Super Review (November 2011)

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 November 2011

Volume 25 - Issue 10

AIA is Group Insurer of the Year 6 MYSUPER MySuper too prescriptive and too soon, says ASFA

Group Insurer of the Year

A

13 MANDATES Super fund group insurance mandates in table form

14 REGULATION Print Post Approved PP255003/01111

Stronger Super requires regulatory balancing act

20 ROUNDTABLE In the swim with SuperStream and MySuper For the latest news, visit superreview.com.au COMPANY INDEX

In a year during which the industry generally lifted its game, AIA Australia has been named the Super Review/Heron Partnership Group Insurer of the Year for 2011.

2

NEWS

IA Australia has emerged as the Super Review/ Heron Partnership Group Insurer of the Year for 2011 in a close tussle with two-time winner, Tower Australia Limited (now TAL Group Life).

In a process drawing upon the Heron Partnership’s analysis of the group insurance space and a survey process conducted by Super Review, AIA emerged a winner, despite TAL having significantly consolidated the gains it has made in the group insurance sector over the past two years.

The Super Review survey sought to determine levels of client satisfaction with the various group insurance offerings, and these findings were then collated with those of the Heron Partnership to determine the Group Insurer of the Year.

Ultimately, it is intended that the Group Insurer of the Year Award is a reflection of the number of mandates won and held in the current year, together with client satisfaction as reflected by fund executives – including whether they would be prepared to short-list the insurance provider in any new tender process.

3

EDITORIAL

rship e n t r a P SuperReview/Heron “Changes in the group insurance sector include an increasing number of funds offering TPD insurance as a stand-alone option.”

Tower managed its back-toback wins in 2009 and 2010 largely based on the momentum it gained by winning the big AustralianSuper mandate.

AIA has always represented one of the most dominant players in the Australian group insurance space, but managed to edge out TAL this year based on substantially improved client perceptions of the quality of its service offering and its value.

It was also hard to ignore the analysis of the Heron Partnership’s managing director, Chris Butler, who pointed out 11

REGULATION

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that AIA had the distinction of being the insurer of six of Heron’s Top 10 retail products for insurance arrangements and two of the Top 10 industry products.

Butler said TAL was the insurer for four of Heron’s Top 10 industry products for insurance arrangements.

The other key players in the mix were CommInsure (who ran a creditable third to AIA and TAL) and OnePath, which took out this year’s Super Review/Heron Partnership Group Insurance Service Level Award.

ROUNDTABLE

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APPOINTMENTS

MetLife and Hannover Life also emerged well in contention with respect to service level.

The Heron Partnership research covered 118 superannuation products (comprised of 58 industry funds and 60 retail funds) and noted a number of changes had occurred in the group insurance sector over the past 12 months, including an increasing number of funds offering Total and Permanent Disability (TPD) insurance as a stand-alone option.

As well, it found that there had been a recent trend – particularly among industry funds – to offer higher levels of TPD cover than death cover at younger ages. SR See tables on page 13

27

ROLLOVER

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2 PAGE TWO

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MANDATES Received by

Type of mandate

Issued by

Amount

Coller Capital

Custody

AvSuper

$20 million

Northern Trust

Custody

Commonwealth Superannuation Corporation

N/A

Siguler Guff

Custody

AvSuper

$20 million

Ibbotson Associates Australia

Advice

Sunsuper

N/A

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NEWS 3

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Trustees need certainty on CGT rollover relief: AIST

By Tim Stewart THE Australian Institute of Superannuation Trustees (AIST) has called for the Government to implement capital gains tax (CGT) rollover relief to improve the efficiency of the superannuation system under the MySuper regime.

In a submission to the Treasury the AIST argued that CGT relief for both losses and gains be made available for all funds that make an application to the Australian Prudential Regulation Authority (APRA) to merge no later than 1 October 2013.

The relief should also be made available for those that do not or cannot ob-

tain MySuper authorisation, and are requested to rollover their assets to another MySuper-compliant superannuation entity as a result, the AIST said.

AIST chief executive Fiona Reynolds pointed to the Stronger Super Outcomes of the Consultation Process Report (the Costello Report) and the Superannuation System Review, both of which recommended the Government provide ongoing CGT rollover relief.

The provision of the rollover relief will ensure funds are not inhibited from merging due to the potentially high CGT costs to members, said Reynolds.

“It is intended that MySuper will result in product rationalisation to further contribute to obtaining economies of

Fiona Reynolds

scale. This will be a driver of fund rationalisation,” Reynolds said.

By providing super funds with rollover

relief, the Government will allow them to plan for the future with a degree of certainty, she added.

“The possibility that another period of relief may become available is a present impediment to merging. The merger process involves careful planning and expert consultation and many mergers take in excess of 18 months to complete. Merger processes commenced in the next few years will come to fruition about the time of the MySuper transition,” Reynolds said.

She added that the 2011-12 Federal Budget estimated the CGT rollover relief implemented between 30 June and 30 September 2011 would provide the Government with “no material loss or gain”. SR

Electronic rollover Life insurance under threat from late contributions system a success THE Affiliation of Superannuation Practitioners (ASP) has announced the successful launch of its electronic rollover pilot program, reducing the amount of time members’ money is out of the market.

Member organisations of ASP can use the technology to bypass the traditional paperbased processing methods in the superannuation industry. As such, the program is consistent with the stated aims of the Stronger Super ‘SuperStream’ changes, which are aimed at improving the backoffice of the industry.

Since September 2011, more than 946 rollovers totalling more than $19 million have been conducted, cutting down the time member’s money is out of the market from upwards of five days to less than 48 hours.

A reduction in payments by cheque and the volume of paper in the system has also cut down processing times, according to the ASP. ASP spokesperson Nigel McCammon said the electronic rollover pilot program provided a ‘door-to-door’ solution that showed that industry collaboration could deliver benefits to members.

“When the ASP was formed in November 2010, we agreed our first priority was to design and deliver this pilot to provide better service to our fund members and to assist the Federal Government in its reforms,” McCammon said.

ASP is looking to provide further efficiencies in the backoffice of superannuation, with the contributions process currently being considered.

ASP participants currently administer over 55 per cent of superannuation accounts and conduct 45 per cent of the total value of superannuation rollovers in the industry. SR

LATE payments of superannuation contributions by employers may be threatening the life insurance of tens of thousands of Australian workers, according to Intrust Super.

It is often the case that a member’s insurance only begins when the initial employer contribution is received, according to Intrust Super chief executive Brendan O’Farrell.

He cited two recent cases where employers had potentially invalidated their em-

ployees’ insurance claims because they had not fulfilled their superannuation guarantee obligations on time.

“These unfortunate cases are just the tip of the iceberg with this problem because examples only come to our attention when a worker is actually injured or passes away,” O’Farrell said.

He added the insurer would be able to deny a claim if the insured event happened before the initial

contribution was paid.

Lower-paid workers in service industries were the most vulnerable because they were more likely to frequently change jobs and superannuation funds, creating more chances for first payments to be missed, O’Farrell said.

“It is prudent for employees to contact their superannuation fund periodically to ensure that their super payments are being made in a timely fashion,” he added. SR

Brendan O’Farrell

LGS chief questions scale benefits of mergers

Super funds need very strong member alignment to overcome the high upfront costs involved in mergers, according to LGS Super chief executive Peter Lambert.

Lambert was unconvinced the scale advantages of mergers could significantly reduce costs for members, given the high costs involved in the process.

“Part of any merger is making sure

each party’s interests are protected, and by doing so you’re straight away avoiding some of the scale arguments that are promoted as part of merging,” he said.

However, he said some mergers made sense, citing the 2008 union of closely aligned Print Super and Just Super which created MediaSuper.

“Funds have to be careful if they are going down a merger path that they don’t destroy the alignment of [member] interests. Once they do, then the only thing they’re competing on is price – they’re not competing on service,” he said.

One key differentiator for LGS Super is its commitment to providing financial planning to members, Lambert said. He confirmed that LGS

Super had completed the insourcing of 12 former FuturePlus financial planners into the LGS office, along with the addition of another planner in Tamworth who will service the New England region of New South Wales.

While financial planning services are currently free for LGS members, Lambert said that would change under the Future of Financial Advice regime, with the fund transitioning into a fee-for-service model.

One new offering for LGS members will be a fixed interest option open to retired members from 1 December 2011. The fund will approach a panel of banks and buy a tranche of the best term deposits available, and members will be able to opt-in on an annual basis, Lambert said. SR NOVEMBER 2011 * SUPERREVIEW

4 NEWS

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CSSA calls for insurance service fee for group insurance

By Chris Kennedy CORPORATE super specialists providing insurance services to employer groups should be able to charge an insurance service fee, according to the Corporate Super Specialist Alliance (CSSA) submission on draft MySuper legislation.

