Super Review December 2010

T H E L E A D I N G I N D E P E N D E N T J O U R N A L FO R T H E S U P E R A N N U AT I O N A N D I N S T I T U T I O N A L F U N D S M A N A G E M E N T I N D U S T RY DECEMBER/JANUARY 2011 Volume 24 - Issue 11

MySuper returns less than super 3 SUPER OVERHAUL Unpaid SG obligations to haunt directors of failed companies

There is a danger that the low-cost nature of MySuper could be reflected in the returns it actually generates for members, according to a Super Review roundtable.

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11 EDITORIAL Is the Government heading in the wrong direction?

17 INSURANCE Print Post Approved PP255003/01111

Recent court ruling reshapes the TPI landscape

20 YEAR IN REVIEW Looking back with an eye on the future For the latest news, visit superreview.com.au MANDATES

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NEWS

he Federal Government’s pursuit of the implementation of the Cooper Review’s MySuper proposal carries with it the risk of financially disadvantaging those who can least afford it, according to the findings of a roundtable of senior executives and trustees working in the superannuation industry.

A Super Review roundtable held at the beginning of the Association of Superannuation Funds of Australia (ASFA) conference in Adelaide endorsed warnings that the low-cost nature of the MySuper proposals carried with it the risk of lower returns.

AustralianSuper manager Paul Schroder described lower returns as being one of “the smouldering risks” attached to the implementation of MySuper.

“People are driven to forget about returns in pursuit of lower costs,” he said.

“It’s perhaps ironic for the industry fund person to be talking about the value on the earning side, but there is a real risk in this whole story about lower costs,” Schroder said.

“Everybody can get lower costs, you can seek scale and you can go passive, but will 3

EDITORIAL

Everybody can get lower costs, you can seek scale and you can go passive, but will that deliver the returns you need over a lifetime?

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ROUNDTABLE

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that deliver the returns you need over a lifetime?” he asked.

Non Government Schools Super trustee John Quessy endorsed Schroder’s concerns and warned there was a danger that the lower returns generated by a low-cost MySuper might impact those who could least afford it.

“Think about the person,” he said. “We take a picture of the person for whom MySuper in its simplified form might in fact be attractive.

Somebody who is absolutely and totally disengaged; who will probably never consolidate any of their funds; who will never make extra or voluntary contributions; who will never switch investment options, will never be tempted to roll over – in fact, this is a person for whom trustees are clearly not an issue.

“So let’s actually establish now a portfolio for that person who ignores any opportunity of illiquidity premium,” Quessy

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APPOINTMENTS

said. “How dumb; it’s just absolutely dumb.”

He warned that trustee boards might be able to invest such a person’s money somewhere with the potential for higher returns, but would not be allowed to do so.

“That has absolutely not been thought through,” Quessy said.

However, Schroder pointed out that investment choice had also been an issue in circumstances where, during the global financial crisis, people had actually chosen to switch allocations at the wrong time.

“If you look at the people who switched, they have basically switched out at the wrong time and switched back. So actually there’s an argument to say it’s people who followed the guidance of the trustees and leveraged the liquidity of the cash flows that actually, over time, do anyway,” he said. SR See pg 12 for roundtable.

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EVENTS

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Mandates Received by

Type of mandate

Issued by

Amount

MLC

Group insurance

Health Industry Plan

NA

Investec

Global Aircraft Fund

Australian Catholic Super

NA

Ankura Capital

Australian equities

Russell Investments

NA

Tower Australia

Group insurance

First State Super

NA

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NEWS 3

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Directors cannot duck SG obligations UNPAID superannuation guarantee payments will haunt the directors of failed companies long after their businesses are wound up, under changes being implemented by the Federal Government.

The Government has said it is about to enter into a consultative process concerning specific changes to the superannuation regime aimed at protecting workers’ entiBill Shorten tlements, including extending the penalty

regime on unpaid superannuation guarantee contributions to company directors.

The Assistant Treasurer and Minister for Financial Services, Bill Shorten, made the announcement at the same time as saying the Government would be implementing a number of recommendations flowing from an inspector general of taxation review of the superannuation guarantee charge.

He said the inspector general was of the view that if a company failed and owed superannuation to employees, then the directors of the company should be made strictly liable for the unpaid superannuation liabilities of the company.

Shorten said this would act as a strong deterrent against employers not paying superannuation and also discourage phoenix practices. SR

Russell announces changes to asset allocation RUSSELL Investments has announced changes to the strategic asset allocation (SAA) of its diversified managed funds and pooled superannuation trusts, including three new sector strategies for its diversified portfolios.

The three new sector strategies are the Russell Alpha Fund, the Russell Australian Shares Enhanced Income Fund and the Dexus Wholesale Property Fund (Dexus WPF).

The Russell Alpha Fund is designed to provide an absolute return above an Australian cash benchmark by isolating and delivering an absolute return stream from Russell’s highest conviction managers, according to Russell portfolio manager Andrew Sneddon.

The Australian Shares Enhanced Income Fund focuses on securities with higher dividend yields, and the Dexus WPF

is a portfolio of prime Australian unlisted property assets diversified both regionally and across sectors.

Russell also announced a more tailored approach to its SAA, meaning diversified products will be more tailored to the end-client with respect to liquidity and tax status.

The Alpha Fund has been added across the suite of diversified products to enhance portfolio diversification, the Russell Australian Shares Enhanced Income Fund has been introduced to the tax-exempt units only to generate income for non-tax paying investors, and the Dexus WPF has been added only to the taxed pooled superannuation trust units, Russell stated.

Over the past year, Russell has increased its SAA to alternatives in its Balanced Opportunities Unit from near zero to around 10 per cent. SR

Volatility opportunity for institutions

BY CHRIS KENNEDY VOLATILITY investing is a relatively new and technical area that could provide an opportunity for institutional investors to add value to a portfolio, according to Russell Investments.

An investment in volatility allows investors to potentially benefit from the difference between the future volatility of an asset class and the implied volatility of options based on that asset, according to a research paper released by Russell.

Volatility could be used as either an investment in its own right or as a hedging instrument, and there are a number

of strategies and products that enable investors to gain such an exposure, Russell stated.

Volatility investing is currently an underused strategy and education has been a barrier to entry thus far, but there could also be a first mover advantage, according to Russell Investments senior analyst Chris Inman.

Instruments such as VIX futures and variance swaps provide a ‘pure’ exposure to volatility. The two main strategies are to go long, providing downside protection in the event of the heightened volatility that tends to coincide with negative equity returns, and

shorting, which effectively involves selling insurance to investors who are willing to pay to protect themselves against the risk of volatility.

Inman warns that a short volatility investor needs to be aware that if the market is more volatile than anticipated, they will lose money.

Volatility is most suited to institutions as it is important to have the funding to be able to sustain potential losses, Russell stated.

Current trading of volatility is most commonly linked to US indices such as the S&P 500, and it is not yet widely used in the Australian market. SR

Tower wrests FSS from MetLife TOWER Australia has consolidated its recent dominance of the group insurance sector by securing the First State Super mandate previously held by MetLife.

The mandate win comes just over a year after Tower reasserted itself in the group insurance arena by picking up the prized AustralianSuper mandate, which it then followed with smaller but significant mandates from National Catholic Super and IBM.

The decision by First State Super to change group insurance providers followed a competitive process overseen by Rice Warner Actuariesand leaves MetLife dealing with MTAA Super, Rei Super and Statewide Superannuation Trust.

Tower was recently named as Super Review’s Group Insurer of the Year based on an analysis of mandates held and won combined with the results of a survey to determine how its clients viewed its services. SR

John Brogden

Retirement savings gap widens THE Financial Services Council (FSC) has reinforced the need for the Government to proceed with a lifting of the superannuation guarantee from 9 to 12 per cent, releasing new research revealing a multi-billion dollar retirement savings gap.

The research, undertaken by actuarial consultancy Rice Warner, has revealed the retirement savings gap has blown out considerably, from $695 billion in 2008 to nearly $900 billion last year.

Commenting on the data, Financial Services Council chief executive John Brogden said the research had confirmed that the 9 per cent superannuation guarantee would fail to meet expectations of a comfortable retirement.

“The superannuation guarantee needs to be at least 12 per cent,” he said.

“This, combined with the Government’s plan to raise the concessional contribution caps for those nearing retirement and the superannuation guarantee age limit, would provide a 30-year-old on average weekly earnings with an additional $108,000 in their superannuation account on retirement,” Brogden said.

He said that increasing compulsory superannuation also had the significant benefit of reducing Australia’s reliance on international investment and lowering the current account deficit, as well as providing a cheaper and more stable pool of funds for Australians to draw on. SR DECEMBER/JANUARY 2011

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High-yield strategy can improve total returns: Russell

BY CHRIS KENNEDY RATHER than denting growth, incomefocused investing can actually improve overall returns, according to Russell Investments.

With equities unlikely to maintain the growth levels seen over much of the past decade and a demographic shift as more of the population enters retirement, income-focused strategies would become much more important, Russell portfolio manager Scott Bennett told a Russell Investments summit.

He said it was highly unlikely that there would be a return to the continued double-digit equity market returns of 2003 to 2007, meaning dividends would make up a much larger portion of investors’ overall return. Investors who started focusing on income could be rewarded, Bennett added.

There would also be a “massive paradigm shift” as the baby boomer generation

began their transition to retirement and started looking for greater income, he said.

“Income is a great defensive asset class, or a great way to reduce some of the volatility from your overall portfolio,” Bennett said.

He said income came with a massive growth upside, and compared favourably with a term deposit rate which, although it could provide similar growth to the Australian sharemarket, had a very limited upside due to the capital and interest rate being locked in.

Russell’s Australian shares-enhanced income fund was developed based on feedback from clients who wanted more transparency and certainty from their investments. “Lots of investors got burnt in 2007 and 2008 from highly developed or highly engineered income strategies that were really just a whole lot of derivatives,” he said.

The first objective of the fund was to generate income, aiming for 1 per cent above the Russell Australia high dividend index, which added up to 2 per cent once franking credits were included, he said.

The managers chosen were Ankura and Perennial, which he said were highly differentiated and complementary.

Perennial is a traditional bottom-up stock picker focused on top 100 shares, while Ankura is a fundamental manager that, through algorithms and optimisers, looks for the best income opportunities and focuses on the small cap end of market.

The fund also features the Russell highdividend exchange-traded fund as a passive core of 30 per cent as a risk control, to allow the managers the freedom to pursue income opportunities they would like within the market without having to worry too much about their independent risks, Bennett said.

Ankura’s managing director and head of research, Greg Vaughan, said the strategy was a response to a lower growth environment that would lead to income being a more significant component of returns in the future.

