Super in an ageing Australia

Just weeks out from the Federal Treasurer, Joe Hockey, handing down his first Federal Budget, a Super Review roundtable discussed many of the key issues including lifting the pension age, and whether this merited altering the superannuation preservation age.

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Mike Taylor, Managing Editor, Super Review: Welcome ladies and gentlemen to the MetLife Super Review roundtable, which just happens to coincide with our Post Retirement Forum. I thought we’d raise one of the things that has been most on everybody’s minds over the last couple of weeks as we approach the Federal Budget, and that’s the pension and preservation ages and there’s been a lot of discussion, much of it provided by the Financial Services Council about lifting the preservation age for super as a consequence of there being, at some time, a lift in the age of access to the age pension. I’m going to start off with Michael Monaghan, do you see any real problems with lifting the age for accessing your superannuation?

Michael Monaghan, Managing Director, State Super Financial Services Australia: Look, I think it’s a difficult topic for people to contemplate, but in reality I think it’s something that has to happen over time.

Younger people now who are going to be living for a much longer time will need to spend more time working in order to generate the funds to survive over time, given that a significant number of people still would be relying on the age pension. Even many years into the future it says that we need to lift the age pension age. It doesn’t make sense not to lift the preservation age in synch with the age pension age, otherwise you run the risk that people with smaller balances will just consume them and then go onto the age pension.

In twenty years time that should be less of a problem, much less of a problem because most people will have been in super all of their lives, but it still doesn’t make sense to have too big a disparity between the preservation age and the age pension age.

Susan Thorp, Professor of Finance and Superannuation, UTS: The points that Michael raises are important. We are talking about a bit of a cultural change though here, because the average age for retirement at present is about 62 and increasing the preservation age up above 60, which it is currently heading towards, would possibly put groups of people in a difficult situation where they may not have access to the support that they need, not least because nearly half the people that we see retiring around the early 60s are doing so involuntarily.

So if we are in a situation where we can voluntarily retire, then increasing the preservation age benefits you both, because it shortens your retirement and also because it allows you to accumulate more, but for those who are facing binding constraints in the labour market, some other alternatives need to be available.

Gerard Noonan, Chairman, Media Super: Okay, so Bismarck set the age pension at 60 when everybody lived to 58. He made an actuarial decision to ensure that he didn’t have to pay it very often. He made the one mistake that of course all actuaries indicate to you an age, but of course only half of a cohort make it to that age, the other half of the cohort continue on, so not everybody does that.

Then you had in the early Australian circumstance you had it going to 60, 65, the period of the early federation, and then you had Rudd/Gillard basically push it to 67, but tailored in general terms. That’s smart, it seems politically smart. It was quite bold to do it at the time. There’s a bit of a rush to 70 at the moment, but notionally you can understand where people are coming from and wanting to go there, but they tend to be econocrats that are doing that. I think that what we are not thinking enough about is getting it right.

Gerard Noonan, Chairman, Media Super: Susan, as you rightly point out, there’s not a single person who is likely to be at this stage of their health at age 65, there are a whole range of people.

The other end of that is quite important, which is why are we trying to do this? And the answer is, well we keep on thinking the medical system and our general standard of living means that we are going to go from having an average death age of 84 to 90, and then people are starting to talk about 100. Is that actually realistic?

I think there’s a lot of weird thinking around that end of it. We heard in the conference today two different versions of what happens when you are 90. One of which is you keep on spending at the same rate that you used to, so therefore you are going to need X dollars, and another group, which is probably the more likely one, says that you don’t spend that money at aged 90 you start to slow down. So there’s a whole range of things that go into this that make it a bit more complicated than just simply saying, “let’s go to 70 for everybody.”

Karen Volpato, Senior Policy Adviser (consultant), AIST : I think it needs to be looked at in the context of “what are we trying to achieve by lifting the preservation age?” And as Gerard just alluded to, part of the answer to that is managing longevity risk.

The other part of that might be to encourage people to stay at work longer, and therefore bring about a more productive country as well. But I think any solutions to managing longevity risk should be put in the context of, “is this the best thing we can do to manage longevity risk?” Let’s look at it holistically and even if it does come out that lifting the preservation age is one of the solutions, then as Susan said we need to take into account that there are people who are not going to be able to reach that preservation age.