CSSA President Douglas Latto said while the CSSA recognises commissions

should not be included in a premium when no service is being delivered, if corporate super specialists cannot be effectively remunerated then members of corporate super funds would lose the services they provide – services such as negotiating reduced premiums; help with paperwork and ensuring they aren’t subject to automatic acceptance levels.

“We suggest that an explicit insurance service fee, which defaults to zero, be

charged to all members at an agreed percentage with the consent of the employer,” Latto said.

“This is specifically relevant when a tailored default insurance strategy is selected by the employer – rather than the standard default strategy.”

Latto said the insurance service fee could operate within group insurance in the same way that asset-based fees operate within investment and superan-

nuation, ensuring only those receiving insurance services pay the fee.

Group insurance is a better solution for members, because it offers lower costs and more tailored features than a series of individual contracts, he said.

“It makes no sense that payment for providing services associated with insurance to members can only be made from the least efficient solution,” he said. SR

StatewideSuper and Local Super begin due diligence

By Tim Stewart THE consolidation in the superannuation industry is continuing, with South Australian fund StatewideSuper and Local Super conducting due diligence ahead of a potential merger.

The two funds have appointed PriceWaterhouseCoopers, KPMG and Russell Investments to undertake shared due diligence, which is expected to be completed by the end of November this year. On the completion of the due diligence, a final report will be presented to the boards of both funds.

StatewideSuper chair Nicholas Begakis AM and Local Super chair Juliet Brown confirmed that the shareholders Business SA, SA Unions, the Local Government Association, the Australian Services Union and the Australian Workers Union had given their in-principle support for the merger.

StatewideSuper has about $2.4 billion under management. Local Government Super has $1.7 billion under management and is for local government employees in South Australia and the Northern Territory. SR SUPERREVIEW

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6 NEWS

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MySuper too prescriptive and too soon, says ASFA Budget changes won’t spark

By Tim Stewart THE prescriptive nature of the MySuper draft legislation is likely to lead to a dramatic increase in “inadvertent compliance breaches”, according to the Association of Superannuation Funds of Australia (ASFA).

In its submission to the Government on the MySuper draft legislation, ASFA has called for a principles-based regulatory environment rather than one that is prescriptive in its approach.

ASFA chief executive Pauline Vamos said there was too much prescriptive detail in the exposure draft, which would have the likely outcome of “driving behaviour around the legislative intent”.

“Adopting a prescriptive approach to drafting means the bill cannot reflect the different products offered and the variety of decisions trustees make, and there is a significant risk that it will stifle innovation,” she said.

The ASFA submission also argued for a longer transitional period until the MySuper environment is implemented, arguing

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that forcing trustees to enact “change management” without regulatory certainty would create additional costs for members.

“Business requirement documents, let alone functional and technical specifications, cannot be agreed upon and signed off, nor most work commenced, until such time as there is a high degree of legislative certainty,” said Vamos.

While she agreed that funds should be able to offer MySuper products from 1 July 2013, Vamos said the period from which default contributions must be made to a MySuper product should be delayed until 1 July 2014.

ASFA also reiterated its call for capital gains tax rollover relief for superannuation funds. Failing to offer such relief could be a major obstacle to future mergers, since funds would be reluctant to merge if doing so could create significant costs for members, Vamos said.

The industry body also used its submission to query whether lifecycle investment options should only be based on age, and to express its disappointment that MySuper products will be prevented from paying a

infrastructure investment

By Benjamin Levy INFRASTRUCTURE manager Minerva Advisory has poured cold water on recent tax incentives to make it easier for infrastructure investment in Australia, saying the Government needed to fundamentally change the structure of underlying investment.

Speaking at a BNP Paribas Investment Partners and Antin Infrastructure breakfast in Melbourne, managing director of Minerva Lee Burnell said the tax incentives announced in the last budget were not enough to encourage investors to invest more in core infrastructure.

“There are not enough deals available to satisfy the domestic appetite for infrastructure, and I think importantly, there

doesn’t seem to be a solution bridging the gap,” Burnell said.

Heavy investment was needed in greenfield infrastructure, but offering tax incentives did nothing about the problems of lack of operating history, construction risk, and the lack of early revenue, he said.

While the biggest super funds in Australia were capable of funding infrastructure projects because of their sheer size, smaller funds and institutional players were unable to secure exclusivity in an infrastructure project because of the scarcity of smaller deals available, Burnell said.

That made it likely that participants would incur breaking deal costs, he said.

That was a real problem for both investors and fund managers, Burnell added. SR

8 NEWS

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MySuper’s focus on costs will hurt returns: Chant West

By Tim Stewart THE Government’s MySuper reforms are a “big mistake”, and will force trustee boards and chief investment officers to focus on costs rather than net returns, according to Chant West principal Warren Chant.

One of the Government’s key claims about MySuper – that it will deliver a 30-year-old worker up to $40,000 extra in retirement – is “sheer nonsense”, according to Chant.

The Government’s claim is largely based on a Deloitte report into the superannuation sector that was delivered to the Cooper Review, said Chant. The report found that under the MySuper regime a $20 billion fund with 800,000 members (and thus an average balance of $25,000) could potentially offer a default option with an investment fee of 0.36 per cent and an administration fee of 0.3 per cent – for a total fee of 0.66 per cent.

However, a total fee of 0.66 per cent is unrealistic when you look at the current fees of the big industry funds, Chant said. He gave the example of the $43 billion industry fund AustralianSuper, which has an investment fee of 0.6 per cent for its default balanced option. In addition, he pointed out that the top 30 industry funds have an average investment fee of 0.75 per cent.

“How is AustralianSuper going to get from 60 basis points to 36, and how are the top 30 funds going to get from 75 basis points to 36? These are not-for-profit funds – there’s no fat there, and they bargain really hard,” he said.

He was also sceptical that the big funds would be able to achieve an administration fee of 0.3 per cent, as laid out by Deloitte.

Warren Chant

“Generally, funds charge about $100 per member [for administration]. On a $25,000 account balance, that’s 40 basis points.

So how are they going to get down from 40 to 30?” he asked.

The only way the funds would be able to lower their costs to such a level would be to turn to indexing and stop investing in active managers and alternative strategies, he said. He pointed out that the significant outperformance of industry funds between 2003 and 2010 as compared to indexing was largely down to their use of alternative investments as part of a diversified portfolio.

“You don’t want to kill the goose that lays the golden egg. You don’t want to be putting pressure on these funds to get their costs down to ridiculous levels. The only way they can do it is to stop investing in active managers and alternatives,” Chant said.

“We don’t want to discourage funds from investing in things they think are good investments,” he added. SR

Australian pension system world-class, but not perfect AUSTRALIA’S pension system is second only to the Netherlands, according to this year’s Mercer Global Pension Index – but retirement income adequacy is still a concern.

The second-place ranking is an improvement on last year’s fourth place in the Global Pension Index, and is a result of the rise in household savings in Australia and the increase in the age pension, according to Mercer senior partner and author of the report Dr David Knox.

While none of the 16 countries in the report have managed to attain Mercer’s coveted ‘A’ rating, Knox said it was within Australia’s grasp in the near future if it can “address the issue of adequacy by raising the level of compulsory savings via superannuation and continue reforms to reduce costs”.

“Our superannuation system is in the midst of significant reform, some of which is likely to boost our score in the index in the future. But our current ‘B’ grade is an important reminder that our world-class retirement savings system is in danger of falling short of our needs unless we take action now,” he said.

Other measures that must be taken include introducing a requirement that the retirement benefit only be taken as an income stream, and encouraging older workers to remain in the workforce for longer, Knox said.

One thing that we can learn from the Dutch system is its excellent communication with members, who get a projection of what their retirement benefit will be at age 65, Knox added.

Association of Superannuation Funds of Australia chief executive Pauline Vamos said Australia’s improved ranking was an endorsement of the superannuation industry.

“The combination of the meanstested age pension, compulsory superannuation and voluntary contributions to superannuation provides Australia with a strong and sustainable system,” said Vamos.

Dr David Knox

But she added that being number two was not good enough, and agreed with Knox that Australia had more to do when it came to addressing retirement income adequacy.

“The proposed increase in the rate of compulsory superannuation from 9 to 12 per cent of wages, along with the proposed low-income earners’ contribution tax rebate, have a crucial role to play in increasing the adequacy of retirement incomes, particularly for low and middle-income earners,” she said. SR

Lower fees not about ‘active versus passive’ THE focus on fees in MySuper is about delivering the benefits of scale to the end member, rather than forcing superannuation funds into indexing to reduce costs, according to Vanguard Investments head of corporate affairs and market development Robin Bowerman.