Because of the maturity of the system, superannuation funds have traditionally been focused on the wealth accumulation phase, which is about growth and total returns – but in the retirement or drawdown phase income is more significant, he said.

It was important to dispel the myth that an income bias would hurt growth more than it would enhance yield, he said. SR

Retail master trusts continue to perform OnePath adds OneCare insurance RETAIL master trusts have continued to outperform industry superannuation funds, according to the latest data released by research house Chant West.

The data revealed that stronger share markets ensured that master trusts marginally outperformed industry funds in October – although the industry funds were better performers over the longer term.

The data revealed that in the year to the end of October, median growth retail master trusts had returned 7.2 per cent compared to 7 per cent for industry funds.

Chant West principal Warren Chant said that the per-

formance had been driven by the continuing rally in share markets, which saw the median growth superannuation fund returns rise by 1.4 per cent during October after gaining 2.4 per cent in September.

He said that international shares and property had recorded a particularly good month.

Chant said that over the 2010 calendar year to date, the data revealed five positive months and five negative months – and the outlook remained uncertain.

“Markets are still highly volatile and we are getting used to seeing movements of 1 per cent or more up or down in a day,” he said.

to wholesale platform

Warren Chant

He said Governments were still pumping money into the system, and added that until artificial stimulus had washed through the system it would be difficult to tell whether the global economy was back on track. SR

ONEPATH has added OneCare insurance to its wholesale platform, Oasis Asset Management.

The Oasis platform will enable advisers to offer clients retail and traditional group insurance options in super, according to OnePath.

Ross Bowden, general manager of OnePath’s superannuation and investment division, said the move would enhance adviser provision of appropriate risk products to their clients and improve flexibility to meet investor needs.

“There has been a strong demand from dealer groups for Oasis to integrate a competitive retail insurance offering onto the ‘badged’ superannuation wrap,” he said.

Mark Pankhurst, head of superannuation and investment platforms, said the new offering provided a comprehensive range of award-winning insurance cover.

“When clients apply for OneCare insurance through the wrap platform, the benefits include processing all new applications online, which makes managing clients’ insurance cases faster and easier,” he said.

“This is a fully integrated insurance solution on the wrap.

This means premiums are collected from members’ accounts and their premiums are tax deductible within their super fund,” he said. SR

AMIST sets precedent with default income protection IN an industry first, the Australian Meat Industry Superannuation Fund (AMIST) will deliver its members default income protection insurance on an opt-out basis, via an agreement struck with specialist insurer Australian Income Protection (AIP).

The new arrangement was anSUPERREVIEW

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nounced by AMIST chief executive John Livanas, who said the decision to offer default income protection cover was consistent with AMIST’s desire to offer members a more innovative and easy approach.

He said it was unusual to offer income protection as a default option to mem-

bers because of the underwriting requirements and because voluntary takeup was still comparatively low.

Livanas said that AIP had been able to develop a competitive product proposition that would allow the fund to offer its members an attractive income protection solution.

Commenting on the arrangement, AIP head of sales Michael Burke said he hoped the default approach to income protection adopted by AMIST would be considered by other funds.

The new arrangements became available to AMIST members on 20 November. SR

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ASFA calls for removal of $450 SG threshold

BY CHRIS KENNEDY THE Association of Superannuation Funds of Australia (ASFA) has called for the Government to remove the “unfair” $450 earnings threshold for superannuation guarantee (SG) contributions, which would help to address the gender gap in superannuation.

“The Federal Government’s submission to Fair Work Australia on its current Equal Remuneration Case should be amended to also include superannuation contributions on all wages paid,” ASFA chief executive

Pauline Vamos

Pauline Vamos said.

“Removing the $450 threshold would address a fundamental unfairness whereby those on low incomes or those in multiple low paid jobs essentially forgo 9 per cent of their wages without any compensation. This is especially important for women as many are engaged in low paid and casual jobs. Removing the threshold will lead to greater labour market efficiencies and productivity gains.”

Rice Warner Actuaries research shows that retirement benefits for women are still lower than for males, and the adequacy gap for a woman due to lower

wages and a career break could be as much as $251,000, according to ASFA. “Government needs to be mindful of the gap caused by women earning less than men, interruptions to work patterns due to motherhood, and longer life expectancy,” Vamos said.

ASFA also reiterated calls for all sides of politics to work toward increasing the SG to 12 per cent, rebating the tax on concessional contributions for those earning under $37,000 and increasing the voluntary contribution caps in order to enable women to close the savings gap and catch up, Vamos said. SR

New borrowing rules prompt warning to SMSF trustees SELF-managed super fund (SMSF) trustees need to be aware of new limited recourse borrowing arrangements that came into effect on 7 July, 2010, according to the Self Managed Super Funds Professionals’ Association of Australia (SPAA).

The requirement for borrowed funds to be used to obtain a “single acquirable asset” and the restrictions imposed on replacing or improving the asset once it has been acquired are the most significant, according to SPAA national technical

director Peter Burgess.

Previously, more than one asset could be acquired and assets did not have to be the same form or type in order to undertake a single limited recourse borrowing arrangement, according to SPAA. “The changes mean separate borrowing arrangements must be in place for shares in different companies or even different classes of shares in one company, with compliance potentially messier than when dealing with property,” Burgess said.

Teachers Health Fund signs Macquarie Life MACQUARIE Life will provide insurance to the 200,000 members of Teachers Health Fund, and under the agreement Macquarie Life Active will be the exclusive life insurance option marketed to fund members.

The head of Macquarie Life, Justin Delaney, said this was the first time Macquarie Life Active was being distributed through a health fund since its June launch, with more than 1,000 individuals applying in that time.

“Through Macquarie Life Active we have created what we believe is a new category of life insurance, providing ongoing benefits to the client while they are still living,” he said.

Macquarie Life Active allows policy holders to make multiple claims throughout their lives, which helps them better understand SUPERREVIEW

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The acquisition of real property on separate titles also requires a separate borrowing arrangement to be put in place for each title, but where assets are inseparable they may be treated as one asset. As it is still unclear how this will be determined, SPAA believes advisers and trustees should act as if each title represents a separate asset, Burgess said.

Renovations or improvements will also not be permitted to properties for which limited recourse borrowing

the policy’s benefits, he said.

“Macquarie Life Active can be a natural complement to health insurance cover and means that for end clients, like those in the Teachers Health Fund, they can understand what they are getting from their policy and the real benefit to them and their families,” he said.

The product separates total and permanent disability claim eligibility from occupation, instead basing the definitions on objective medical conditions. This move away from an ‘all or nothing’ approach towards tiering severity more easily matches cover to a member’s financial need, Macquarie stated.

Teachers Health Fund chief executive Brad Joyce said the fund would be offering Macquarie Life Active to members through the Teachers Insurance Services joint venture with Nadic Insurance Brokers, and members will be able to access assistance from licensed advisers as required. SR

arrangements have been put in place as they may give rise to a different asset to the original one, regardless of the source of the funds used to renovate or improve the asset.

“In the context of real property, the inability to improve the asset during the life of the loan is a significant issue and extreme care should be exercised where it is the intention of a SMSF trustee to alter a property acquired under a limited recourse borrowing arrangement,” Burgess said. SR

Peter Burgess

Investec expands aircraft holdings INVESTEC has added three narrowbody aircraft to its Investec Global Aircraft Fund (IGAF), bringing the portfolio to 10 aircraft and taking the total value past $600 million.

The new aircraft are two Airbus A320-200s and one Boeing B737-700, acquired from GE Capital Aviation Services Limited. They will be leased to German carrier Air Berlin, Chinese Shenzhen Airlines and Vueling Airlines in Spain for terms of five to six years.

“We are very pleased to add these aircraft to the portfolio as it continues to deliver on the fund’s strategy of investing in high demand, new generation aircraft to lease to quality airlines,” said IGAF executive David Phillips.

“The other material benefit is the added diversification the acquisitions

bring in relation to airline, country and aircraft type exposure.”

IGAF executive Michael Weiss said that growth in the fund increased the opportunities to transact with other leasing companies.

The fund has attracted significant interest from Australian institutional investors since its launch in 2008.

It recently launched its third capital raising, with the Australian Catholic Superannuation and Retirement Fund the major contributor to the $50 million raising. A $45 million capital raising earlier this year attracted interest from investors such as AMP Capital Investors and Health Industry Plan Superannuation.

Investec announced that the fund was on target to grow assets to over $1 billion by early 2011. SR

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AIST calls for speedier super payments

BY CHRIS KENNEDY THE Australian Institute of Superannuation Trustees (AIST) has urged employers to ensure employee superannuation payments are aligned with salary payments following an announcement from the Australian Taxation Office (ATO) that it would be clamping down on employer non-compliance in the payment of superannuation contributions.

AIST chief executive Fiona Reynolds described super as deferred wages and said it should be treated in the same way as salary.

“It should be recognised that all employees need the security of having their super paid at the same time as their wages – be it monthly or fortnightly,” Reynolds said.

Reynolds said that with super payments currently only required to be paid quarterly, hopefully the Cooper Review’s SuperStream recommendations would lead to more employers paying super at the same interval as the payment of wages.

The long gap between payments meant that significant debts could accrue before arrears were detected and

Fiona Reynolds

investigated, Reynolds said.

AIST research shows that many employers which ceased trading because of insolvency have outstanding super obligations, and the AIST also called on the Government to extend the MySuper criteria to include mandatory arrears collection.

“At the moment, it is only really a handful of funds that identify and attempt to remedy compliance issues. Even with the ATO’s increased powers in this space, all super fund members would benefit from the added protection of knowing that their fund is also on the look out for any anomalies in their super payments,” Reynolds said. SR

Instos should steer from bonds to growth: Mercer GLOBAL government bonds and global credit have become overvalued with yields falling by more than 0.5 per cent, and now could be a good time for medium-term institutional investors to increase their allocation to growth assets, according to Mercer.

Australian bonds remain fair value but there was a surge in high quality global government bonds in the third quarter of 2010, according to Mercer’s Quarterly Market Valuation and Review.

“The yields are now lower than the level reached at the end of 2008, and it is real rates, rather than inflation expectations, that have fallen the most,” said David Stuart, head of Mercer’s Dynamic Asset Allocation team in Australia and New Zealand.

Mercer has previously recommended global government bonds to provide insurance against adverse economic outcomes but Stuart said the cost of this insurance is now becoming prohibitive.

“Global corporate bond yields are now at levels last seen in 2003, and are beginning to look a little expensive.

Nonetheless, compared to government bonds, they still have a relatively attractive spread,” he said.

Both overseas and Australian shares were rated as ‘fair value’ as many major markets rallied in the third quarter, returning 10 to 15 per cent.

“It is true the outlook for developed economies remains uncertain, yet serious

David Stuart

talk of a double-dip recession has waned, and the consensus for 2011 global growth remains above 3 per cent,” Stuart said.