I mentioned earlier today the Australian set of financial studies research that Australian Institute of Superannuation Trustees (AIST) commissioned, which shows that of those who retire early about 40 per cent of them retire involuntarily. So their whole retirement plans were upset and if lifting the preservation age is one of the policy outcomes that we use, then those groups of people need to be protected.

Michael Christophedes, Head of Products, ING DIRECT Australia: Yeah, I mean I agree with pretty much everything that’s already been said. I think some of the considerations and problems that have been mentioned need to be considered in terms of what ultimately passes through law, but overall, and I think in general for the majority of people, working that little bit longer should in theory mean that they end up with more in their accumulation and should mean that they would have more money for longer. So the simple theory behind it makes sense for the majority of people.

Damien Green, Chief Executive, Metlife Australia: I agree with Michael. I think, on the face of it it’s a simple proposition and that is if you shorten retirement liabilities and you increase savings against those liabilities by adjusting pensionable age and preservation age, then you do more than match the liabilities with savings, which is the problem our country has.

On the face of it, it makes sense and I probably don’t have too much more to add to that. The only other thing is we’ve talked about events that cause members who are accumulating to cease to have the ability to accumulate. One of those events, to bring it back to the things that I’m most interested in, one set of events that we really need to think about increasingly are life events such as death or disability that stop accumulation happening in an unplanned way, and often well before retirement age.

One of the things that I’ll put forward that the industry really needs to consider is sort of Back to the Future in some respects, in the early days as Gerry and the others would attest, group insurance benefits were often based around expected future retirement savings and replacing them in the event that accumulation ceased due to disability or death. That seems to have changed a lot with a lot of the heroic product development of the last five to eight years, and I wonder whether we need to get back to that simple proposition when it comes to the value of insurance within superannuation, that we need to think about replacing expected retirement savings over the life-time of the member via those insured benefits. In doing that, ensure that the costs of those benefits are well and truly in check and covering some sort of minimum safety net rather than something more than that, which has led to value issues.

Mike Taylor, Managing Editor, Super Review : Michael Monaghan that was, in fact, something that was discussed down on the conference floor a little earlier, what’s your view on that, on the insurance element?

Michael Monaghan, Managing Director, State Super Financial Services Australia: Look, I think it could be part of a range of tools that are used in the solution. Insurance always costs money and so there’s a cost to applying it in that way. I think the message that comes out of everybody’s comments is that there’s probably no single answer here, and a blunt tool like just shifting the age might not work for everybody.

But it’s also the fact, and I’m one of those dreaded actuaries Gerard, that the reality is that life expectancy is increasing and there’s no real reason to suspect that that will change in a country like Australia. It might not go all the way to 100, that might take a hell of a long time to get there, but it will still gradually creep up as medical advances go on. Whether or not people want to live when they are 105 or 110 is a different issue, but the reality is that they’ll probably be able to. So I think the life expectancy thing is a problem, and what we know from just simple calculations is that people can accumulate a lot more assets in the last few years of their working life, because they’ve got rid of most of their other liabilities at that point in time, and therefore the benefit of working until 67 or 70, or whatever, is actually quite significant in terms of funding their future retirement.

How you deal with that part of the population, I don’t know how big it is Susan, who can’t work beyond a certain age, blue collar workers and so forth, is a more difficult question. Equally, that’s becoming a significant smaller proportion of the population as the whole blue collar work is sort of being gradually eliminated from society by machines, so maybe that’s the next 20 year problem and it disappears after that, I’m not sure.

Should the Government mandate an adequacy index?

Mike Taylor, Managing Editor, Super Review : One of the big points that came up during the recent conference of major super funds and in fact in one of the surveys that we conducted there in association with MetLife, was how important it was to communicate to super fund members, the whole issue of whether they’ve got adequacy in terms of their super balances and what needs to happen as a result of that. I’m wondering whether there’s merit in having an adequacy index, or an adequacy measure that’s mandated by government, so that people actually know how much they have and whether it’s going to be enough. Then again, I suppose it’s a question of how much is enough. So Karen, seeing as you raised it a little earlier, I’m going to throw that one to you.