Large funds can still utilise active management and alternatives, but they have to be ‘very, very sure’ that they will get the outperformance to justify the fees, Bowerman said.

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Net returns to members is the most important factor under the Government’s proposed reforms, he added.

“The fee focus is not about investment style. It’s about trustees of [the large] super funds having cost as a major consideration when they make their decisions,” Bowerman said.

He added there was nothing in the Cooper Review (the basis of the MySuper changes) that said funds couldn’t pay high fees, as long as they were confident

they would get the outperformance to justify them.

However, after 10 years of looking at active funds in the US, Vanguard Research has found that low fees are a good predictor of high returns, Bowerman said.

“The lower you keep your fees (regardless of investment style – the style’s irrelevant), the more you will get as a return that you can deliver back to members,” he said.

As evidence, Bowerman point-

ed to Morningstar research that found management expense ratios (MERs) are a better predictor of fund performance than Morningstar’s star rating system.

When it came to the lowering of costs through scale, he said Vanguard’s $1.9 trillion operation in the US was a good proxy for Australia’s $1.5 trillion superannuation system.

“Over the last 30 years, [Vanguard’s] average MER has been falling from 80 basis points down to about 19-20 basis points.

That’s a good example of how the Australian superannuation system probably hasn’t managed to capture all the benefits of scale,” he said.

The US experience showed that if the Australian superannuation industry captured the benefits of scale more efficiently it could get total fees (administration plus investment) down to 66 basis points – the figure cited by Deloitte in its report to the Cooper Review, Bowerman said. SR

11 EDITORIAL

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It’s not the weapon – it’s how you use it The Stronger Super legislation will endow the Australian Prudential Regulation Authority with greater powers, but ultimately, it will be a question of how those powers are used.

Mike Taylor

A

ustralia’s financial services regulators have gained plenty of bouquets as having been pivotal to the manner in which the financial services industry navigated the global financial crisis, but a recent appearance by the Australian Prudential Regulation Authority (APRA) before a Parliamentary Joint Committee (PJC) suggests they are also owed a few brickbats.

APRA’s appearance before the PJC occurred in August when committee members – most of them sitting on the Government benches – asked a series of questions around the collapse of Trio and the Astarra-related superannuation funds.

Observed in the context of the Government’s Stronger Super legislation, the PJC transcript makes disturbing reading. It paints a picture of a regulator who held concerns about the running of a super-

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annuation fund and its trustee board back in 2005, but despite ongoing scrutiny which saw a change in the make-up of that board, did not act with finality until 2009.

What is more, while the Government’s Stronger Super changes will deliver APRA greater powers, there is absolutely no suggestion that its use of those powers would serve to prevent a repeat of the Trio/Astarra debacle.

APRA’s deputy chairman Ross Jones said in a preprepared address to the parliamentary committee: “Proposals within the Stronger Super reforms will in fact impose additional duties on the directors of a trustee to act honestly and in the best interests of beneficiaries. The Government has announced APRA will be given a general prudentialstandards-making power in relation to superannuation.

It is a power that APRA has in the other industries it regulates, but we do not have this power at the present time in superannuation.

“While it is not possible to say that such powers would ensure these sorts of activities would never occur again, we do think that the standardsmaking powers with regard to investment governance and due diligence will greatly assist APRA’s supervisory

EDITORIAL Managing Editor – Mike Taylor Ph: (02) 9422 2712 Fax: (02) 9422 2822 email: mike.taylor@reedbusiness.com.au Features Editor – Milana Pokrajac Ph: (02) 9422 2080 Fax: (02) 9422 2822 email: milana.pokrajac@reedbusiness.com.au Reporter - Tim Stewart Ph: (02) 9422 2210 email: tim.stewart@reedbusiness.com.au Contributing Reporter – Damon Taylor email: damon.taylor@c-e-a.com.au Ph: 0433 178 250

“The question ... is will the regulator be speaking to the same funds again, and will it have to move beyond the sort of measures it applied two years ago?”

processes and reduce the already small likelihood of fraud occurring in this process.”

The parliamentary committee transcript then went on to suggest APRA believed any fraud which had occurred with respect to Trio/Astarra had occurred in 2004, 2005 and 2006, and that the greatest likely sin committed by directors thereafter had been that of incompetence.

Whatever the case may have been, the manner in which APRA chooses to firstly interpret and implement its legislative powers was also laid bare in its evidence to the PJC. Jones acknowledged that while the regulator held concerns about the fund’s assets, it was only after it appointed

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an external trustee – ACT Super – that it got to the nitty-gritty of what was really going on.

Jones told the PJC: “A lot of the cross-directorships and governance concerns were addressed very early on. In fact, it was not until late 2009 – when we were unable to get the valuations – that we had such concerns, that we issued a ‘show cause’ on the directors of Trio as to why they should not be suspended. We then dismissed the board and replaced them. Then ACT Super came in. ACT Super went through and said, ‘We believe that we have fraud of X dollars associated with the failure of the previous directors to have adequate processes around these investments’.”

Some would ask why it took ACT Super rather than APRA itself to identify the extent of the fraud and whether, on that basis, the Government’s Stronger Super changes should not go a good deal further.

Given all of the above, it is just as well that the Australian superannuation industry has, over the 20 years of the superannuation guarantee, proven to be exceptionally, prudentially sound, with only a handful of blow-ups of which Trio/Astarra has thus far proven to be the largest.

But when the regulatory time-scales involved in APRA detecting problems and finally acting on Trio/Astarra are put together with the global financial crisis and the

manner in which it impacted superannuation fund liquidity, some serous questions must arise.

APRA has at various times acknowledged the manner in which it worked through liquidity issues with superannuation funds through the dark days of 2008/09, but it has steadfastly (and probably appropriately) refused to name those funds or indicate the level of assistance and monitoring that was ultimately provided.

The question, however, is that with markets having again hit a period of serious volatility, and with some signs that liquidity has again been tightened, will the regulator be speaking to the same funds again, and will it have to move beyond the sort of measures it applied two years ago?

One of the criticisms levelled at the Astarra/Trio directors was that they held multiple (and possibly conflicting) directorships. The same sorts of criticisms (albeit, with no suggestion of criminality) have been made with respect to some of the trustee directors of industry superannuation funds, and we do not know whether any of those funds suffered liquidity issues through the height of the GFC. It will be a very bad look for APRA if, some time in the next two or three years, it finds itself explaining to a parliamentary committee how it first held concerns about a fund in 2008, but did not act with finality until 2012–13. SR

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Average Net Distribution Period ending March '11 2,300

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SUPER REVIEW/HERON PARTNERSHIP GROUP INSURER OF THE YEAR 13

Group Insurance Mandates The Heron Partnership has compiled the following table of superannuation fund group insurance mandates and the insurers who hold them.

Heron list of insurers October 2011 Rank Product 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75