Positive valuation signals from global equities with the wide gap between equity and bond yields are offset by macroeconomic risks, but with the poor performance of defensive assets, Mercer recommended going overweight in equities and other growth assets, Stuart said.

The Australian dollar was rated as unattractive relative to the US dollar but neutral versus the euro and the Japanese yen.

“Overall, we believe the Australia dollar is overvalued against the US dollar, and that eventually we will move closer to long- term equilibrium levels. Our advice is to take advantage of current rates to buy unhedged overseas assets,” Stuart said. SR

Pre-retirees confused about super MANY Australians approaching retirement don’t understand the meaning of fundamental superannuation terms, a Suncorp Life survey has found.

One-third of the 288 respondents, who were aged between 50 and 64, could not define ‘transition to retirement’, the survey found.

The results for women were worse than for men: more than 42 per cent of women surveyed had not heard the term ‘transition to retirement’, compared to 35 per cent of men, and almost 60 per cent had not heard the term ‘non-concessional contribution’, compared to 47 per cent of men, according to Suncorp Life executive general manager David Carter.

The results are a sign the industry needs to speak in plain English to customers and address financial literacy, he said.

Many respondents offered confused definitions for terms such as ‘transition to retirement’, and this lack of understanding means they could potentially be missing out on extra retirement savings, he said.

“Not understanding the terminology may cause investors to feel they lack control of their money and believe it’s simply too hard to ensure their super is being managed effectively,” Carter said.

Suncorp Life launched its ‘Simplicity Principle’ last year, which aims to help customers become more involved in managing their superannuation investment, he said. SR SUPERREVIEW

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QIC adds to infrastructure holdings

BY CHRIS KENNEDY

Doug McTaggart

QIC has announced it will boost the range of assets it holds for the Defined Benefit Superannuation Fund for public sector employees by acquiring Queensland Motorways Limited from the Queensland Government for its Global Infrastructure boutique.

QIC chief executive Doug McTaggart said that QIC Global Infrastructure sources infrastructure assets globally and considers Queensland Motorways Limited to be a quality infrastructure opportunity in the state of Queensland.

QIC Global Infrastructure has long had an interest in Queensland Motorways Limited because in Gateway and Logan Motorways it holds two mature toll roads in the fast growing southeast Queensland region, he said.

“A further significant attraction is the CPI-linked revenue streams which are well suited to the long-term liabilities of the Defined Benefit Fund,” McTaggart said.

“We recognise the essential role the Gateway and Logan Motorways play in the Queensland economy and their importance in the future growth of southeast Queensland.”

QIC Global Infrastructure would now begin the necessary commercial negotiations and due diligence, he said.

QIC Global Infrastructure holds longterm infrastructure assets including 14 unlisted infrastructure assets with a value of approximately $3 billion as at 25 November, 2010, the manager stated.

These assets include investments in Brisbane Airport, the Westlink M7 toll road in Sydney, Thames Water and Grup Maritim TCB, a global ports developer and operator, and the Port of Brisbane.

QIC currently manages around $55.4 billion for institutional clients. SR

GESB passes $11 billion in FUM FuturePlus employs Bravura super solution SUPERANNUATION services provider FuturePlus Financial Services has gone live with Bravura’s ePASS software solution to address poor website functionality and replace in-house legacy systems, Bravura has announced.

The general manager of operations at FuturePlus, Chris Matthews, said the ePASS system provides a single integrated view of member information from multiple data sources.

“This means that we can link accounts from up to seven administration systems under a single client record by using the member’s key account information. In addition, when we update member details, all changes are automatically synchronised across multiple administration systems, considerably increasing efficiency,” he said.

Bravura Group chief executive Simon Woodfull said the ePASS Back Office module would enable FuturePlus call centre staff to track customer contact history and make transactions, such as address changes, withdrawals and beneficiary updates, on behalf of members.

“We look forward to working with [FuturePlus] over the coming months as we progressively roll out our various ePASS modules: Member Online, Adviser Online, Employer Online and Back Office.”

FuturePlus is owned by the NSW Energy Industry Superannuation Scheme (EISS) and provides administration and other backoffice services to EISS, Local Government Super and Chifley Financial Services, and has assets of more than $9 billion. SR SUPERREVIEW

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GESB has passed $11 billion in funds under management (FUM), which it has almost doubled in the past five years from a level of $5.76 billion in October 2005.

GESB chief executive officer Michele Dolin said the result reflected the solid performance of the organisation in recent years and a quick return to a positive position after the global financial crisis.

“During the past year, few funds have performed as solidly as GESB, which ranks in the top 10 of superannuation providers in Australia. GESB has also joined an elite group of 15 Australian super funds ranked in the top 300 funds in the world for 2009,” Dolin said.

“GESB continues to focus on accessible and affordable financial education and advice services for our 320,000 members in metropolitan and regional Western Australia,” she said.

“GESB’s ambition is to increasingly diversify its investments, with a strong focus on strong performance and delivering sound returns for its members over the long term.” SR

Diversa to acquire insurance business DIVERSA will acquire a group life and salary continuance insurance business from Peter Mueller & Associates as part of the manager’s stated strategy of servicing Australia’s superannuation and funds management sector with an emphasis on responding to the changing regulatory environment.

Under the agreement, Diversa will acquire the business for $450,000, payable over three years, with future payments subject to conditions including obtaining necessary variations to the relevant Australian Financial Services Licence, the manager

said in a statement to the Australian Securities Exchange.

Peter Mueller & Associates principal Peter Mueller will stay on for at least three years, Diversa stated. SR

Mathias Cormann

Productivity Commission to review default super process THE Senate has asked the Productivity Commission to design a new process for the selection and ongoing review of default superannuation funds under modern awards as a result of a Coalition motion.

The Shadow Assistant Treasurer and Shadow Minister for Financial Services and Superannuation, Mathias Cormann, said the current process “is anticompetitive, it is not objective, not evidence based and not transparent”.

Taking aim at the union movement, the Liberal Party MP said: “We have now had two years of a closed shop, anti-competitive arrangement to select default superannuation funds, with a significant bias towards union superannuation funds.”

Cormann said that Financial Services Minister Bill Shorten ought to act in the best interests of working families with superannuation rather than in the interests of union superannuation funds.

“They deserve the benefit that would flow from robust competition between all superannuation funds,” Senator Cormann said. SR

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Blueprint for success or disaster?

The Assistant Treasurer, Bill Shorten, says he has adopted the Cooper Review as a policy blueprint, but good sense demands that he fully test the concepts before they are implemented.

Mike Taylor

T

hose listening intently to Assistant Treasurer Bill Shorten’s address to the Association of Superannuation Funds of Australia national conference in mid-November would have heard him utter a very important sentence with respect to the direction of the Government’s superannuation policy.

Referring to the Cooper Review, Shorten said it “has become the blueprint for advancing Australia’s pension system into the future, and we are implementing many of Cooper’s recommendations”.

There would be many people working in the superannuation industry who would have shaken their heads at the new minister’s statement

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which, without waiting for the necessary consultative processes to be completed, suggested the Government was giving the Cooper panel’s recommendations the status of Government policy.

Indeed, Shorten’s statement raises the question of whether, when undertaking the obligatory portfolio familiarisation process incumbent upon all new ministers, he actually examined what was being said about the Cooper Review recommendations within the industry itself.

If the minister had waited around to attend a subsequent panel discussion that included a number of industry heavyweights, he would have heard firsthand the level of disquiet being felt not only about many of the Cooper Review’s recommendations but also the manner in which the Cooper Review was conducted.

Shorten may not have attended the panel discussion but Jeremy Cooper certainly did, and the former deputy chairman of the Australian

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Securities and Investments Commission and now Challenger executive could have been left in no doubt about the views of some panel members.

This ongoing industry disquiet about the Cooper panel’s recommendations must then be weighed against the reality that the Gillard Government can only successfully pursue policy changes where it can gather the support of the independents and the Greens in both the House of Representatives and the Senate – something which may explain why Shorten has placed a 2013 implementation date on Cooper’s MySuper recommendation.

The problem for the Government in adopting the Cooper Review’s MySuper formula is that, by doing so, it is walking away from nearly a decade of messages aimed at encouraging Australians to become more involved in their superannuation.

Instead, and by Shorten’s own admission, MySuper not only accepts that many Australians will

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not become involved in their superannuation but also provides them with an excuse to maintain that non-involvement.

Then, of course, there is the question of MySuper in the context of default funds, award modernisation and some important questions that have been raised by the Federal Opposition Financial Services Spokesman, Mathias Cormann.

The opposition spokesman continues to be a strong advocate of a review of the modern awards approach to default funds and has argued that the issue should be referred to the Productivity Commission.

More recently, the Senate actually voted to refer the matter to the Productivity Commission – something that has the potential not only to affect the status of default funds with respect to modern awards but also the status of MySuper as a viable default option in 2013.

According to Shorten’s address to the ASFA Conference, “MySuper will replace existing default funds” but, in saying that, the minister does not say how this will be achieved or whether it will be achieved in the context of retaining the constructs that evolved out of the modern award processes.

The Government owes it to the superannuation industry

and the broader electorate to explain how this new approach will work. It is simply not sufficient to say that MySuper will replace existing default funds without explaining precisely how this will be achieved and what elements of the existing regime will be kept.

Nor should the Government be allowed to proceed down the path towards the implementation of MySuper without first having considered the findings of the Productivity Commission following last month’s very specific Senate referral.

With a proposed implementation date after the next election, the Government has no need to rush the MySuper proposal and Shorten needs to deliver on his promise of full industry consultation and stakeholder involvement.

The minister has previously declared that while the Government is prepared to consult on the big policy issues, it will not allow that consultation process to ultimately stymie the implementation of the Government’s agenda.

However, the Government would be foolish to pursue a policy if significant sections of the superannuation industry remain troubled by the implications of its implementation. SR

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The cost of simplicity MySuper is now a formal part of the Government’s agenda but a Super Review roundtable has served to question the logic.

Mike Taylor: The opening question is one that’s in the news at the moment, and that is whether we actually need to embrace the MySuper proposal that came out of the Cooper Review, and which the Government has now embraced and said that it will introduce in 2013. My question to the panel is, in all the circumstances, do we really need MySuper? And I would throw into that the comment that in the past 12 years, this industry has been all about member engagement, and it seems MySuper is about disengagement.

I throw the question to Mr Schroder, who is intimately involved with being on the front line.

Paul Schroder: I think we have no choice [laughs]. In an environment where the Government subsidises the system to the extent of $25 billion or so, in a mandated system, then what the Government chooses to be the environment, is the environment we’re involved in.

So I think it’s a difficult question to say, well should we engage or not engage? I don’t think we have any choice, they’ll set the parameters and we’ll operate within it.