Karen Volpato, Senior Policy Adviser (consultant), AIST : Well, I just think, given we’ve got a compulsory superannuation system, the fact that we’ve now matured to the point where we actually don’t have a commonly agreed definition of what’s adequate as a baseline, is pretty astonishing and members really need to know the answer to that question.

Yes, there are complications and there are different ways of looking at it, and there are actuarial calculations about longevity and how much you’ve got, and do you have work breaks and so on but, all that apart, we really do need something to define it, because as I said earlier today there are 11.5 million working Australians. There are about 18,000 financial planners, so they are not all going to go to a planner and on top of that, even if we do do a lot more work on automating financial planning advice, because we have a compulsory super system, it’s very hard to get the member to engage in the way that we would love them to, go and use the online financial planning tool.

Therefore, we do need a really simplistic definition of what’s enough and it’s agreed and we use it in our policy debate as well.

Susan Thorp, Professor of Finance and Superannuation, UTS: I completely agree. I think that we need to shift away from a lump sum funds management framing of the retirement incomes problem towards an income stream framing retirement incomes problem, and there’s lots of research that supports the idea that people are not at all good at translating lump sums into income streams. This has been demonstrated many times over, and yet we continue to communicate with ordinary people in terms of one sum wealth.

I think we do need to agree on a standard that involves projections and that involves translation from accumulations into income streams, because none of us is able to do that in our heads, except perhaps the actuary sitting at the table.

Michael Christophedes, Head of Products, ING DIRECT Australia: Yeah, I agree. I mean I think simplicity is so important given the majority of people who are not engaged.

I also think humans are naturally competitive beasts and if you can’t necessarily agree on what the definition of adequacy looks like, you can create some peer group comparisons, such that a male who is 40 years old and lives in a particular post code, compared against other 40 year old males living in the same post code, if you have a look and see what their average balances are, that gives you a very intuitive kind of feel as to whether or not you are actually lagging behind others, or whether you are ahead. That generally will get people to start to take some action, so I think it needs to be something that’s quite simple and quite intuitive.

Gerard Noonan, Chairman, Media Super: Well we have a couple of measures. I mean we’ve had an adequacy index that’s been in the pension for a long time, that’s calculated at - it’s in reality pretty much as a base thing.

I’m reminded a bit about the complexities of doing this, the debate that’s currently running about maternity leave. So you’ve got your two views, one which says “that’s terrific, a great thing, the Government’s introduced maternity leave and it should be set at up to $75,000 for a half a year”, i.e., implies the replacement income, for someone that’s having a baby, of $150,000, and others says, “that’s way over the top.” So that becomes the difficulty in saying “there’s a person out there and this is what they should be entitled to.” We do do that in the pension space, we actually calculate it to the nearest couple of dollars for a couple, or for a single, so we’ve got kind of a base line out of that to make a bit of a judgement about.

We are talking about something a bit different to that. The bit about, “what’s going to be adequate for you and how long in your retirement and how much you are going to need to be able to sustain that through your working life?” In other words, it’s pretty rough old science, and a government 25 years ago put a punt on it and said, “it should be about 15 per cent of everybody’s salaries.” Now we are holding it at 10 per cent of everybody’s salaries, so these are pretty rough and rude measures. We’ve had a go at it, but it’s a pretty rough science.

Michael Monaghan, Managing Director, State Super Financial Services Australia: But having said that, there’s three pillars to the super system, one of which is voluntary contributions, and I think that could apply in addition to the 12 or whatever we are heading for, but coming back to Susan’s point, we run a financial planning business, mainly public sector employees, the first question they always ask when they come in for an interview with a financial planner is, “have I got enough to live on?” It’s about income, it’s not about lump sum, they are not interested in the lump sum.

One of the problems with having a standard measure is that people will relate their need to their current income, super funds typically don’t have their current income, so we’ll have to figure out a way around that issue to come up with something. Something like the Association of Superannuation Funds of Australia (ASFA) comfortable living thing doesn’t mean anything to the vast majority of people individually. I’m supporting the idea of having something, I think it would be a great idea, but it would be useful to have it relative to their current income.