Default Death and TPD Insurer

Default Salary Continuance Insurer

Accountants Superannuation Fund ................................................................CommInsure..........................................Comminsure Australian Enterprise Super..........................................................................CommInsure..........................................CommInsure AGEST ........................................................................................................CommInsure..........................................CommInsure AMG Universal Super - Personal................................................................Hannover Life Re ..................................Hannover Life Re AMG Universal Super - Employer................................................................Hannover Life Re ..................................Hannover Life Re AMP - Flexible Super ......................................................................................AMP Life ..............................................AMP Life AMP - Flexible Super - Employer......................................................................AMP Life ..............................................AMP Life AMP CustomSuper..........................................................................................AMP Life ..............................................AMP Life AMP SignatureSuper ......................................................................................AMP Life ..............................................AMP Life AMP SuperLeader ..........................................................................................AMP Life ..............................................AMP Life ANZ Super Advantage ..................................................................................OnePath Life ........................................OnePath Life Aon Master Trust - Personal Division ............................................................AIA Australia ........................................AIA Australia Aon Master Trust - Personal Super Essentials ................................................AIA Australia ........................................AIA Australia Aon Master Trust ........................................................................................AIA Australia ........................................AIA Australia Apex Super Fund ............................................................................................TAL Life ................................................TAL Life Asgard Elements Super................................................................................AIA Australia ........................................AIA Australia Asgard Employee Super ..............................................................................AIA Australia ........................................AIA Australia Asgard eWRAP Super ..................................................................................AIA Australia ........................................AIA Australia Asgard Infinity eWrap Super ........................................................................AIA Australia ........................................AIA Australia Asset Super ..................................................................................................MLC Life ..............................................MLC Life AUSCOAL Superannuation Fund ....................................................................CommInsure ................................................n/a Australian Meat Industry Superannuation Trust ..............................................Comminsure..........................................CommInsure AustralianSuper Corporate ..............................................................................TAL Life ................................................TAL Life AustralianSuper Corporate Solutions ................................................................TAL Life ................................................TAL Life AustralianSuper Finsuper Division ....................................................................TAL Life ................................................TAL Life AustralianSuper Personal ................................................................................TAL Life ................................................TAL Life AustralianSuper Westscheme Division ..............................................................TAL Life ................................................TAL Life AustralianSuper Workplace ..............................................................................TAL Life ................................................TAL Life AustSafe ....................................................................................................CommInsure..........................................CommInsure AXA Generations - Personal Super ................................................................AXA Australia ........................................AXA Australia AXA Simple Super ......................................................................................AXA Australia ........................................AXA Australia AXA Summit - Personal Super ......................................................................AXA Australia ........................................AXA Australia AXA Super Directions for Business................................................................AXA Australia ........................................AXA Australia AXA Tailored Super......................................................................................AXA Australia ........................................AXA Australia Bendigo Personal Superannuation ....................................................................TAL Life ................................................TAL Life BT Business Super ......................................................................................AIA Australia ........................................AIA Australia BT Lifetime - Personal Super ........................................................................AIA Australia................................................n/a BT Lifetime Super - Employer Plan ................................................................AIA Australia ........................................AIA Australia BT Super for Life ........................................................................................Westpac Life ........................................Westpac Life BT SuperWrap Personal Super Plan................................................................Westpac Life ........................................Westpac Life BUSS(Q) Flexible Choice Employer Sponsored ................................................OnePath Life ........................................OnePath Life BUSS(Q) Premium Choice ............................................................................OnePath Life ........................................OnePath Life CareSuper ..................................................................................................CommInsure..........................................CommInsure CareSuper - Corporate Super........................................................................CommInsure..........................................CommInsure CareSuper - Personal Plan............................................................................CommInsure..........................................CommInsure Catholic Superannuation Fund..........................................................................TAL Life ................................................TAL Life CBA Wealth Management - Colonial First State Rollover & Superannuation Fund ................................................................................CommInsure ................................................n/a Cbus ......................................................................................................Hannover Life Re ..................................Hannover Life Re Christian Super ........................................................................................Hannover Life re ......................................CommInsure ClearView Superannuation ..........................................................................ClearView Life ..............................................n/a Club Plus....................................................................................................CommInsure..........................................CommInsure Club Super ....................................................................................................MLC Life ................................Australian Income Protection Colonial First State FirstChoice Employer Super ............................................CommInsure..........................................CommInsure Colonial First State FirstChoice Personal Super ..............................................CommInsure..........................................CommInsure Colonial First State FirstChoice Wholesale Personal Super ..............................CommInsure..........................................CommInsure Energy Industries Superannuation Scheme – Accumulation Scheme ..................................................................................TAL Life ................................................TAL Life Equipsuper - Corporate ............................................................................Hannover Life Re ..................................Hannover Life Re Equipsuper - Personal ..............................................................................Hannover Life Re ..................................Hannover Life Re Equity Super Freedom of Choice - Business Super..............................................TAL Life ................................................TAL Life Equity Super Freedom of Choice - Corporate Super ............................................TAL Life ................................................TAL Life Equity Super Freedom of Choice - Personal Super ..............................................TAL Life ................................................TAL Life ESSSuper Accumulation Plan ........................................................................CommInsure..........................................CommInsure First State Super ............................................................................................MetLife............................................ACE Insurance FIRST Super................................................................................................OnePath Life ........................................OnePath Life FSP Super Fund ..........................................................................................OnePath Life ........................................OnePath Life FuturePlus Super ............................................................................................TAL Life ................................................TAL Life Government Employees Superannuation Board – GESB Super..............................................................................................AIA Australia ........................................AIA Australia Government Employees Superannuation Board West State Super........................................................................................AIA Australia ........................................AIA Australia GuildSuper ................................................................................................AIA Australia ........................................AIA Australia Health Super ..............................................................................................AIA Australia ........................................AIA Australia HESTA ........................................................................................................OnePath Life ........................................OnePath Life HOSTPLUS ..................................................................................................OnePath Life ........................................OnePath Life HOSTPLUS Executive....................................................................................OnePath Life ........................................OnePath Life HOSTPLUS Personal Super Plan ....................................................................OnePath Life ........................................OnePath Life Intrust Super ..........................................................................................Hannover Life Re ..........................Australian Income Protection

Rank Product 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150

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Superannuation Service ........................................................MLC Life ..............................................MLC Life MTAA ............................................................................................................MetLife ................................................MetLife Nationwide Superannuation Fund Employer Sponsored Division......................................................................................OnePath Life ........................................OnePath Life netwealth Super Wrap - Employer Sponsored Super ........................................AIA Australia ........................................AIA Australia netwealth Super Wrap - Personal Super ........................................................AIA Australia ........................................AIA Australia NGS ..........................................................................................................CommInsure..........................................CommInsure OnePath Corporate Super ............................................................................OnePath Life ........................................OnePath Life OnePath Integra Super ................................................................................OnePath Life ........................................OnePath Life OnePath OneAnswer Frontier Personal Super..................................................OnePath Life ........................................OnePath Life OnePath OneAnswer Personal Super ..............................................................OnePath Life ........................................OnePath Life Perpetual Select Superannuation Plan ..........................................................AIA Australia ........................................AIA Australia Perpetual WealthFocus Super Plan ................................................................AIA Australia ........................................AIA Australia Plum Superannuation Fund..............................................................................MLC Life ..............................................MLC Life Plum Superannuation Fund - Personal Division ..................................................MLC Life ..............................................MLC Life Prime Super ..................................................................................................MetLife ................................................MetLife Pursuit Core Personal Superannuation ..............................................................TAL Life ................................................TAL Life Pursuit Select Personal Superannuation............................................................TAL Life ................................................TAL Life RecruitmentSuper - EasyChoice ....................................................................CommInsure ................................................n/a RecruitmentSuper - SelectSuper ..................................................................CommInsure................................Lumley General Insurance Rei ................................................................................................................MetLife ................................................MetLife REI Super Elite................................................................................................MetLife ................................................MetLife REST Acumen..............................................................................................AIA Australia ........................................AIA Australia REST Industry Super....................................................................................AIA Australia ........................................AIA Australia REST Industry Super Personal ......................................................................AIA Australia ........................................AIA Australia Russell SuperSolution Master Trust - Employer Division......................................TAL Life ................................................TAL Life Russell SuperSolution Master Trust - Personal Division ......................................TAL Life....................................................n/a Spectrum Super..............................................................................................TAL Life ................................................TAL Life Spectrum Super - Personal Division..................................................................TAL Life ................................................TAL Life Statewide Superannuation Trust ......................................................................MetLife ................................................MetLife Strategy Employer Superannuation Plan ........................................................OnePath Life ........................................OnePath Life Strategy Retirement Fund ............................................................................OnePath Life ........................................OnePath Life Suncorp WealthSmart Business Super ............................................................Asteron Life ..........................................Asteron Life Suncorp WealthSmart Personal Super ............................................................Asteron Life ..........................................Asteron Life Sunsuper Corporate ....................................................................................AIA Australia ........................................AIA Australia Sunsuper Solutions ....................................................................................AIA Australia ........................................AIA Australia Synergy Retirement Service Superannuation......................................................TAL Life ................................................TAL Life Tasplan ......................................................................................................CommInsure..........................................CommInsure Taxi Industry Superannuation Fund ..............................................................OnePath Life................................................n/a Telstra Super - Personal Plus ..........................................................................TAL Life ................................................TAL Life TOWER The ARC Corporate Plan ........................................................................TAL Life ................................................TAL Life TOWER The ARC Personal Plan ..........................................................................TAL Life ................................................TAL Life TWUSUPER Industry ....................................................................................CommInsure..........................................CommInsure TWUSUPER TransPersonal ............................................................................CommInsure..........................................CommInsure TWUSUPER Transuper ..................................................................................CommInsure..........................................CommInsure Unisuper Accumulation Super (1) ..............................................................Hannover Life Re ..................................Hannover Life Re Uniting Church Superannuation Plan ............................................International Underwriting Services ........International Underwriting Services Vision Super Personal Plan ..........................................................................CommInsure..........................................CommInsure WA Local Government Super Solutions - Employer..............................................TAL Life ................................................TAL Life WA Local Government Super Solutions - Personal ..............................................TAL Life ................................................TAL Life Wealthpac Superannuation Service Employer Division ........................................TAL Life ................................................TAL Life Wealthtrac Superannuation Master Trust........................................................OnePath Life ........................................OnePath Life

Source: Heron Partnership

NOVEMBER 2011 * SUPERREVIEW

14 REGULATION

www.superreview.com.au

Regulatory balancing act Stronger Super has delivered a raft of new regulatory challenges for the superannuation industry but, as DAMON TAYLOR writes, the objective is finding the right balance in looking after other people’s money.