The way we’re thinking about MySuper, and Jeremy Cooper’s recommendations generally, is that it has at least put the focus on what the Government should expect out of a system that’s delivering a social policy, SUPERREVIEW

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and I think it’s actually dragged the debate back to that.

So our view is that it’s going to present a great many challenges to our fund, and to every fund, of whichever persuasion and whatever heritage. So there’s a multiplicity of challenges in here for everybody, but I think the question about whether we need to engage or not is really determined by what the parliament ends up passing.

Now a much more complex question for me is to say, well, what is the parliamentary tolerance for all of that package?

What does that mean for parliamentary support? What can be done another way? So we’re putting our mind to what we think will actually happen, and whatever actually happens we’ll have to deal with.

MT: Noel, have you got a view on that?

Noel Davis: I’ll go back in history a bit to the days when I was soliciting. I would sometimes have to review documents that were intended to be disclosure documents to members about what the superannuation fund was all about and [what] was being promoted. And I remember thinking to myself from time to time, does this need to be so complicated? Because I was struggling with some elements of what was in those materials.

And I think the Cooper Review has a point that 80 per cent of members are in default funds

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because they either don’t want to engage in the complexity of superannuation or, alternatively, they choose to have the trustee do the work for them, in selecting the appropriate investments and so on. There is a place for MySuper.

I think there is also a place for the complexity that funds have built into their funds in order to remain competitive with the other funds, and to be able to offer choices and so on. So there’s room for both, but if the Cooper Review figures are correct, it’s only 20 per cent who fit into that latter category, and perhaps it’s the people closer to retirement who are interested in all of that, with some exceptions of course. We’re just continuing to get more complicated in this business. And it is time to step back and [ask whether] we need to be so complicated in relation to the majority of members. Perhaps we do for some who want those sorts of options, but for the majority, maybe we don’t need to be as complicated as we have been.

PRESENT: Mike Taylor, Super Review Russell Mason, Mercer Noel Davis, Pillar Paul Harding-Davis, Australian Ethical Paul Schroder, AustralianSuper John Quessy, NGS Super Marc Leiberman, Metlife Pierre Jond, BNP Paribas

PS: I reckon you make a terrific point about people at different stages in their life. They will engage in different ways, and the majority of people end up in a fund most likely from a decision they didn’t make anyway – it was a default fund, it was specified in an award and agreement, decided by the employer in some way or another.

In our fund, we take the view that maybe it’s 80/20, and the 20 per cent is still 300,000 people. And so when people think about this issue, we say there’s a great many people who have

been defaulted, and many of them choose to support the trustee’s decision about their investments and about their insurance.

But we think it’s equally important for us to be able to provide, for those people who want to engage, more options, more choice, more things that they can do. Because that’s the group who, from our point of view, run the risk of drifting out of our fund altogether and embracing SMSFs [self-managed super funds] or other options in which they can take more control. But this ... is still predominantly a wholesale sector.

Russell Mason: I agree with you Paul. I think it’s inevitable, and it will happen. I also agree with Noel. I think we’re becoming overly complicated, and every day we pick up the press and see a letter from a member to a newspaper saying ‘why can’t they make it simpler – the super funds are just trying to complicate it’. No they’re not. Largely they’re reacting to what they have to do by regulation and legisla-

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tion. MySuper, we’re already in a very competitive environment, the majority of Australians are either in industry funds or retail funds.

The days, especially with industry funds, where each had their turf and there was almost [no competition], those days are gone. So you look at the large industry funds – AustralianSuper, REST, CARE, NGS Super, name which ever one – they are striving to improve. They’re in a competitive environment; they’re competing against the retails, the selfmanaged funds, other industry funds. I think that pressure is achieving maybe what MySuper was intended to achieve all along, plus they’re striving hard to engage with the members.

I agree it’s inevitable, but I just wonder whether anything much will change or be achieved from it, other than perhaps another layer of complication and expense.

Paul Harding-Davis: I absolutely take Noel’s point about, particularly around the disclosure side. [However], I worked on the FSR [Financial Services Reform] project, and I worked with a lot of working groups and the Insurance Council of Australia, and the approach that was taken to the proposed regulations was inevitably going to

result in incredibly complex disclosure documents that were of no value to ordinary individuals – they were completely inaccessible.

I consulted for a while to an electricity company, I ended up by accident in the project office of the IT department of an energy utility, and I had a hypothesis for years that wasn’t entirely an original idea of mine – I heard an analogy from a politician that was proved to me when I was there.

You take electricity, and here we have something that is, for a room full of 10,000 people.

There’s probably half a dozen in the room who can explain to you how it gets delivered to that power point on the wall there.

Its risks are far greater than we’re dealing with in superannuation or financial services, all the way through the chain it’s lethal and it can kill anybody who can use it. Yet they manage to deliver something that is beyond the comprehension, far more beyond the comprehension of the average Australian than superannuation, and far more risky, and they manage to deliver it in a completely userfriendly form.

And if you put a disclosure document around that does what our disclosure documents do, which is explain how the process works, explains unit pricing, explains valuation, ex-

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money, and you’re providing a product and service that people can use.

Noel Davis, Marc Leiberman and John Quessy

plains a whole bunch of other things around it, none of us would plug in, or we’d take the chance and say I agree, like we all do on the disclosure on the web – I agree – and we just plug in and take the risk.

So I wonder whether in fact there isn’t a completely different paradigm that allows us to deliver superannuation, and I’m not sure that MySuper is necessarily the answer to that.

For me, there’s a simpler solution around setting minimum standards that we have to meet. We get somebody to sign off that we’ve met the minimum standards, which is actually how electricity is delivered, all the way through the chain there are minimum safety standards that have to be

met. And suddenly something that’s incredibly complex and incredibly lethal is safely delivered to everybody.

Now you can go a lot further, you can dress it up and put fancy power points in there, you can have all sorts of extras around it, and I know I’m in some respects sounding like I’m describing MySuper, but I’m actually describing all of super, and all managed funds. All investments could in fact be delivered in a way that doesn’t require a 100-page Product Disclosure Statement that is inaccessible.

PS: But isn’t super really simple? You try and make as much money for the lowest cost you can make that

Mark Lieberman: Well the concept is simple, but the actual fact is when you are deciding what to do with your money, if you are making an active decision, that’s where it gets complex.

I’ve only been in Australia for eight months, and I’m on the insurance side of the superannuation industry, but I’ve spent times in different jurisdictions around the world.

I think what I’ve seen in the Cooper Review is a desire to simplify things. But quite frankly, after having read everything, I can’t understand the difference between MySuper and the default funds.

It seems like all it is is a repackaging of the default fund. So if that’s the case, why don’t you just put in minimum standards for the default fund, and not add a whole new layer of administration, a whole new layer of disclosure, a whole new layer of communication, which is just going to confuse them.

And now they’re saying, ‘well should I be in MySuper’, or ‘are we getting rid of default funds’. So it seems like Continued on page 14 ☞

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The cost of simplicity ☞ Continued from page 13 it’s trying to do something that’s already there and it just needs to be reshaped a little bit.

I agree, I think it’s inevitable. The train’s left the station on it. But I don’t think it’s actually going to accomplish all that much.

I reckon that’s one of the smouldering risks in here, that people are driven to forget about returns in pursuit of lower costs.

PH: Can I ask what you think about insurance in MySuper?

ML: Well the fact that it’s not mandatory and [there is an] opt out, I think a lot of people will opt out. And I think it’s going to exacerbate the underinsurance problem in Australia.

I think that’s a big danger that the Government is not even really focusing on. When you look at the underinsurance problem in Australia...

he decided, ‘you know what, I can save $5.00 a week by opting out of this’. [He] then he gets hit by a tram and he’s got a wife and two kids who are left with nothing. So the insurance side is tough, because you’re absolutely right, when you have to make macro decisions across a million-and-a-half participants, it can be very difficult to serve everyone. So some choice in there would be good.

JQ: And now there’s a suggestion that we do it purely and

son. We take a picture with the person for whom MySuper in its simplified form might in fact be attractive. Somebody who is absolutely and totally disengaged; who will probably never consolidate any of their funds; who will never make extra or voluntary contributions; who will never switch investment options, will never be tempted to roll over – in fact, this is a person for whom trustees are clearly not an issue.

So let’s actually establish now a portfolio for that person

John Quessy: Is it underinsurance or mis-insurance?

ML: Well, I think there’s definitely underinsurance. If you say mis-insurance because there’s more people, more death benefit, less TPD [total and permanent disability], that sort of thing...

JQ: At certain levels. [For] a 23-year-old bloke with absolutely no responsibilities, no mortgage, no family to speak of, and $300,000 worth of cover, but nothing in terms of income protection insurance, it’s going to be a long time in a wheelchair.

ML: No question. And that is something that there should be some reshaping of. But then you’ve also got the 23-year-old who’s married with two kids who has got nothing, because SUPERREVIEW

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Russell Mason

simply by minimising fees, and ignore everything else.

PS: I reckon that’s one of the smouldering risks in here, that people are driven to forget about returns in pursuit of lower costs.

It’s perhaps ironic for the industry fund person to be talking about the value in the earning side, but there is a real risk in this whole story about lower costs, that, well, everybody can get lower costs. You can seek scale and you can go passive, but will that deliver the returns you need over a lifetime?

JQ: And think about the per-

that ignores any opportunity of illiquidity premium. How dumb, it’s just absolutely dumb.

You’re not going to interfere with your super at all. I therefore can invest your money somewhere with the potential for a higher return, because you’re not going to come knocking on the door saying I want it, or move it into cash or anything else – but I’m not allowed to.

That has just absolutely not been thought through.

PS: If you look at the people who switched, they have basically switched out at the wrong time and switched back. So there’s an argument to say

[that] it’s the people who followed the guidance of the trustees, and leveraged the liquidity of the cash flows, that actually over time do anyway.

RM: In fact, investment choice, in hindsight, for a lot of people might have been a great mistake. Maybe we shouldn’t allow members to have a choice until aged 50, and before then there’s a single investment option that’s invested.

PH: One of the questions I have – which I don’t have an answer to – is that funds need to think about building up reserves, effectively building capital. How does that work in MySuper, both in terms of if it’s quarantined, or in terms of equity across the fund?

And if you’re trying to keep costs down, and working on performance, I find myself a little puzzled about how this acquiring of capital or creation of reserves and capital works in MySuper.

PS: I’m not acquainted with what the proposal is, but the way an industry fund would build the service is by withholding a return. That’s what happens. And we think that most prudent funds would have an operational reserve in order to govern them and for some of that future development.