Damien Green, Chief Executive, Metlife Australia: I think the discord that I see in the system, I agree with all of these remarks, the discord we’ve got is related to an inherently paternalistic framework - that is the public policy genesis of the framework we have.

This discussion we are having is through the lens of individual responsibility, and that creates this massive ravine in terms of thinking. So advice is one answer, but we know that only a small number of people are ever going to seek advice, getting advice to people as you scale it down becomes less effective and more troublesome, that’s the problem I see.

The logical conclusion is, if it’s inherently a paternalistic system, let’s get back to the superannuation guarantee, you know, in terms of adequacy. This is the problem I see, it’s a great system, it’s world-class, it’s paternalistic and we are talking about individual responsibilities, it doesn’t add up.

Karen Volpato, Senior Policy Adviser (consultant), AIST : But there are two parts to that. I mean because it is a paternalistic, compulsory system you can have one single definition of what adequate is for the mass of Australian workers, and then you have personalised tools such as advice, calculators, targeted communications to help members understand what it means for them in particular, but to say, “$100,000 buys you X”, is a huge step forward I think for members to understand what income they are actually going to have.

At that member level it’s retirement projections, it’s even things like the smaller policy leaders, like bringing back the maximums of allocated pensions. It was so easy to say to a member in a very simplistic way, “here’s your lump sum, here’s the minimum. If you draw down only the minimum it will last” one more factor that you used, eight whatever years. “If you draw down the maximum it will last”, whatever the maximum factor is for your age, four whatever years without any capital, or interest basically. So there are all sorts of things we can look at, at the member level, but nationally we need that agreed.

Damien Green, Chief Executive, Metlife Australia: For me it’s agreed in theory, it’s having people act. That is the issue.

So we can have an agreed definition of adequacy, so what? If people don’t act then we’ve got a paternalistic system which we - I’ve worked in industry super for a long time myself, we struggle to get people to act, that’s the issue.

We’ve recently done a bit of research which I won’t go into about life insurance and failure to act. It talks about cognitive dissonance and I think, possibly, that applies here - that is knowing but not doing and where we need people to act is in their 30s, that’s when they need to start to act. In their 20s, [they] are the least interested, least connected with what life in your 70s looks like. Dare I say, don’t care, right?

And we’ve got a paternalistic system that’s kind of implying everything’s okay, even though we know it’s not. So there’s one perspective for professionals in this relatively small inward-looking industry that we tend to have, and the conversations we have with one another, and then I think it’s everybody else, right?

Gerard Noonan, Chairman, Media Super: But Damien, it’s paternalistic, you made a neat distinction between paternalistic with a kind of choice overlay, and then you need to take into account the disengagement factor where people, you know, which is a version of paternalistic, i.e., “you don’t have to worry about it”, because father knows best and father is going to do the...”

Damien Green, Chief Executive, Metlife Australia: Right, right.

Gerard Noonan, Chairman, Media Super: With the choice regime there’s a lot of points for choice. For instance, you made reference to one of them. In the fund that I’m involved with, we’ve got three forms of insurance - death, disability and income protection. Income protection insurance is opt in, opt out, as is death and TPD and we’ve got a tiny proportion of our membership who are involved in either income protection insurance and actually, oddly enough, a still pretty small proportion who are involved in death and TPD insurance.

But it’s different, those two figures are there, so we’ve given them the choice and yet we’ve said to them, “don’t worry about this”, it’s paternalistic, “and you don’t really need to get involved in it.” So there’s a dysfunction there and it plays out in the real world of super funds where I sit on the claims review committee and there’s claim after claim after claim of people who have died who were under age 65 and who are receiving nothing from insurance because they opted out 15 years ago, so no insurance there.

Now they have the benefit of not having the premiums taken out of their accounts, but their beneficiaries are not getting the benefit from the insurance. So it’s kind of an odd amalgam that we’ve allowed that paternalism of choice.

Do fund members understand their insurance?