A

s the Australian super industry approaches what is likely to be significant reform brought to bear by Stronger Super, trustees and executives will be contemplating not just those public policy changes that have been advertised but also what compliance and regulation structures are set to be put in place around them.

There seems little doubt that change is in the wind, but while compliance and regulation may never be popular subjects, the reality, according to Fiona Reynolds, CEO of the Australian Institute of Superannuation Trustees (AIST), is that they are part and parcel of a maturing superannuation industry where Australians’ retirement savings are at stake.

“It’s always difficult to get the balance right between the regulatory requirements and making sure that they don’t take up so much time that you start impeding business,” she said. “But having said that, this is a $1.4 trillion industry, it’s other peoples’ money and there has to be a really robust framework around that.

“I’d rather see more regulation and appropriate safeguards than less regulation because, at the end of the day, we have to remember that it’s not our money.

“It’s other peoples’ money and they’re counting on us to make sure that they have a safe retirement.”

Sharing Reynolds’ sentiments, Peter Beck, CEO of administrator Pillar, said that Australia’s superannuation industry was in a priviSUPERREVIEW

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NOVEMBER 2011

Fiona Reynolds

leged position thanks in large part to compulsory contributions.

“We have a compulsory revenue flow into our industry and we have significant tax incentives,” he said.

“We’re actually in a trust position where we’re holding money on behalf of other people, so I think it’s perfectly reasonable that the regulation around our industry should at least be up to the standards of the other financial services industries.

“You could even argue that our industry’s governance should be stronger, simply because we are one of the few industries that has compulsion.”

For Vamos, however, while industry reform and the regulation to accompany it is undoubtedly necessary, the biggest issue resides in timing.

“As a lot of our regulation is principle-based, a lot of what’s currently in place in terms of overall regulation is right,” she said. “The biggest issue for the industry, par-

ticularly on a lot of the more precise regulations around tax concessions and ones that directly impact systems, is the number of changes.

“Detail isn’t a problem except when it’s changed every five minutes; that is what causes the issues,” Vamos continued. “So the biggest issue here, particularly with what is likely to come from Stronger Super, is the amount of change and the timing.”

Vamos said that with the Future

of Financial Advice (FOFA) reforms set to start on 1 July 2012, MySuper due to start in July 2013 and aspects of SuperStream being introduced as early as next year, the risk and cost involved for funds was enormous.

“We have a risk, for example, of some funds having to set up products for July 2012 and then replace those with another set of products or portfolios for MySuper in 2013,” she said. “So not only does that raise the question of whether or not the industry has the capacity for

REGULATION 15

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that kind of change, when you’re doubling your work like that you’ve also got enormous cost.

“And what people forget is that those costs are ultimately borne by the member,” Vamos added.

“Even if the costs are only related to the retail sector, as is the case with FOFA, those costs have to come out of profit eventually, and some of the most substantial shareholders are members of funds across all sectors.

“A lot of the new reforms are very good and they’re particularly good for consumers, but let’s be sure they’re implemented in a cost-effective way.”

Naturally, the Australian Prudential Regulation Authority (APRA) has already flagged a number of specific regulation changes for implementation.

From its proposed prudential standards to guidance on risk management, disclosure and

liquidity, the industry’s regulator has given a clear indication as to what it is focused on.

For Reynolds, it is hitting the right targets.

“APRA’s prudential standards paper, in particular, is a good paper,” she said. “I think that they’ve taken on board a lot of the industry’s concerns, things that were flagged through the Continued on page 17

NOVEMBER 2011 * SUPERREVIEW

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REGULATION 17

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Regulatory balancing act Continued from page 15

Stronger Super process – and where the industry didn’t think things were going to work, they’ve acknowledged that and changed their approach in this final paper.

“They’ve got the balance right between the practicalities and needing to get where they’ve got to,” Reynolds continued. “So I’m pleased with the way that they’ve worked with the industry, and I think that it sets a really good benchmark for funds.

“I’m sure that there will always be room for ongoing improvements, but I think this is going to take the industry to a new level, and probably a level that we need to get to if we’re really serious about looking after so many Australians’ retirement savings.”

Alternatively, Vamos points out that the gap that yet remains in the announced regulatory change is post-retirement.

“One of the biggest issues facing Australian superannuation right now is the need to open up postretirement, and yet there’s not one part of these reforms that tackles that,” she said. “It’s quite the opposite, in fact. MySuper actually says that you cannot offer a pension product out of a MySuper product.

“In terms of what has been announced, I suppose that it is hitting the right targets, but that’s simply because it’s hitting all targets,” Vamos continued. “Again, it comes down to timing and whether agreed public policy outcomes actually eventuate.

“When you look at the time that we’ve got to review a lot of this draft legislation, I just can’t put my hand on my heart and say that public policy, as agreed, is going to be delivered – and that’s quite simply because the legislation has been drafted too late in the piece.”

Of course, Vamos’ concern is a valid one based upon the cost of

Peter Beck

change alone.

Compliance and regulation are likely not popular topics of conversation in this industry, thanks in large part to the cost that seems to accompany them. And yet, according to Beck, any worthwhile change will almost always be embraced by funds and administrators alike.

“Ultimately, if you do a cost/benefit analysis on this and the cost/benefit analysis stacks up, then it’s going to be good for everyone, and that flows on to members as well,” he said. “Efficiency is a perfect example; if it’s change for change’s sake, it just costs funds money and that cost will have to be passed on to members.

“If, on the other hand, there are efficiencies to be gained, then the funds, administrators and trustees are more than happy to pay for the cost of doing those changes because we will all get the efficiencies coming through to us,” Beck continued. “As long as there’s that payback from the change, then it will always worth doing.”

Speaking not only to financial cost but to the price paid in terms of member frustration and confusion, Reynolds said that one of the industry’s perennial complaints was that constant change was confusing to people.

“So if the goal posts keep getting

“I’m sure that there will always be room for ongoing improvements, but I think this is going to take the industry to a new level, and probably a level that we need to get to if we’re really serious about looking after so many Australians’ retirement savings.”

– Fiona Reynolds

moved, then that can lead people to lose faith in the industry,” she said.

“They ask themselves whether they want to put extra money in because they’re doing it on the basis that they’re going to be able to do x, y and z.

“But then the rules change, stopping them from doing that and they say ‘why bother!’” added Reynolds.

“So I do think that any time the Government and regulators, or the industry, want to promote change, we have to bear that in mind.”

Yet Reynolds was quick to add that such a reality did not mean that the super industry could be caught standing still when it came to compliance and regulation.

“We just have to get the balance right,” she said. “At the end of the day, yes, costs do get passed on but, at the same time, as we’re getting bigger economies of scale and more money in the industry, that brings efficiencies as well.

“Hopefully they can balance each other.”

Not surprisingly, Vamos pointed out that if the Stronger Super reforms do not deliver consumers a better experience and grant them a better understanding of their superannuation, then the industry had missed its mark badly.

“I actually think that a lot of the reforms will have enormous benefits for consumers,” she said. And if these reforms don’t deliver consumers a better experience when dealing with our industry, then the reality is that we should all go home.

“If consumers don’t start seeing efficiencies, if consumers don’t start seeing easier comparability, if they don’t start seeing greater transparency, if they don’t start seeing a portfolio that they don’t have to think about, then we have bigger issues,” Vamos continued. “They have to be able to really trust in the fact that the trustee is working to their best interests.

Continued on page 19

NOVEMBER 2011 * SUPERREVIEW

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Regulatory balancing act

Continued from page 17

“And this is the reform that has to do that in the short term. It’s just that simple.”

At the end of the day, the reality seems to be that changes to this industry’s compliance and regulation regime are never going to be popular. However, that lack of popularity isn’t going to stop what is a huge industry overhaul, or the regulatory change that will likely follow it.

According to Vamos, such change is inevitable.

“Often what happens when you’ve had such extensive regulatory reform, there is a lot of mopping up,” she said. “So there’s a lot of regulation to clarify and to provide some certainty with, and to remove anomalies from.

“But what I think we will see is, as happened in the financial services industry with FSR (the Financial Services Reform Act), the whole compliance and risk sector will grow within the superannuation industry,” Vamos continued. “And because a lot of compliance is now rulesbased and principles-based, the compliance measures you’ve got to

“My only concern is that we’re on such tight deadlines at the moment with getting legislation into Parliamentary sitting periods.”