I think that issue of an operational reserve, which we think makes good prudent sense for a fund to have, is going to represent a challenge for funds that don’t have one. And I suspect somewhere in the MySuper package there will be a requirement for funds to have an operational reserve. SR

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The cost of disengagement Underinsurance remains a crucial concern for Australia – and there is a chance that MySuper could make things worse.

MT: Can I just direct the conversation back to what Mark was talking about, which is the underinsurance issue, which has been an issue for this sector, and for Australia, for most of the past decade. There’s been endless campaigns directed by other organisations which comes to mind about underinsurance, and I do really wonder whether MySuper is going to kind of highlight that, and whether the Government does need to do something within whatever it’s going to do on MySuper to ensure that doesn’t occur. Is there a view on that?

PS: I’ve got a view on that.

The issue is a bit wider than that I think Mike. It is that there is underinsurance, there’s overinsurance, and there’s wrong insurance.

The superannuation tribunal that I sit on, a lot of the disputes about the distributions of death benefits are related to young people who have died, have got insurance, didn’t need it, and their parents or their sisters and brothers are fighting over the distribution of this insured amount. So there was a person who didn’t need life insurance, as was raised I think by John, they probably needed disability insurance, and maybe they had it, maybe they didn’t have it.

There’s also the issue that Marc raised of underinsurance, of people who do have family

commitments, and the one-sizefits-all insurance arrangement that would presumably apply on a MySuper product is highly appropriate.

I disagree with Marc’s comment that there will be a lot of opting out from insurance because the legislation, it appears, will enable people to do that.

What this is directed at is lethargy, and people just don’t do anything. They don’t make decisions; they don’t opt in, or opt out. So just based on that history, I think a lot of people won’t opt out.

JQ: As I understand it, the opt out part is for death insurance, and MySuper vehicles can offer a range of others, but they would be on the basis of opt in. I find it odd that in an effort to simplify things, you have two conflicting arrangements.

I just think the whole thing, the whole report, was a first attempt at a discussion paper. You could excuse a lot of things, but it’s supposed to be a final [report], and it’s just so bizarre.

RM: Why are we allowing people to opt out? I take Noel’s point, and I’ve seen it many times over the years: a young 20, 21-year-old tragically dies and it’s a windfall gain, to be frank, for the rest of the family. And that person probably didn’t need insurance. The other extreme I’ve seen again and again:

Paul Schroder, Noel Davis, Marc Leiberman

people in relationships with children who have dependents in the truest sense of the word, die or become disabled, and it’s a woefully small amount of money they receive – it’s certainly not enough to allow them any dignity.

I would rather us lift the standard, the level of insurance – make it mandatory. The vast majority of those young people are going to enter into relationships and have children, or develop liabilities, and there’s no guarantee that they’re then going to say: ‘Oh yes. Now I need insurance, let’s take out insurance.’ So I’d rather overinsure the 20-year-old to ensure the 40year-old with true dependents is insured.

[And] if [the Cooper Review] is saying the funds must offer death cover, that says to me it’s recognised as an important component of superannuation. And then we have this exit clause that says ‘but if you don’t want it’... Sorry, I think we should make it mandatory.

JQ: I don’t reckon [the Cooper Review] is being favourably espoused to insurance at all actually. The tone there is ‘oh be careful because this [depletes] retirement outcomes’. So that’s the tone.

But what you’re describing Russell is the proper role for the trustee. The trustee should consider all of those things: the profile of their fund, the likely take. I agree entirely that the idea of opting out, which you can do in our fund, does not lead to people opting out actually.

Ninety per cent of people are in whatever the default is that’s set, and we’re trying to take into account life stage, lifestyle, providing body and all these things. But generally speaking, the vast bulk of people do what the trustees decide. And I know the trustees spend a great deal of time researching and thinking as carefully as they can, to calibrate that offer to what they think the profile of the fund is.

ND: I don’t think the opt out is going to cause a flood of people opting out. If there is a shift to MySuper, you’re going to have to have a lot of communication around this. I think it’s going to highlight, for those people who are normally apathetic, that all of a sudden something is changing. And if they see that [they] have the ability to save $5.00 a pay cheque by opting out, some will. It’s not going to be a flood, I agree, it’s not going to be 20 per cent of the people who opt out. But it’s probably going to be the people who shouldn’t opt out, because they’re making a very poor short-term decision. So I don’t think you should have an opt out clause.

And to your point, I would rather have some family dealing with a windfall death benefit than a family not having something to take care of the kids and spouse with.

JQ: My best friend’s family went through that. He just had Continued on page 16 ☞

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The cost of disengagement ☞ Continued from page 15 the default insurance in the fund, were it not for her brother stepping in, they would be struggling to live on a part-time income and a pension and rent a house, and they would be living a life of poverty. But he stepped in and they have a house to live in and he just never looked at the insurance, it was minimal. I wish he’d been in that framework where there’d been enough to cover the family.

ND: And I don’t think the majority of people, the vast majority, would care if it was mandatory and there was [a $5 or $10-a-week cost]. When you look back, and sure not a lot of people were covered, but 20 to 25 years ago [in the] public sector and a lot of the large multinational and corporates, it was a condition of employment that you joined the fund on commencing employment.

You often had to put in 5 per cent of your salary as the member contribution, and there was compulsory death and disability insurance. You didn’t hear any complaints.

JQ: How do you reconcile this with SMSFs? For me, it’s very strange. On the one hand, My-

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Super needs to be a bit more simplified, bigger, less choices. And on the other hand, you’ve got a SMSF, which is basically a lovely stamp collection, and I’m just going to chuck it in.

RM: Insurance is going to become an increasing issue for self-managed super as well ...

They are going to struggle to get insurance. How do you reconcile the tone [and] style approach to SMSFs versus the rest of the industry from this report?

PS: How do you reconcile the fact that if I have insurance provided through a super fund, it’s entirely tax-free. That same death cover provided by my employer under an employer plan outside super is taxed. Why don’t we encourage employers to provide death cover? I mean, that could be another avenue to encourage people to provide death cover outside of superannuation as a top up – as a true employee benefit. We should be providing incentives for people to take out that insurance cover.

ML: Can I just ask a question? You [said] about 90 per cent of the members, and I think your words were probably well chosen, ‘support the trustee’s decision’. I’m sure you guys have researched it. A

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number of your funds which are in the default option are actually engaged...

PS: I think that was the point that you made earlier. Just because somebody is in the default investment option – actually, it’s a very sensible investment option. Most of our investment professionals, and all of our people, are in it, and have actively chosen to be in it because it has the mix of assets they think makes sense given the cash flow. So that’s actually a conscious decision.

We have done the research, and many more people have actively chosen to be in those defaults, as it relates to investments, than just having been a passenger, as some people

have described the people with the default option. In terms of investments, we’ve only just rolled out – with insurance – we’ve only just rolled out our substantially changed insurance proposition, and a fair few people took up the special offer. But most people took up what was on offer. And they had the opportunity to take nothing, or to take more or to take what was on offer. And most people took what was on offer.

ML: I actually think there’s more engagement than the Cooper Review implies in the default sector, a lot more.

PH: Mike, I just want to raise one thing that I find a bit confronting about the criticism of the Cooper Review, because it

was a general proposition.

We welcome it, thinking about this as a legitimate issue to be looked at in a social policy framework: Is this efficient? Is it effective? Is it a system that’s delivering at the level it should given the amount of government support? And I think [these are serious questions] we should ask. Do we actually earn as much money as we should? Do we cost too much? I think these are all logical, very powerful questions that we should be asking ourselves.

But one of the things that I find hilarious is that one of the criticisms of [the Cooper Review] is that some of the suggestions are paternalistic. Now what could be more paternalistic than a mandated, tax-supported, compulsory system to make people save?

At its core, this is social policy where a government has decided that this thing has to happen ... And we all know the heritage for the industrial parties and what have you. But I think it’s a bit rich to say, ‘oh you can’t do this because it’s paternalistic’, when indeed the whole system is designed because the community has said, we can actually act in people’s best interests because they won’t act in their own best interests in saving for their retirement. SR

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www.superreview.com.au

Applying the facts on TPI A recent court ruling means decisions to reject TPI claims can now be challenged on much wider grounds, writes JENNY WILLCOCKS.

T

he High Court decision of Finch v Telstra Super Pty Ltd [2010] HCA 36 was handed down on 20 October, 2010. Finch succeeded in having the decision of the Court of Appeal of the Supreme Court of Victoria set aside, and the decision of Byrne J in the Supreme Court of Victoria made on 28 November, 2008, re-instated. The case addressed a number of significant issues concerning total and permanent invalidity (TPI) claims from superannuation funds.

THE FACTS Alan Finch was born a male but had lived as a female. He underwent surgery to change his gender from male to female and commenced employment with Telstra in 1992 as Helen Finch and was a member of the Telstra Superannuation Fund (the fund), which is a defined benefit fund.

Mr Finch suffered psychological difficulties due to his gender change and took sick leave from Telstra on 30 September, 1996, and in October that year resumed living as a male. He underwent further surgery to reverse the gender change and subsequently became severely depressed, suffered from adjustment disorder and was sensitive about his appearance.

He returned to work with

Telstra in March 1997 under the name Alan Finch and in January 1998 accepted a redundancy package. Mr Finch provided evidence that his last months at Telstra had been extremely distressing as the environment had been hostile. After ceasing work with Telstra, he did not work for a period of 12 months.

Mr Finch worked short periods with Foxtel and parttime for Qantas and provided information that these two jobs were failed rehabilitation attempts.

Mr Finch had been seeking a TPI benefit from the Telstra Super Fund since 19 May, 2000, without success.

The trustee made two determinations, rejecting Mr Finch’s claim on the basis that he was not “unlikely ever to engage in gainful work” as required by the definition of TPI in the trust deed. Mr Finch challenged the trustee’s decision in the Supreme Court of Victoria.

DEFINITION OF TPI The relevant TPI definition required: • the member to be “continuously absent from all active work for at least six months”; and • the trustee had to form an opinion that the member “ceased to be an employee and was unlikely ever to engage in any gainful work”

for which he was for the time being reasonably qualified by education, training or experience.

DECISION OF BYRNE J, SUPREME COURT OF VICTORIA Six months absence Mr Finch argued he satisfied this requirement by the time the trustee made its determination because he had not worked after leaving Telstra for more than six months. The trustee did not dispute this interpretation at the time of making its determinations but argued in the Supreme Court that the sixmonth absence from work had to be satisfied by the time Mr Finch left Telstra.

Byrne J agreed with Mr Finch that the six months absence could be satisfied after a member ceased to be

employed by Telstra, based on the trust deed.

Review by court An exercise of a trustee’s discretion can only be challenged if: • there was a lack of good faith or real and genuine consideration; • the trustee did not act for a proper purpose; or • if reasons were given and those reasons were not sound.

These narrow grounds of review were based on Karger v Paul. A court might also infer a breach if the decision was one that no reasonable trustee could make on the material before it.