Mike Taylor, Managing Editor, Super Review : Which brings me to the third question here, which again, arises out of the survey which we conducted at CMSF, we conducted a similar one at the ASFA conference and before that, and in that survey we asked fund trustees or executives what proportion of their members actually understand the insurance that they are getting via superannuation.

Consistently, the responses from the trustees and the executives is that it’s probably less than 20 per cent of their members who actually understand the insurance that they are obtaining because of their super fund. Would that be the experience of the people at this roundtable, and if that’s so, how do we change that? I’m going to start with Damien because he’s in the insurance business.

Damien Green, Chief Executive, Metlife Australia: I guess in many ways it’s the view of the people of this table that would count more here, but I would suggest by way of validating what you were saying, Mike, that there has been a chronic lack of understanding of insurance benefits with superannuation.

I think that’s lead to a very dangerous situation which we’ve experienced recently with volatility in claims. It’s certainly not our contention that we should just keep driving benefits and premiums up, what we bring is ultimately, I think, a globally world-class system to bring, however we define it, a minimum level of protection, financial protection to a mass of people that is not really delivered anywhere else in the world with this sort of efficiency, notwithstanding recent volatility.

The recent uplift in total and permanent disability experienced is an example, and very painful example, of the lack of awareness. What’s really driving it? The economy is partly at play there, but what’s really driving it is an uplift in awareness for a range of factors, which I’m not even going to go into right now, and I’m sure you are all aware of that. In many ways that’s a great thing, we want people to fully utilise the benefits that they legitimately have, but what it suggests is the trustees have miscalculated historically the awareness and the level of actual utilisation of the benefits people are paying for. Now the true price is coming out potentially, give or take, as it settles down in the next couple of years, which I think calls for an immediate rethink around the value of the insurance premium versus the fundamental need to grow retirement savings, and the erosion that that causes.

So I think that awareness is lack of awareness and our lack of understanding of that lack of awareness historically is dangerous, we need to get around that now and think about the product and communication. I’d prefer now that the level of awareness stays high, I think we all would, so that we’d at least know what the products cost going forward and we can manage them.

Karen Volpato, Senior Policy Adviser (consultant), AIST : From my experience within funds and having researched members on this topic, I think there’s a difference between awareness and with the product.

So members might actually be aware of the product, but do they actually value it as highly as other components of the fund? So things like returns, fees, website contact centre, if you ask members to rank the critical part of the fund, I think as a very general statement, members would probably come back and say those things first.

My next point is, picking up on Damien’s point that the ambulance-chasing advertisements, if I can call them that, by some law firms has probably, I’ve heard from insurance brokers and group insurance firms, driven a further awareness of the product as well. So that probably says to us, have funds done enough to raise awareness, even though members have that general awareness, but do they value it?

I suppose just as a concluding comment based on my own experience within funds over quite a few different funds, the actual number of members who get a successful claim year in, year out is not actually huge. We are not talking millions, we are not talking hundreds of thousands, we are talking in terms of thousands, so I suppose that’s just a concluding comment from my perspective.

I’ve managed insurance both in terms of product in a group life insured set of funds, and I’ve also managed self-insured claims as well, and in fact I’ve spoken at one of the conferences about my management of the Port Arthur claims. Whilst I’ve just said the actual numbers might not be massive, when you get hit with the reality of a member making a claim, particularly in a very vexed situation like the Port Arthur massacre where there were public sector employees, no matter how many people have actually gained a claim year in, year out, it just brings home the true need for such a product.

Damien Green, Chief Executive, Metlife Australia: One point you made there, I’m not too sure you did intentionally, and that is the value, the overall aggregate value of claims paid.

MetLife last year, we are the fourth largest group insurer, it follows, there’s three bigger than us, we paid a quarter of a billion of dollars of claims last year through group insurance alone. So I don’t know what the total claims paid in the market is, but it is a massive sum, and in general terms, having been in this industry for ten years, insurers find ways to pay claims, right?

I think notwithstanding some issues here and there, it’s efficient and the level of protection that’s been paid back each year is immense, it’s immense. I know you are aware of it, but I just want to really underscore that point.

Karen Volpato, Senior Policy Adviser (consultant), AIST : Yes, no I was talking more about the actual number of members rather than the dollar quantum.