– Pauline Vamos

Pauline Vamos

have in place to ensure that you know that you’re compliant with the law means that a number of funds will look more and more at compliance frameworks.

“Those conversations are happening now but I can see them being struck at much higher levels within funds and within the industry.”

Similarly, Reynolds said that there was likely no end in sight to regulatory change within the super industry.

“Hopefully though, once MySuper’s all bedded down and FOFA’s all bed-

ded down, it won’t be such drastic change,” she said. “Hopefully, it will be tweaks here and there as required rather than any more wholesale change.

“Overall, I think we are heading in the right direction here,” Reynolds continued. “My only concern is that we’re on such tight deadlines at the moment with getting legislation into Parliamentary sitting periods.

“And when you’re always rushed to do things, does that mean you miss things? That’s my only concern, because this is something we’d really prefer to get right in the first place.”

Looking big picture, Vamos said that her own underlying concern lay in a lack of focus on members’ wholeof-life needs.

“Whole-of-life investing, whole-oflife service and a focus on APRA-regulated funds being able to tailor their services to individual member needs,” she said. “So we’ve still got a way to go there, but I think generally the public policy is going in the right direction.

“The challenge for us today is getting the regulation right but once that’s done, that has to be our focus; bringing public policy and regulation in line.” SR NOVEMBER 2011 * SUPERREVIEW

20 ROUNDTABLE

www.superreview.com.au

In the swim with Super The ramifications of Stronger Super, like ripples in a pond, spread further and further.

Our October roundtable dips a few more toes in the water and checks out the temperature.

Present: MT: Mike Taylor (Chair) - Editor, Super Review DG: David Graus - Policy Director, ASFA. TL: Tim Longhurst - Futurist, Key Message FR: Fabian Ross - General manager, Wealth Management, GESB AB: Andrew Bragg - Senior Policy Manager, FSC KS: Ken Shaw - BNP Paribas MT: The tape is running gentlemen, so we all know where we are at. The top issue obviously is Stronger Super.

The government a couple of weeks ago handed down the final iteration and there’s been quite a lot of comment about what it will all mean.

I think I will start with the question of SuperStream, which I think is probably the most commonly agreed element of Stronger Super, in that everybody agrees SuperStream is the one thing, I guess, in the whole equation that was begging to be done, and probably should have been done sooner. So I might throw to you David to put your view on where you see SuperStream fitting in, and how important it is to the overall scheme of things, and I guess any implications you see flowing from it.

DG: Well, from our perspective we are very supportive obviously of SuperStream.

As you mentioned, it’s the least controversial part of MySuper, Stronger Super. We were pleased to see that there SUPERREVIEW

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NOVEMBER 2011

is going to be mandatory data service. We believe that that’s a tremendous step forward, a movement forward from the previous government response, so that’s extremely helpful. Clearly this will benefit the whole superannuation industry, but there will be pain upfront, and this can’t be underestimated – the sort of level of pain and initial cost that will go into tooling up and gearing up for SuperStream. So while we are supportive of it, we just caution about that initial cost in systems set-ups.

AB: I think there’s probably two primary elements with Superstream. The first is quite a consumer-centric reform which is empowering the consumer to bring together their super accounts.

So there are 30 million accounts for a labour force of 11 million people. It’s obviously a big program we’ve been trying to address for a long time in our compulsory system. I think a member walking into a new workplace and being presented with the capacity to bring together their

accounts is an enormous step forward. I think the other element of SuperStream addresses - it’s obviously a lot more boring - but it goes to the data that David referred to, I think, from the employer’s perspective: the employer will have the variation removed. The employer is a compulsory part of the cog; the employer has to deal with different super funds with different requirements. I think removing that variation from their perspective is a big step forward for the industry. I think historically the industry hasn’t always dealt well with employers, and I think part of this focus has been trying to understand what the employer has to look at when they try and deal with our industry, so I think both those are very positive.

DG: There is a downside in that we were disappointed in the fact that there’s only going to be an advisory council now sitting over these new standards, and we were much keener on a governing body that is empowered to effectively impose things, and that was a disappointment.

MT: Fabian in WA, what’s the take of someone who is at the fund coalface on that?

FR: I think from our perspective, where SuperStream makes it easier for consumers to consolidate accounts, I think that’s a good outcome.

But I do share the concerns of the table there, which cen-

tre on the employer element, employer readiness. I think that we shouldn’t underestimate how big that will be going forward, but certainly from a consumer point of view I think it’s a great step forward. From our fund point of view, from a tax file number (TFN) perspective, we’ve noticed when we were out with clients, we’ve already done some finance work on it – and we don’t see it as a huge step forward for us.

“I don’t think superannuation funds have felt any great degree of obligtion to offer a genuine dialogue with their members about where the money is being invested and why.”

- Tim Longhurst

probably a disappointing aspect. It would have been more forward-looking to have a body that looks after this and really holds people to account [in light of] the standards, so I tend to agree with David on that.

AB: I think we have a different view on the ongoing governance of data standards.

I think if you look at the scope of what’s being reformed here, the government has said, “look, the industry is incapable of coming to agreement on standards which are going to be mandatory, effectively, so for contributions and for rollovers we are going to legislate”. So when a government legislates something, the government owns it. So I think from our perspective we thought it was appropriate to maintain some industry input into how those standards are maintained, and how they are changed over time. But ultimately having a legislative governance body with ministerial appointments and whatnot – I think is really a grandiose approach to what is a relatively simple problem.

The industry has grappled for over 10 years with standards and actually it was a failure, so we are happy to see more government intervention as opposed to less on this occasion.

MT: Are you concerned, and I guess this is really more a matter for the administrators than the funds themselves, but are you concerned that there’s not an overarching body, as David has suggested, to kind of see the standards maintained?

AUTO-CONSOLIDATION – GOOD OR BAD?

FR: Yes, I tend to agree with David there. I think that’s

MT: One of the things that came out early on, and before the government even

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Stream and MySuper

tabled its final iteration of the Stronger Super policy document, was the question of auto-consolidation. To be fair, it is something which Stronger Super always sought to overcome – the proliferation of super accounts – but I think the concern of many people, and we discussed this at an earlier roundtable, is that there are many people out there who

quite deliberately have multiple superannuation accounts and therefore it becomes a question of appropriate mechanisms for consolidating them, and whether it’s auto-consolidation or, dare I use the words, ‘opt-in’? So, David, having seen the document now, have you any further views on that?

DG: We are relatively comfortable with where the government has landed on autoconsolidation. It was ASFA’s policy that for accounts below $10,000, that’s where we thought it was the appropriate level to be set. That being said, the government has chosen a $1,000 level but will be reviewing it going forward, and they do refer to the $2,000 which was the subject of that

research. We are very keen that unintentional, unutilised accounts need to be consolidated. We are very aware that a number of people intentionally have more than one account, and it’s terribly important to not just interfere with those arrangements, you know, potentially lose insurance, potentially stuff up asset allocation. So where they’ve landed, you could have an al-

ternative arrangement, to the effect that you are driving member communication and the person has got the right to opt out. We think it’s probably a reasonable outcome.

FR: If I could just, on the basis of what you just said there, ask why is it ASFA’s view that $10,000 is the Continued on page 22

NOVEMBER 2011 * SUPERREVIEW

22 ROUNDTABLE

www.superreview.com.au

In the swim with SuperStream and MySuper Continued from page 21

funds under modern awards, and that matter has yet to go before the productivity commission. To me that seems to be the elephant in the room, which is, you are putting in place a policy that is conflicted with another policy, which won’t be reviewed until next year at the earliest. So I guess I’ll throw this one to Andrew to start: can the government sensibly introduce MySuper, knowing that the whole modern award situation is out there?

Ken Shaw

view that $10,000 is the threshold rather than $1,000?

DG: Well, we came to the view that really at $10,000, when you look at the average balances and member behaviour, that at that level people are not getting cannibalised by fees, by the fixed fees, and people tend to be engaging intentionally.

MT: Andrew?

AB: I think the consultation revealed that there was a range of views about, if we go to the path of having an auto-consolidation management, what that level should be? Our view was $1,000; as David pointed out we pushed for $10,000, others pushed for no limit. So you know, you would have the bizarre proposition that if you miss your mail, you miss your work consolidation notification, there goes your choice for your personal super account, or your consolidation into your default fund. So we thought that that was an extreme proposition. As David said, $1,000 appears to be about right. The other thing about $1,000 is that it needed to align with the member’s protection threshold, which is going to be abolished as part of these reforms, so there’s a bit of science to the $1,000. I think the risk you identified, Mike, around the insurance fees, is [lessened] where people have chosen their insurance. Typically those accounts are not going to have less $1,000 in them, so I think if you maintain a SUPERREVIEW

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threshold of $1,000, you are not exposing consumers to the risk of losing their insurance inadvertently.