Byrne J determined that the trustee failed to comply with its obligation to give genuine consideration as to whether Mr Finch was unlikely ever to engage in gainful work. Mr

Finch had produced strong medical evidence supporting his claim, but the trustee relied on: • a letter from Mr Finch’s former managers at Telstra; • the fact he had been offered a job with Telstra before ceasing employment; and • his employment with Foxtel and Qantas, to determine that he was likely to engage in employment in the future.

Byrne J determined, based on the very strong medical evidence provided, that the trustee should have made further enquiries into Mr Finch’s last month with Telstra and his employment after leaving Telstra with Foxtel and Qantas, and also the statement Mr Finch made to the chief executive officer of the trustee Continued on page 18 ☞

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Applying the facts on TPI ☞ Continued from page 17 of the fund that his employment with Qantas was “a real job”.

Byrne J applied the Karger v Paul test and concluded that the trustee had failed to decide the TPI applications in good faith and give genuine consideration due to its failure to further investigate the matter and invite comment from Mr Finch. Byrne J ordered that the matter be remitted to the trustee on that basis.

Court of appeal The trustee had accepted that the six-month absence could be absence from work from Telstra, or anywhere else, provided it occurred before Mr Finch left Telstra. Despite this, the Court of Appeal determined that the sixmonth absence had to be absence from work at Telstra and determined: • Mr Finch did not satisfy the condition to be absent from active work for at least six months; and • that condition must be satisfied as at the day he ceased work for Telstra and the absence from work needed to be absence from work at Telstra.

Although there had been a six-month absence by the time the trustee made its determination, the Court of Appeal did not see this as sufficient.

High Court decision In a unanimous decision, the High Court set aside the decision of the Court of Appeal and held that the TPI definition did not require Mr SUPERREVIEW

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Finch to be continuously absent from “all active work” for six months before leaving Telstra’s employment. Mr Finch’s absences from work after he left Telstra’s employment enabled him to satisfy that part of the definition. The High Court stated that to conclude otherwise would mean a member was not able to cease work because of TPI unless they had already ceased to be an employee. If this were accepted it would mean that there could never be a valid claim for TPI, which would be absurd.

The High Court also indicated that to require the absence from active work for six months to take place before the member ceased to be an employee was to read words into the clause unnecessarily.

Discretionary decision The Court of Appeal determined that the question of whether Mr Finch was unlikely ever to engage in any gainful work for which he was for the time being reasonably qualified by education, training or experience was a discretionary decision.

In reaching that conclusion it relied on Karger v Paul.

The High Court disagreed and held that the trustee’s decision did not involve the exercise of a discretion, but was a factual determination requiring the trustee to form an opinion as to whether a member had ceased to be an employee, and was unlikely ever to engage in gainful work. In forming those opinions, there were factors to be examined and judgements to be made, but it was

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not a matter of discretionary power, just “an ingredient in the performance of the trust duty”.

Superannuation trust Even though TPI decisions are not discretionary, superannuation fund trustees are still required to make some discretionary decisions (eg, distribution of death benefits). The High Court consid-

ered whether the traditional limitations in Karger v Paul applied to those decisions of superannuation fund trustees that are discretionary.

The High Court stated that different criteria applied to the operation of a superannuation fund from those applicable to discretionary decisions by a trustee under a non-superannuation trust.

This is based on differences in the trusts, including that employer sponsored superannuation was part of an employee’s remuneration and membership in the employer’s superannuation fund might be compulsory.

It is therefore something that an employee receives in return for their work and their contributions and should be regarded as “deferred pay”.

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Duty of enquiry The crucial question for the High Court was whether the Court of Appeal's reasons for rejecting Byrne J’s view that the trustee had not given genuine consideration were sound. It found nothing to suggest that the trustee undertook any consideration of Mr Finch’s claim that the work at Foxtel and Qantas

was a failed rehabilitation effort.

The High Court supported Byrne J’s conclusion that the trustee failed to decide the matter in good faith and by giving genuine consideration. It did not accept that Byrne J had misunderstood the Karger v Paul test, and accepted his view that the trustee had failed in its duty to make enquiries.

Status of Karger v Paul Mr Finch had argued that the High Court should hold that the principles stated in Karger v Paul did not apply to superannuation trusts, at least concerning substantial matters like claims for TPI benefits. He argued that the decision of a superannuation fund trustee should be set aside if it were not “fair and reasonable” in the same way that the Superannuation Complaints Tribunal is able to deal with trustee decisions.

Unfortunately, the High Court held it was not necessary to evaluate the merits as to how far the Karger v Paul principles applied, or whether other principles should be adopted, as the case could be resolved by accepting Byrne J’s reasoning as sound, and the Court of Appeal’s criticism of that judgment being unsuccessful. However, it did qualify the Karger v Paul principles as they apply to superannuation funds by stating that superannuation fund trustees making a discretionary decision are subject to a higher duty to inform themselves than other trustees. If the consideration was not properly informed, it would not be genuine.

The High Court stated that the duty of trustees to properly inform themselves was more intense in superannuation trusts than in trusts of the Karger v Paul type (ie, discretionary trusts). This was based on the importance to beneficiaries of superannuation trusts who are entitled to benefits to have those benefits paid. Failure by the trustee to seek relevant information to resolve

conflicting material was viewed by the High Court as not only constituting a breach of duty but also being reviewable as a lack of genuine consideration under the Karger v Paul principles.

High Court orders The High Court set aside the decision of the Court of Appeal and reinstated the decision of Byrne J. Mr Finch argued that the matter should not be remitted back to the trustee, but the High Court determined that there was no bad faith by the trustee, merely a failure to observe due process by giving genuine consideration to the matter. In those circumstances, the matter must be remitted to the trustee for final determination.

Consequences of the decision It is unfortunate that the High Court did not take the opportunity to address the issues around the Karger v Paul principles and their application to superannuation trusts. However, it is clear that determinations as to whether a member is TPI are questions of fact, not discretionary and, consequently, the Karger v Paul principles do not apply.

This is significant because decisions to reject TPI claims can now be challenged on much wider grounds, as the Karger v Paul principles only apply to discretionary decisions. This could result in more members issuing proceedings for TPI claims in a court, rather than the Superannuation Complaints Tribunal, where legal fees cannot be awarded.

The reasoning of the High Court makes it clear that the

duty of superannuation fund trustees to conduct enquiries goes way beyond the approach taken by many trustees in dealing with claims of this type. Many trustees currently adopt the approach that it is the member’s responsibility to establish his or her case. The case effectively imposes on the trustee a duty to conduct a reasonable level of investigation and analysis. It will not be sufficient to take statements at face value, particularly where they are adverse to the member without further investigation.

Although the case is based on the particular wording of the trust deed, the approach of the High Court on the review issue imposes that higher duty on all superannuation fund trustees, irrespective of their deed.

Trustees should review the definition of 'total and permanent disablement' in their trust deeds and insurance policies to ensure that the date on which the six-month period ends (as well as when it begins) is clearly stated.

They should also review their claims procedures in light of this decision to ensure they are sufficiently robust to meet their duty to give properly informed consideration to members’ claims.

The writer would like to acknowledge the insight into this case provided by Marita Wall, one of the barristers representing Mr Finch. SR Jenny Willcocks is lead partner of Holding Redlich’s superannuation and funds management practice.

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Looking forward, looking While superannuation returns rebounded in 2010, DAMON TAYLOR writes that most of the focus during the year was directed towards the future of the super system itself.

F

or Australia’s superannuation industry, yearly reviews are usually characterised by performance. Yet while investment returns rallied this year and much healthier account balances have reassured members, it was the super system itself which took centre stage in 2010.

For Anthony Rodwell-Ball, chief executive officer of NGS Super, the Government’s various reviews and the discussions around them have clearly defined the last 12 months and are likely to dictate the industry’s focus for the next 12 months as well.

“Without doubt, this year’s highlights have been the bringing down of the Henry Tax Review and, of course, the Cooper Review,” he said. “And then I suppose a change to the Minister for Financial Services and Superannuation as a result of the election was also an interesting development.

“It probably wasn’t surprising to see Chris Bowen move on, but to have a minister appointed literally from the boardroom, firstly as an STA [Superannuation Trust of Australia] director and then as an Australian Super director, to have Minister [Bill] Shorten appointed from that background implies a far more immediate understanding of superannuation,” Rodwell-Ball continued.

“That is not to say that Bowen had a shallow understanding of superannuation issues, but this is a far more immediate understanding of the sorts of issues

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that he will face in a very dynamic and diverse industry.

“So I expect those three – Henry, Cooper and the appointment of a new Minister – will bring a very different focus to the industry in the next 12 months.”

Damian Hill, chief executive officer of the Retail Employees’ Superannuation Trust (REST), said that it was also significant that the 9 per cent to 12 per cent superannuation guarantee (SG) debate was now front of mind.

“That’s been a long-standing aspect of the super environment where you look at Australia’s system versus others around the world, and adequacy is one of our deficiencies,” he said. “So to have that front and centre as part of the debate now is very important.

“And while it hasn’t garnered as much attention, the other highlight is just getting into reasonably positive returns again,” Hill continued.

“We shouldn’t underestimate the impact that has on the average member out there.

“In many cases, it’s served to rebuild some of the trust that was, at the very least, shaken in recent years.”

According to Warren Chant, principal of research house Chant West, the other issue of significance for 2010 had been the Ripoll Inquiry and its various recommendations.

“It’s basically saying that product fees and adviser commissions need to be separated and, by and large, the financial planning industry has accepted that,” he said. “In fact,

DECEMBER/JANUARY 2011

they’ve come out and said they’re going to do it by 1 July, 2012, and you’ve seen AMP and MLC move on it already.

“So you’ve got the Ripoll Inquiry on the one hand and then you’ve got [Jeremy] Cooper coming out with his recommendations on the other,” Chant continued. “But the biggest highlight has to be the Government wanting to increase the superannuation guarantee from 9 per cent to 12 per cent.

“We’ve had Bill Shorten come out and say, ‘look, given the situation in Parliament, it’s not a lay down misère that we’re going to get these reforms up’.”

But the very clear message, according to Chant, is that the Government intends a package of reforms to the superannuation industry, and while it will include an increase to the superannuation guarantee, it will also include MySuper.

“You have a situation now where we’ve had the inquiries – some good things have come out of the inquiries and some

not so good things have come out of the inquiries. But at the end of the day, the Government’s made its position clear,” Chant said. “It wants to increase the SG and it wants, by and large, to implement Cooper’s recommendations.

“It will certainly be interesting to see how the next 12 months unfold.”