Gerard Noonan, Chairman, Media Super: Just to help us there, Damien, what was that figure again?

Damien Green, Chief Executive, Metlife Australia: A quarter of a billion.

Gerard Noonan, Chairman, Media Super: A quarter of a billion, so of that, how was that split between those three sort of streams? The TPD, death and income protection roughly? Would it overwhelmingly be death payments?

Damien Green, Chief Executive, Metlife Australia: I’m not sure.

Gerard Noonan, Chairman, Media Super: Not sure?

Damien Green, Chief Executive, Metlife Australia: I couldn’t give you an answer.

Michael Monaghan, Managing Director, State Super Financial Services Australia: What was the premium number Damien?

Damien Green, Chief Executive, Metlife Australia: The premium number is around I guess $400 to $450 million, but as you would know as an actuary, you also keep reserving and all sorts of things, so it’s not a straight income actually is it?

Michael Monaghan, Managing Director, State Super Financial Services Australia: No, but I mean the premium number ultimately is real, partially because over time you expect that the premiums will adjust to the level of claims that are coming out, so I think it’s actually a good indicator...”

Damien Green, Chief Executive, Metlife Australia: But my general point is, between us, and these are your products that group insurers underwrite, between us we are delivering what is, has been and will continue to be immense value in terms of covering off, or ameliorating a big cost to the community.

Doing it efficiently is critical, but doing it in line with proper trustee strategy around getting the balance right between the true cost of product and an accumulation of savings is also vital. I think any sophisticated group insurer wants that balance to be in place as well, even if it means limiting benefits and reducing premiums, because it needs to be sustainable.

Karen Volpato, Senior Policy Adviser (consultant), AIST : Yes, that’s absolutely true that if that wasn’t covering it, it would seep up in some other area of the community costs.

Damien Green, Chief Executive, Metlife Australia: It’s a genuine cost to the community, yes.

Susan Thorp, Professor of Finance and Superannuation, UTS: I’d like to make some comments about awareness related to insurance, and this applies to many aspects of the superannuation relationship between funds and members, and that is that for most people this is not mediated by the fund, it’s mediated by the HR department of the employer.

So one of the critical problems that we have with awareness of things like insurance policies, is that the time that people confront these decisions is when they are joining a new employer. They are looking at a default fund and there’s often very poor communication from the people in the human resources departments who are communicating these sorts of bits of information to fund members, that’s a problem that really needs addressing particularly in areas like default insurance policies.

I think one of the problems that we have is not that people don’t have enough insurance, it’s to some extent, the wrong people have insurance. So particularly in the university sector where we employ large numbers of casual staff, many of them are not even aware that they have superannuation accounts, let alone superannuation accounts with default insurance premiums. It’s very typical for casual tutors to discover that they suddenly have a zero balance, because a life insurance policy that they don’t really need at their stage of life is being paid from them. There are several layers of communications problems associated with insurance in this area and dealing with who is communicating with members at the employer level is something that nobody seems to be talking about.

Michael Monaghan, Managing Director, State Super Financial Services Australia: I think this is a huge issue and I know when my eldest daughter was in four funds, four industry funds and she had, I think, two million dollars worth of life and TPD...

Damien Green, Chief Executive, Metlife Australia: In aggregate?

Michael Monaghan, Managing Director, State Super Financial Services Australia: In aggregate, and she had more than 100 per cent of salary benefit for salary continuance in a couple of the funds, added together. Now, none of them are going to pay out, right? So she’s just actually wasting some of those premiums. Like you are only going to get one TPD pay out, you are only going to get one salary continuance pay out if something happens, so that money is just being absolutely wasted.

Fortunately I managed to convince her to go into one fund eventually, but I reckon there would be hundreds and hundreds of thousands of people like that. This issue of dealing with people to help them make decisions about complexity that Damien originally raised is really, really important. It’s a huge issue. We’ve eliminated employers from super, back in the day when it was just DB schemes and a small number of people in them there was actually quite good communication with members about what their benefits were and things like insurance were actually paid for effectively by the employer, so it wasn’t an issue then.

Our system hasn’t really evolved to deal with it. There’s enormous inefficiency and wastage in the system as a result of that. Likewise with poor decisions about investment choices and so on.