MT: Fabian, what’s your view on it? You know, do you have a particular view on auto-consolidation in terms of where your members are coming from?

FR: Yes, from our perspective we think $1,000 is about the right level, which confirms that there’s a lot of members that kept their su-

perannuation for insurance purposes. Therefore making them consolidate at a higher threshold is fraught with danger from our point of view, so we certainly think that, we certainly believe that consolidation should happen, but certainly $1,000 is about where we see it as well.

MYSUPER AND MODERN AWARDS MT: Let me just move the conversation along a little now, and I guess the other key thing out of Stronger Super is MySuper. I think the

Cooper review inspired MySuper – and there were a lot of critics in the immediate aftermath of it being announced. I can remember a certain recent ASFA conference, I think it was in Adelaide, where some rather harsh things were said about Jeremy Cooper by people who didn’t realise he was in the room. But I’m just wondering: we now see My Super as being a replacement for defaults as we know them, but at the same time we have the default

AB: Look I think there’s an inevitability that the awards will be open to competition. I think this is the first time the government has ever put some hard numbers around a whole product. I think that when you commoditise the whole product it means that inevitably every developed product will be open to compete on its own merits, whether it’s under an industrial agreement, whether it’s under an award enterprise agreement. So I think from our perspective it’s an inevitability, because obviously, unfortunately there are a lot of politics around that question. I assume the Productivity Commission will have a look at this issue and pick it up, say, next year.

DG: Would we generally agree that we think the MySuper can proceed as it is, but it would be preferable for as early a resolution as the Productivity Commission can bring on. However, the MySuper legislation can proceed in parallel or beforehand.

Continued on page 24

24 ROUNDTABLE

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In the swim with Super Continued from page 22

RACE TO THE BOTTOM? MT: One of the things that was raised at an earlier roundtable we conducted, David you were there, was that there is a danger with MySuper - and it’s based on cost and what have you – that it could ultimately end up being a race to the bottom. Do you think, as it’s been outlined by the government at this point, and perhaps seeing the fine detail of the legislation, do you think that’s a problem?

DG: It’s a potential problem and I don’t think it’s being driven by anything specific in the legislation, because they are not prescribing a move to index it. But given a bit of transparency in the commoditisation that we talked about, just competitive forces will have the potential to drive things towards an indexing management, or to a more simple, cheaper investment. So there is a risk and a major risk.

AB: I strongly agree, I think it’s hard to find an example.

I think the legislation as proposed is not particularly intrusive. It’s not going to be an enormous structural change, MySuper, I think, from a transparency point of view.

One of the big changes will be APRA publishing quite detailed tables, performance tables and cost tables, for all and sundry to see. I think that there will be an inevitability around a provider not wanting to have it reported that [for example] ABC MySuper is the most exSUPERREVIEW

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pensive My Super in that case - because for the first time the media will be able to pick up tables which will be truly comparable and have integrity around them for comparability purposes. I think that if you were to sit there with My Super at 200 basis points, you might see that as being uncompetitive.

DG: We would hope too that, in a world of comparability, trustees are properly held to account for their investment decisions. Should they be choosing a more expensive investment approach, then it should deliver a superior performance. So a net investment return, at the end of the day, will hopefully be better looked at.

MT: So what you are saying is you would rather see trustees going for best possible return rather than going for safety first?

DG: That’s an interesting question – and playing off best-possible return against safety, you know, are the two mutually exclusive? Not necessarily, so obviously you are not going to get adventurous, but as trustees do now, the duty is try and maximise returns. I think that that will continue in a hopefully more comparable and transparent way.

AB: We certainly believe in active management, so we don’t think that to raise concession in price is positive. We think it needs it, but you’ve just got to look at the dynamics around you and look at the way the media reports these

David Graus

“Barriers are collapsing, and that can either be to the benefit of financial organisations like super funds, or to their detriment.”

- Tim Longhurst

things. Clearly the main thing there, you look at costs and things. I mean, they are not going to give someone a pat on the back for having 200 basis points in MySuper, when some-

one has got 60 basis points for My Super. So to summarise it, I would just say that it’s incumbent upon the industry to talk about the value of active management, to talk about the value proposition and that's not just about fees.

AVOIDING SHORT-TERMISM MT: I guess listening to all of you on this, one of the things I guess that’s going to be important in the approach APRA takes, is that in any assessment it does, it reflects the fact that superannuation is supposed to be a long-term investment, and that the monthly charts and tables we get reflecting monthly performance aren’t really that constructive. So I’m just wondering, do you

think the government really ought to be giving APRA a brief? Or perhaps APRA should be smart enough to assume the brief that you don’t go with a six-monthly, or even one-yearly approach, you really should be looking at five, 10 years? Do you see that as the appropriate timescale?

TL: Yes. KS: Yes, five to 10 years.

ASIC has also made its focus on long-term returns and disclosing long-term returns, and we support that.

IMPACTING THE FUTURE MT: We’ll move the discussion on a bit. We have a futurist amongst us, so it does-

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Stream and MySuper n’t hurt to throw it to the future: I mean, what’s the superannuation industry going to look like, I guess, once Stronger Super and all the elements are in place? My suspicion is, from having been covering this industry for a long time, it’ll be pretty much how it looks now, but I’m just wondering, Tim, how you see superannuation and savings in Australia evolving over time?

Tim Longhurst

TL: Well I’ve been fortunate to have recently travelled with BNP Paribas on a roadshow, talking to the heads of, or executives from, the various super funds, and we’ve invited them to consider what’s going on around the world with the way people are managing their money and finances. The major theme of my presentation is that barriers are collapsing, and that can either be to the benefit of financial organisations like super funds, or to their detriment – certainly to the extent that they may actually themselves be a barrier to people understanding their finances, seeing where their money is being invested, you know, feeling a sense of agency about where this major investment in superannuation is actually being invested and why. So basically we put it to

the funds that on the one hand the barriers collapsing means that there’s huge opportunities: on the other hand, if you are one of the barriers, then this could be me telling you that you are about to collapse.

Specifically in terms of examples of what I pointed to, I’ll give you a really simple, quite a light example from the US. It’s a website called prosper.com, which is a website that acts like an eBay for finance. You can go online and get a credit, the website performs a very sophisticated credit check just like a bank would, you basically appeal to the community, to the web for money. You say, “I need $25,000 for a wedding”, prosper.com will say “well, you get an A+ credit rating and your interest rate is 9 per cent”, whereas for someone who is looking for some debt consolidation, you might be paying 30 per cent, or you know, 25 per cent because they are a high risk borrower. The point is that you can show up to the site as an investor and look at the various risk and returns being offered, and invest as little as $50 or as much as the entire amount being requested, and what we are seeing is that people are Continued on page 26

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In the swim with SuperStream and MySuper Continued from page 25

more likely to honour a prosper.com loan than they would a loan from the bank, because there’s a perception that it’s peer-to-peer lending, that ‘all of these people that I don’t know come together to make this loan possible and so therefore I’m more likely to pay it back.’

That’s the conclusion that prosper.com have arrived at, and I raise that example because I don’t think superannuation funds have felt any great degree of obligation to offer a genuine dialogue with their members about where their money is being invested and why. I think it’s interesting to reflect on the conversation that we just got to before your question, which was, should we be assessing superannuation on a 10-year time horizon? Well I think that that’s a really great question. I’m wondering to what degree the philosophy of superannuation funds in Australia is along the lines of “superannuation should be set and forget, leave it to us, it’s far too complex for you the punter to understand, so just kind of trust us”. To what degree [this is happening] I’m not sure, I haven’t done a cross-industry assessment, I can’t, but I’m getting a sense from the conversations that I’ve had that there’s a bit of that going on, and I’m wondering how long will that survive? Because when you have someone like Richard Branson coming in, who travels the world looking for industries where margins are fat, where the operators are complacent, where there’s not a SUPERREVIEW

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Andrew Bragg

lot of engagement with customers, and he decides that he’ll make the margins slightly less fat but still healthy, and start engaging with the customers in a way that they feel that they actually are part of the dialogue, I think that the finance landscape in Australia could change dramatically. That’s some headlines, but I’m conscious of the agenda for the whole conversation, so…

KS: Can I give a slightly different perception?

TL: Sure.

KS: I hear it from my own children. My 23-year-old daughter received a letter in the post and she opened it up, she had no idea what it was.