So while 2010 has seen a number of super-related Government reviews deliver their findings, it’s clear that Cooper’s Super System Review has drawn most of the industry’s focus. Of late, the MySuper legislation has garnered particular discussion, but according to Rodwell-Ball, that is not without reason.

“I’m not entirely convinced that MySuper was or is required,” he said. “Sooner or later, the market responds to market pressures and beyond that, you have to remember that consumers aren’t silly.

“When you see the very large retail funds like AMP and BT

coming out with products positioned as low cost and no frills that are in competition with a very successful industry fund advertising campaign, I’m not so sure that MySuper, as a product, is necessary,” Rodwell-Ball continued. “I think the market itself will play out in terms of competition and in terms of bringing different offers.”

NANNY STATE Rodwell-Ball said that while Australians by and large might be disengaged with their super, they certainly weren’t stupid.

“They’re able to determine themselves what offers suit them best without a sort of Nanny-state coming in and saying ‘we’re going to have this product; it’s going to have this design and you will be defaulted into it if you opt out’. I don’t philosophically agree with that.”

Similarly, Chant said that for the vast majority of super funds, investment governance was strong. Their decisions were backed by good asset consultants

YEAR IN REVIEW 21

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back main concern was that MySuper was unnecessary in what he considered to already be a good superannuation system.

“If you’re really concerned about scale and you want funds to merge, which certainly is what Cooper wants, then you don’t have to create a new product just to do that,” he said.

“That’s why we say that this is much of the same. But the big problem is that by March next year virtually every retail fund will have a simple, low-cost product, which is effectively just an index product.

“The issue we have is that they’ll look competitive, but really they won’t be.”

MYSUPER

and their default options, particularly those of not-for-profit funds, have done very well.

“I actually asked this of Sandy Grant (director of CareSuper) at the ASFA [Association of Superannuation Funds of Australia] conference,” Chant said.

“At the conference he said: ‘Look, basically what will happen is that pretty much every fund’s current default option – they just need to call it MySuper with very little if any change.’

“So the question I asked him was that if that’s the case, why do we need MySuper?” continued Chant. “His answer, and what seems to be the universal answer, was that this is about putting in place some rules and regulations around how default options should look.

“Now when you’re in a crowd and you ask a question there, you can’t hog the floor, but my next question would have been: ‘Well, why do you need rules and regulations when it’s already working really well?’”

Chant explained that his

Providing a counter point to the views of Rodwell-Ball and Chant, Pauline Vamos, chief executive officer of the Association of Superannuation Funds of Australia (ASFA), said that MySuper was about having much greater flexibility in superannuation’s regulatory framework and Choice architecture.

“We want to be able to cater for those who don’t want to make an investment decision as well as those who want to take much greater control of their investments in a tooled vehicle,” she said. “The job over the next 12 months is designing MySuper so that we get the right policy outcomes, so we get proper comparisons, so we get no dumbing down of investments and so that we really can deliver on those principles.

“Creating a vehicle for MySuper is also about creating a vehicle where we can get real comparisons and we can start moving toward standard measures on performance and risk.”

Asked whether the comparisons and measures she referred to were in fact the key improvements of MySuper over the currently available default investment and superannuation options, Vamos said “absolutely”.

“Mandatory after-tax/after-fee measures and a way to label portfolios where the level of risk can be compared against the same level of risk in other portfolios, for example,” she said. “We don’t have that at the moment.

“The bottom line is that this review was never saying that the industry was wrong; it was never saying that it was bad; it’s merely saying that the system is maturing.”

Vamos said that with Australia’s super industry going from what was a $1.1 trillion industry to what would be a $6 trillion industry in the next 20 years, the regulatory framework needed to be modernised.

“MySuper will make the structure and the industry stronger and more accountable,” she said.

“Will there be some pain along the way? Yes. Will there be more pain on some funds than others?

Yes. Is this uncertainty causing grief? Yes. Is the fear of cost of implementation a real issue for a lot of funds? Yes. “There’s no doubt about those things but, at the end of the day, this is about modernising the framework so that it reflects the modern needs of society – nothing more, nothing less.”

Irrespective of MySuper’s ap-

Damian Hill

parent inevitability, it is interesting to note that one of its stated objectives is reducing costs by allowing funds to benefit ‘from the economies of scale derived from its increasing size’.

Again, this does not seem to be a view shared by the entire industry and, according to Rodwell-Ball, those cost savings are

far more likely to be delivered

by SuperStream.

“With some of the other initiatives that Cooper’s recommended, particularly SuperStream, I think cost savings are very likely,” he said. “But I don’t believe the same can be said of MySuper.

SUPERSTREAM “There’s been a lot of denial and a lot of reassurance that MySuper won’t lead to lower performance by virtue of driving fees down and taking us to more indexed outcomes,” Rodwell-Ball continued. “The assurances have been made but the difficulty with it will be when trustees start to look at and then concentrate only on fees.

“If MySuper forces concentration purely on the NER [new entrant rate], then I think it will be counterproductive. It may be more efficient but I doubt it will be more beneficial for members.”

SuperStream, on the other hand, would be an altogether different story.

“The back-office efficiencies that can be gained, the greater reliance and building of backoffice e-commerce solutions will have all sorts of incremental benefits. [It will] reduce fraud and the potential for fraud and clearly allow transacting to be more immediate,” Rodwell-Ball said. “I know that our members are always amazed that they transact today but don’t see it tonight in their accounts or tomorrow morning at the latest.

“They don’t understand that we don’t have the electronic backbone and back-office that the banks have,” he added. “That, I believe, will be a significant value-add in the industry.

“It will have all sorts of benefits.”

For Hill, it is telling that SuperStream has been met with broad approval within the super industry while MySuper has encountered significant opposition.

“What it says to me is that a

lot of SuperStream is the best bits of industry ideas from the last 10 years that the industry itself hasn’t been able to implement,” he said. “Unfortunately, we have ultimately needed this sort of review to get this kind of momentum.

“There are still significant challenges in SuperStream, in getting it all there, and while I think that the principles and policies behind it are well regarded, when you do get into the nitty gritty and details of this, that’s where the difficulty lies,” Hill continued. “Having said that, starting from the point of view where there is a very broad consensus means that it has a much higher likelihood of getting engagement throughout the industry, and that is a definite plus.”

Alternatively, Vamos attributed differing views on SuperStream and MySuper to differing levels of complexity.

“I actually think SuperStream is easier to understand because it’s about efficiency,” she said. “With MySuper, the concepts are a lot more subtle and more regulatory in nature, and because of that and the way a lot of the recommendations are worded, there are many, many different ways in which you can interpret the findings.

“That’s what has caused a lot of the issues. People have read into the recommendations so many outcomes that I don’t think were ever intended.”

According to Vamos, the outcomes of both MySuper and SuperStream are now in the hands of the industry.

“People say that the devil is in the detail,” she said. “Well boys and girls, we create the detail here.

“It’s our job to move forward now; our job is not to sit here and wait but rather to move forward together as an industry.”

Of course, the sideline to Continued on page 22 ☞

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Looking forward, looking back ☞ Continued from page 21 both legislative discussion and the normal business of superannuation has been an increase in industry merger activity. Some surprising alliances have already meant a certain amount of consolidation and, according to Chant, it is a trend set to continue.

“I don’t think there’s any doubt that we’ll see a lot more over the next three years,” he said. “Mergers like the recent one between First State Super and Health Super are fantastic, and it will give other funds encouragement by setting an example.

“But the reality here is that it’s hard to get funds to agree to merge,” qualified Chant.

“The self-interest of the representative groups on boards is considerable.

“It was never going to be something that we saw a huge amount of in a short period, but I think over the next three years the consolidation that we’ve seen so far will certainly increase.”

For Rodwell-Ball, consolidation within Australia’s superannuation industry has been inevitable for some time.

“Superannuation existed before the mid-80s and Keating and the Labor Government that set it up, but it’s only really got legs in a significant way in the last 20 or 25 years,” he said.

“Hitherto it’s effectively been an immature industry with many, many players, and the feature of any immature industry is the number of players.”

CONSOLIDATION Rodwell-Ball said that as industries matured, there would always be shakedowns and consolidations.

“But once that’s occurred, you get some efficiency coming into it in so far as you get scale,” he said. “So in my view, this sort of consolidation was inevitable, and whether its driven by legislation, Cooper, increasing compliance, competition or whatever, I think that in the SUPERREVIEW

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next 20 or 30 years we’ll see a very different superannuation landscape in Australia.

“As the market matures, people are going to realise that while they may inhabit a niche and be able to satisfy and relate more closely with a small member group, that member group will ultimately be disadvantaged,” Rodwell-Ball continued.

“The cost base will inevitably increase for you to continue to operate and, as a consequence, things are going to change.”

Vamos said that while she certainly expected merger activity

Warren Chant

to continue, change would and had already gone beyond that.

“It won’t only be merger activity that we’ll see – we’ll also see funds do business differently,” she said. “We’re already seeing a change in the way funds outsource, but what will also cause mergers will be the industry’s moving towards the requirements of operational risk reserves and the need to deliver post-retirement services to members who are in retirement.

“The whole nature of our membership is changing and we will continue to see the impact of award modernisation,” Vamos added. “We’ve got all of these external influences really changing the way funds operate, and that will continue to drive changes in the funds themselves.

“Mergers are just a part of it.”

Yet while mergers may indeed be something that the super industry and members themselves have to get used to, it remains to be seen what impact they will have on member engagement. Undoubtedly, the industry has made significant

DECEMBER/JANUARY 2011

strides in recent years and, according to Vamos, those strides are set to continue in 2011.

“When it comes to member engagement, there are four areas of focus,” she said. “One, we need a regulated body that looks after data and payment standards.

“Number two is that we need an industry standard on risk symbols for portfolios so that you can identify the level of risk in a portfolio,” Vamos continued. “We also need an industry-wide standard to measure investment performance, particularly after-tax investment performance.

“Finally, for prudential purposes, we really need to look at the way we assess and measure the costs and efficiency of the system.”

And Vamos said that the timeline for these initiatives was exceedingly short.

“I want all of these nailed down in the next 12 months,” she said. “These are our big four [key performance indicators] for next year, and these are the areas that the industry can come together on and act in one voice.

“We’re going to have very different views as we go through Future of Financial Advice and some of the detail around SuperStream, governance, selfmanaged funds [and] MySuper.

But, with these four, we’ve got to nail it and speak with one voice.”

But the problem, according to Rodwell-Ball, is that member engagement is a constant battle and one made more difficult by the prospect of legislative reform.

“The problem here is that if this kind of legislative change continues, there is every chance that members will become more disengaged,” he said. “This has to be about bringing about all the change that is necessary, doing it once and then leaving it alone.

“Do the reform that’s necessary but then let us get on with doing our jobs,” Rodwell-Ball continued. “One of the reasons that members are disengaged and one of the reasons they don’t understand their super is

that the rules keep changing.”