Damien Green, Chief Executive, Metlife Australia: What a great point, I think, and which is analogous to, or possibly a point that could be made equally around contributions, and that is to create this world-class, efficient, somewhat paternalistic system, we’ve disengaged the employer largely.

There’s a price to be paid for that and you can see it on the insurance side. I’ll give you an example, and I think you can possibly see it on the contribution side as well. Now, is that actually a case of changing the system? Possibly not because of the scale and efficiency that it brings, but definitely when we think about our communications challenges we’ve got to think about the employer.

As a great example of that, you know, part of our business here in Australia is group insurance partnering with industry superannuation funds, but we do have a relatively small but long-standing book of stand-alone group insurance with individual companies, big American companies that we have a long-standing relationship with, things like that. The claims experience with those companies has been far less volatile. Why? Because the level of utilisation has always been high, awareness has always been high because HR is actively involved, explaining the benefits, part of the employee program etc. Now again, I’m not advocating for a change, but I think as we think about communications challenges with funds like Gerard’s and others, we should just bear the role the employer can play in mind around awareness, utilisation and contributions, insurance and other things.

Karen Volpato, Senior Policy Adviser (consultant), AIST : Where you’ve got funds that have got blocs of employees and large employers it’s probably a lot easier, but looking at the SuperRatings data, on average, there’s only two members per employer, so very big funds, we are looking at very diverse groups.

Gerard Noonan, Chairman, Media Super: Although isn’t that one of the reasons why you would fight pretty hard to maintain a governance system across the industry funds where you do deliberately have exactly that cohort of people, employers, represented at the governance end? You know, you’ve got representatives of employers and employees.

Employers are an important part of any attempt to aim at diminishing union involvement, and the new Commonwealth Government is clearly going to end up having to pull apart a system that does have employer representation at the highest level for these funds.

Michael Christophedes, Head of Products, ING DIRECT Australia: Fair comment. I think some of the challenges, some of this stuff is HR departments are not well-trained to have a conversation with an employee about their super or about their insurance.

Quite often these policies are complex, with a whole lot of different issues etc., but further, they are not allowed to have those conversations because they don’t want to get into trouble about providing advice, so they give them the form and say, “here you go, read this.” Of course nobody does, and then people find it all too much and tick a box.

So the industry and the regulations created this paternalistic sort of situation and it has perpetuated people being disengaged because they’ve been trained to tick a box. The fund that I work with doesn’t have opt out insurance it has opt in insurance, which actually forces, at account opening, the customer to answer questions around how much insurance they need and quite often they don’t know, right? They don’t know how much they have, they don’t know how much it costs, but the good thing is they start to ask those questions, which is exactly the right sort of questions.

As funds what I think we need to do is make sure that we give people the tools that enable them to answer those questions right there and then, such that they can make an informed decision. It’s not easy, but it needs to be simple and it needs to be done in a way where the masses can comprehend it and consume it.

Damien Green, Chief Executive, Metlife Australia: A very good point. It may well be its too late and this is the path that we are on, because I think whatever competency the employer/HR departments had 20 or 30 years ago around employee benefits has long since been lost in this market. Is there actually a case for bringing that back?

What we do know is employers want to engage to get better and more engaged outcomes from people. I just think that’s a thought we need to keep in the back of our minds.

A good example, MetLife in the US is the largest provider of group insurance by far in the US, so has deep relationships. The fastest growing part of our business in the group life space in voluntary through workplaces, partnering with employers. So much so that MetLife has turned its strategic focus less to the core employee benefits programs, which we call default programs, and more to voluntary partnering, putting people in the workplace, direct marketing, direct mailing, onsite education.

Now granted it’s a completely different system, but there is a fundamental philosophy there and that is, with the employers’ general book-ending support, given the relevance of the employer to someone in their life and in their working life, you get much better outcomes and much higher engagement. I’m not suggesting we change the system, it’s too late for us and we’ve got a really efficient, scaled system, but it is a fact that we should keep in the back of our minds, the role of employers. Gerard’s comments are quite relevant to that, but I think there’s probably some other things as well.