it.