Rodwell-Ball said that as fund executives, he and his industry peers had to communicate any change in rules to their members, and that combined with recent market volatility had created significant and understandable unease.

MEMBER ENGAGEMENT “They look at what’s happened and say: ‘We thought our money was safe but it isn’t.’ And secondly: ‘The rules keep changing on us so how do we plan?’” he said. “And, quite understandably, they say ‘oh stuff it, we’ll just leave it alone’.

“Now we can’t control the markets; no one can control the markets,” Rodwell-Ball added. “But we can control what happens in the legislative environment.

“So after this round of reform, I would both hope and appeal for no significant changes within the foreseeable future.”

Offering a similar perspective, Hill said that the super industry and Australia as a nation

Pauline Vamos

had to commit to the broad principles of the superannuation system.

“If we can commit to the broad principles of this system, to adequate levels of the SG, to issues around post-retirement, to all of the things that we haven’t addressed at this stage, then hopefully we will have a more solid base and changes can be reduced,” he said. “But whilst I would love to say that I believe both sides will leave it be for a while, I’m not necessarily sure that that is a realistic belief.

“I’ve been in the industry a lot of years now, and while I’ve al-

ways thought that there was lots of change in the industry, the last year has proved that the pace of change is accelerating,” Hill added. “A few years ago, I wouldn’t have thought that was possible, but it obviously is and that just means that when managing superannuation funds, the leadership and management need to set the course as best they can.

“They need to focus on the imperatives rather than the niceties but, most of all, they need to retain the ability to be flexible.”

And as 2010 comes to a close, flexibility does indeed seem to be the name of the game for the super industry. Investment performance, the shape of legislative change, even the names and shapes of funds all remain unclear and, according to Hill, industry participants have little choice but to roll with it.

“As a fund, we’ll be focusing on those things that are part of our strategy and almost regulatory and legislatively agnostic,” he said. “We would and will do them regardless ... So continuing to enhance the service offering to our members, trying to take more costs out of the system and making it simpler for employers as well,” Hill said.

“Yes, some of that is related to SuperStream, but we would need to do them anyway.”

Hill said that REST would also continue to focus on its core investment beliefs and strategy, making sure that it was in a position to both protect on the downside and take advantage of opportunities as they arose.

“In many aspects of the business, the only certainty is continued uncertainty,” he said.

“So we’ve got to remain attuned and connected with what’s happening in the various fields – be it regulatory, be it investment markets, it really doesn’t matter.

“We simply have to make sure that we retain the flexibility to change direction as the market, as the industry, as the legislation changes.” SR

APPOINTMENTS 23

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Events Calendar

AUI hires Frontier man Super Review’s monthly diary of superannuation industry events around Australia and abroad.

DECEMBER SOUTH AUSTRALIA 2 – ASFA Breakfast. Leadership through tough times. Speaker: Phil Kearns, head of institutional distribution, Investec Bank. Venue: Ayers House Restaurant.

288 North Terrace, Adelaide. Enquiries: ASFA Member Services Unit.

Ph: (02) 9264 9300 or 1800 812 798.

TASMANIA 2 – ASFA Luncheon. The Cooper Review – should we be taking action now? Speakers: Noelle Kelleher, partner superannuation, Deloitte Tax Services and Peter Rowe, general manager of business operation, Vision Super. Venue: Salamanca Inn. 10 Gladstone Street, Hobart. Enquiries: ASFA Member Services Unit.

Ph: (02) 9264 9300 or 1800 812 798.

NEW SOUTH WALES 6 – ASFA Christmas Luncheon. Speaker and panelists: Phil Kearns, Anthony Bell, Layne Beachley, Geoff Huegill, Phil Waugh and Larry Emdur. Venue: The Westin Hotel, Ballroom, Lower Ground Floor. No. 1 Martin Place, Sydney.

Enquiries: ASFA Member Services Unit.

Ph: (02) 9264 9300 or 1800 812 798.

Superannuation Scheme. Speakers: Louise du Pre-Alba, director of policy, ASFA, Alex Dunnin, director of research, Rainmaker, Russell Mason, partner, Mercer, Frances Borg, partner – assurance and advisory, Deloitte Touche Tohmatsu, Khaldoun Hajaj, manager of government relations and policy strategy, ASFA. Venue: Boathouse by the Lake. Grevillea Park, Menindee Drive, Barton. Enquiries: ASFA Member Services Unit.

Ph: (02) 9264 9300 or 1800 812 798.

VICTORIA 7 – ASFA Luncheon. A Golden Success.

Speaker: Nicole Livingstone, patron and founding director, Ovarian Cancer Australia.

Venue: Park Hyatt Melbourne. 1 Parliament Square off Parliament Place, Melbourne.

Enquiries: ASFA Member Services Unit.

Ph: (02) 9264 9300 or 1800 812 798.

QUEENSLAND 8 – FSC Deloitte Leadership Series Lunch. Speaker: The Hon Wayne Swan MP, Deputy Prime Minister and Treasurer.

Venue: Hilton Brisbane. 190 Elizabeth Street, Brisbane.

WESTERN AUSTRALIA AUSTRALIAN CAPITAL TERRITORY 7 – ASFA Luncheon. The introduction of intra-fund advice at SANTASS – Santa and Northern Trust Arctic

9 – Inaugural ASFA Cocktail Party.

Venue: Sheraton Perth Hotel. 207 Adelaide Terrace, Perth. Enquiries: ASFA Member Services Unit.

Ph: (02) 9264 9300 or 1800 812 798.

Fax details of conferences, seminars and courses to Super Review on (02) 9422 2822

Australian Unity Investments has looked to optimise its asset allocation via a key appointment.

AUSTRALIAN Unity Investments (AUI) has hired Edward Smith as head of portfolio management.

Smith will be in charge of optimising the asset allocation and portfolio construction of AUI’s funds and will be working closely with AUI’s sector specialist investment managers. He will report to Kirsty Dullahide, general manager for investments and strategy.

Smith was most recently with Frontier Investment Consulting, where he was a senior investment consultant. He has also worked for Victorian Funds Management Corporation and Trust Investments Management in New Zealand. SR

ASGARD has promoted Darren Whereat from head of institutional business and key account to head of distribution. The role will include the management and application of Asgard’s distribution strategy.

Asgard head Craig Lawrenson said Whereat would lead a strengthened distribution team that included a state manager for each mainland state, consolidating the previous institutional business services and key accounts and distribution businesses.

THE Self-Managed Super Fund Professionals’ Association of Australia (SPAA) has appointed Peter Crump and Andrew Hamilton to its board.

The new appointments will replace Stephen Bourke, who left last year, and Peter Burgess, who stepped down from his role on the board to take up a full-time role as SPAA’s technical director.

Peter Crump is an executive director at Portfolio Planning Solutions where he is responsible for providing financial planning advice to self-managed super funds.

Andrew Hamilton is the managing director of Cavendish Superannuation, and previously worked in the product design, software development and

training program sectors, among others.

AMP Financial Services has created the new role of director of advice, which has been filled by the former head of paraplanning, Scott Machin.

Scott Machin

In his new role, Machin will lead the paraplanning, product research, advice solutions and adviser technical support teams for AMP Financial Planning, Hillross and Horizons planners.

“We recognise that advice is our core business and we want to deliver the best and most efficient advice in the financial planning market,” said AMP director of financial planning, advice and services Steve Helmich. “This is about supporting our planners in delivering high quality financial planning advice to more Australians. Scott’s diverse experience at AMP and insight into the advice space is key to ensuring we achieve this.” SR

DECEMBER/JANUARY 2011

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SUPERREVIEW

ROLLOVER

THE OTHER SIDE OF SUPERANNUATION

Policy auld lang syne AFTER many years of writing about the superannuation industry, Rollover has decided that 2010 has emerged as one of the most contentious and disruptive years.

Why? Because it was a year during which the final findings of the Cooper Review were published, the Government committed to the delivery of an increase in the superannuation guarantee to 12 per cent and the Australian electorate delivered a hung Parliament.

As the year came to an end and, notwithstanding the comments of the new Assistant Treasurer and Minister for Financial Services, Bill Shorten, there was no certainty around precisely what sort of superannuation policy would ultimately be delivered.

A song for the ages IT has become something of a tradition for Rollover to finish each year by adapting a well known Christmas carol to suit the needs of Super Review and its readers. Thus, with apologies to composer Aaron Neville, he offers “Oh little industry of super”.

Oh little industry of super, how still we see thee lie Above a hung and hapless Parliament, the policies won’t fly Yet in the big funds shineth, the everlasting light The hopes and fears of all the years are met in MySuper fright.

For Cooper was born of Sherry, and gathered all above While mortals sleep his panel keeps its policies to shove Oh super trustees together, proclaim it cannot work.

And then do ring Bill Shorten the king, and ask him why on earth?

Indeed, Rollover noted that some of the more contentious elements of the policy, including MySuper and the ultimate delivery of the higher superannuation guarantee, were things destined to occur after the next Federal Election.

The biggest news, however, was that the chairman of the Cooper Review, Jeremy Cooper, had ceased to feed off the public purse and had moved into the private sector via a job at Challenger.

After a number of years as the deputy chairman of the Australian Securities and Investments Commission and then as the chair of the lengthy superannuation review, Cooper is likely to find his new job at Challenger a novel experience. SR

What she doesn’t know THERE are some things that an astute fund manager is justified in keeping from his wife and Rollover believes the following is a prime example.

Australian Ethical’s Paul Harding-Davis emerged as the winner of a bottle of high quality French champagne at a recent corporate golf day and seemed grateful enough for his prize, suggesting that he would whisk it home and give it to his wife.

However, golf can do strange things to a man and Rollover understands that Harding-Davis had experienced a less than satisfactory day with respect to putts around the greens – something that the comfort of alcohol was unlikely to assuage.

All of which probably explains why Harding-Davis was witnessed exchanging the bottle of French plonk for a shiny new putter won by another player and then begging Rollover not to tell Mrs Harding-Davis.

Don’t worry Paul, Rollover will not say a word to your wife. SR

The promised land WE all know that Australia did not have the sort of recession experienced by other economies. Indeed, technically, Australia did not experience a recession at all.

All of which probably explains why Rollover has been told of at least three new fund managers scoping out opportunities in the Australian institutional space.

As Rollover hears it, superannuation fund

executives can expect to be called upon by two significant US fund managers and one European outfit which has, up to now, ventured no farther than Singapore.

In at least one instance, Rollover understands that at least one local fund manager will find itself no longer receiving a substantial retainer for providing representative offices. SR

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about people in the superannuation industry?

Email editor@superreview.com.au or send a fax to (02) 9422 2822.

SUPERREVIEW

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DECEMBER/JANUARY 2011