She asked me, it was actually superannuation. She didn’t even know she was in a superannuation fund. She didn’t know what to do with the money that was set up, or what her options were and she asked me for advice. Now you can talk about consolidation and all the rest of it, but when you

look at it from young people, most people who will have multiple superannuation schemes running came through probably part-time jobs. They end up within the tourism industry, or the hotel industry, and keep moving through until they finally get a job that they are comfortable with, which is nowadays in their late 20s, early 30s before you get some level of stability. In that time they could have had five or six different super schemes quite easily, across five or six different industries, and not one

of them would have any idea that they are there. Hence you have these huge build-ups of money that is unallocated, not being managed properly from an individual point of view, not necessarily from a superannuation point of view, no education around it from the early days, from the minute that they commence work, or even from the minute that they move from the last couple of years of secondary school into university.

So they are all left, everybody is left, lacking. I spoke to someone the other day about this, and even from a superannuation scheme point of view, how often do we engage with our members? Every six months we send them a statement, it might be every year we send them a statement, and if we actually want them to do something, we have to engage on a far more regular basis and prompt them, because people will do nothing unless they are prompted, but prompting them once or twice is never enough.

You probably have to prompt them on a monthly basis if you want something to happen, and eventually it will sink in. They will keep getting these emails, or these texts, or whatever it may be, and they’ll think, “I’d better do something about it, because until I do something about it I’m going to keep getting them…”

So from a young person’s view I think it is a big issue for the industry, that whole education and readying people from a very early age, because everybody as a general rule will commence some level of employment that generates superannuation terms of some sort from around about 18 years of age. SR

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AUI Recruits Investa staffers Events Calendar Super Review’s monthly diary of superannuation industry events around Australia and abroad.

NOVEMBER WESTERN AUSTRALIA 9 – Finsia Seminar: SMSFs – strategies for implementing Stronger Super Reforms. Venue: TBA.

QUEENSLAND 9 – ASFA National Conference: Making the big connection. Venue: Brisbane Convention & Exhibition Centre. South Bank, Brisbane.

Australian Unity Investments (AUI) has appointed three former Investa staffers to senior positions following a company restructure.

M

ark Lumby has been appointed to the newly-created role of head of office and industrial property funds at AUI. Previously Investa’s general manager for retail funds,

NATIONAL Australia Bank (NAB) has announced the appointment of Dr Ken Henry AC to the role of non-executive director effective from 1 November.

NAB chairman Michael Chaney said Henry’s experience in both domestic and international finance sector policy would be an asset to the board.

Henry was previously the former secretary to the Department of the Treasury and was awarded Companion in the Order of Australia (AC) for his services in

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

Colin Storrie

served as a board member and has previously held finance and accounting roles in investment banking and the NSW Government.

NEW SOUTH WALES 15 – Finsia Seminar: Alternative investments update. Speakers: Chris van Homrigh, senior executive leader, investment banks, ASIC; Justin Webb, risk group associate director, Access, Capital Advisers; Daniel Liptak, head of alternatives research, Zenith Investment Partners; Michael Hanna, executive director, infrastructure, industry funds management, SA Fin; Tim Nelson, head of economic policy and sustainability, AGL Energy. Venue: Establishment. 252 George Street, Sydney.

Lumby has over 18 years experience in funds management including work at Stockland and Trafalgar Corporate Group, where he helped to establish and manage Australia’s first geared

Dr Ken Henry

developing and implementing economic and taxation policy to the Australian finance sector.

AMP Limited has appointed Colin Storrie as chief financial officer (CFO).

Storrie will replace current CFO Paul Leaming, who will retire at the end of the year after almost 14 years of service.

Storrie first joined AMP earlier this year as deputy CFO and group treasurer. Prior to this role, he was CFO for Qantas where he

WILSON HTM has announced that managing director Steve Wilson has been replaced by the current head of private wealth management, Andrew Coppin. Wilson worked for the company for 27 years in a number of senior roles. Wilson HTM said the leadership change was part of a transition process for the 2012 financial year and beyond.

Company chairman Steven Skala said Coppin’s broad wealth management experience with international and Australian firms would help to grow the business as an independent advisory firm.

ZENITH Investment Partners has made a number of appointments following a major internal company restructure.

Assuming the investment analyst role, Jonathan Baird was previously responsible for producing

property security fund.

Grant Nichols will take on the property portfolio manager role for AUI’s property funds business.

Nichols earlier worked for the then-list AMP Office Trust, followed by almost eight years with Investa as asset manager and later fund manager.

Simon Beake has been recruited as a senior analyst at AUI. Beake was previously an accountant and analyst for Biwater Group and Cascal Services Limited before becoming an Investa fund analyst. SR

equity analysis, performance and attribution analysis, and liquidity management for Australian Unity.

Due to his extensive experience in retail investment, Aryeh Kraemer has been appointed data analyst. Before joining Zenith, Kraemer provided investment information and product advice as a superannuation consultant at ESSSuper.

Susan Hodges has been appointed client and sales administrator due to her 15 years experience in marketing, having previously held the role of supervisor and senior claims analyst.

Christopher Huang has also been appointed to the position of investment analyst as part of the newly-created Zenith Alternatives Research team.

BRAVURA Solutions has appointed Daryl Wright as product marketing manager, global wealth management.

Wright will report to Bravura head of product for global wealth management Darren Stevens and work with the product, sales and marketing teams to develop product marketing strategies for the global wealth management division, focusing on client needs and identifying market trends.

Wright previously worked for Deloitte as a senior manager, marketing and business development. He has also worked in both Australia and the United Kingdom in various financial services and software-related marketing, product and business development roles, including Legal & General and Reuters. SR NOVEMBER 2011 * SUPERREVIEW

ROLLOVER

THE OTHER SIDE OF SUPERANNUATION

Conference Crasher ROLLOVER notes that, as ever, November is financial services conference month – with the Association of Superannuation Funds of Australia conference kicking off in the “Sunshine State”, closely followed by the Financial Planning Association conference barely a week later.

He also notes the conferences held in the latter part of the year have become a barometer of the relative health of the industry and, indeed, of the organisations hosting the conferences.

On that basis, he notes the Association of Financial Advisers conference held at Royal Pines in late October was well attended, and the good souls at ASFA were expecting healthy attendance at their Gold Coast gig.

So the question is whether the FPA conference will be similarly well attended in mid-November.

Rollover knows all about jet lag, and he is wondering whether it is possible to suffer from conference lag. SR

Battle-brave ON the subject of last month’s AFA conference on the Gold Coast, Rollover notes Industry Super Network chief executive David Whiteley was scheduled to step into “enemy territory” by being part of one of the conference’s opening sessions.

Whiteley has been a willing participant in the robust debates around financial planning rules and regulations

throughout the year, and as a result, was likely to find himself short of friends at the AFA gig.

However, it is a measure of Whiteley’s willingness to join battle on issues about which he obviously feels passionate that Rollover understands he is also scheduled to participate in the Financial Planning Association’s gig a few weeks later. SR

Consultant Whippersnapper ROLLOVER supports George Bernard Shaw’s famous observation that “youth is wasted on the young”.

It was with this in mind, he observed the surprised looks on people’s faces when a certain “futurist” told the roundtable published in this month’s Super Review that he believed superannuation funds should think about having trustees as young as 18 years old.

These people were, he said, more in tune with the views of their conSUPERREVIEW

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temporaries and would help the super funds move further into the realm of social media.

One roundtable participant was heard to say that while these youngsters might know a thing or two about Facebook and Twitter, they were unlikely to know too much about corporate governance and fiduciary duty.

There was, however, common agreement that super funds would be well served by consulting the Gen Ys. SR

Suburban Timetable … the sequel IN these days of cloud computing and i-pad thingies, Rollover wishes to report the Super Review team is temporarily moving floors so its current lavish surroundings can be refurbished to provide even more extravagant surroundings.

It was during this process the magazine archives were checked for storing off-site, and it was realised the Super Review collection was not entirely in completion and no one knew how to rectify the problem.

Thankfully, Super Review has had one ardent and constant reader, and when Russell Mason made his way from Mercer to Deloitte the gap in the Super Review archive was made good.

While Rollover has always believed Super Review makes for compulsory reading, he is not at all sure there are too many other financial services operatives with a collection as complete as Mr Mason.

Questions have been asked about whether Mason also collects stamps or has an encyclopedic knowledge of Sydney suburban timetables, circa 1977. SR

Got a funny story? about people in the superannuation industry?

Send it to Super Review and you could be raising a glass or two.

Super Review is giving away a bottle of bubbly for the funniest story published in our next issue.

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