Time to end superannuation's civil war

With millions of dollars having been expended on advertising comparing industry super funds with retail master trusts, there is a growing feeling that it is time for the superannuation industry to put aside internal conflict to concentrate on the big picture. A Super Review roundtable examined the fallout of this conflict.

Present:

• Mike Taylor — managing editor, Super Review;
• Phil Collins — chief executive, IUS Life;
• Russell Mason — global partner, Mercer;
• John Quessy — trustee, NGS Super;
• Roslyn Ramwell — chief executive, (CSR) Harwood Superannuation Fund; and
• Pauline Vamos — chief executive, ASFA.

Mike Taylor, Super Review: One of the things the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, said kicking off his address was that there should be a reduction in one type of fund trying to gazump another type of fund, which I interpreted to mean industry funds with their ‘compare the pair’.

He said the industry should be focused on its future, rather than on one-upmanship. Given that we have industry funds, corporate funds and the organisations here, is it time to put the old industry funds versus retail master trusts war to bed?

Pauline Vamos, ASFA: Can I make a comment on that first? There’s no such thing as ‘compare the pair’, even within the industry fund sector the value propositions are so different. ... We’ve got to move away from that. ...

We’ve really got to look at how we actually compare apples with apples and oranges with oranges, because there are differences, there are different value propositions.

Superannuation fund members should be able to access a cheap, no frills type of fund if that’s what they want. If they want something more, want something more sophisticated, different ... they should [be able to] do that as well, but there’s no mandatory structure across the industry.

When I look behind each of the structures, even within industry funds the structures are very different. And I just think that whole campaign had a definite goal, and to be honest, you’ve got to say they achieved that goal, fantastic achievement. ...

But let’s not forget, we’ve still got to deliver advice and we’ve still got to deliver a variety of services.

John Quessy, NGS Super: The issue of finding a mechanism by which you can make a legitimate comparison is certainly important, but unfortunately possibly impossible, because it is near impossible to find mechanisms of comparison, other than for the generalist ones, and when you get to that you probably are getting to a fairly meaningless thing.

To answer your question, I think it’s certainly approaching a time when the war, if that’s what it is, is winding down, is over or whatever. But it will be a difficult thing in the heads of some people to give it up, because it’s really the only platform they’ve got.

Phil Collins, IUS Life: I’m 100 per cent behind what was said. I think it was an incredible approach to our industry. ... I’ve never liked the idea of two parts of our industry aggressively fighting one another — I think that’s ridiculous. There is ample choice and opportunity out there for people to look at different styles of funds.

If we needed to improve that, that’s where the money should have been spent. There are people who are quite comfortable with paying commissions or whatever to get good advice. If it’s not good advice they’re getting, that’s an issue they’ve got to face themselves.

The issue should be around the clear and open nature of the fees and charges being charged, whether it’s your fund or whether it’s an adviser or whatever. There are people, including yours truly, who happily employ a financial adviser that I pay some commission to.

I’m more than happy with that. Did I want to pay a $5,000 lump sum or whatever it is? No, I’m quite happy for him to get a commission. I think that’s good and I’m very happy with the advice I get.

That’s not a model that is going to suit everyone, we have other sorts of funds where they can take advantage of whatever is available there.

And I think it’s probably just as morally corrupt or wrong to be spending members’ money on multi-million dollar television campaigns as it is to pay the commissions that apparently are offending so many people. I think it’s time to go.

Russell Mason, Mercer: I think we as an industry have been at times a little arrogant and said members don’t really know what’s best, they can’t make a decision.

Roslyn Ramwell, Harwood Superannuation Fund: I agree.

Russell Mason, Mercer: I think they can make a decision. I think the education campaign was great to help them make decisions.

I think financial literacy campaigns are great [for helping] them make decisions, but let’s acknowledge that a lot of people can make decisions — and good decisions.

Just as some people like Fords, some like Holdens and then some of us may say there is no difference and why do you choose one over the other, people do, and neither is a wrong or a bad decision.

Let’s accept that some will go with the industry funds and some will go with retail funds, and as long as the information in front of them is fully disclosed, my view is we’ve got to at some stage accept that the consumer knows what they’re doing and let them make a decision.

Roslyn Ramwell, Harwood Superannuation Fund: I think they should be able to compare fees, but I don’t believe people make their decisions based just on fees - never have, never will - for exactly the same reason why you choose to get a Holden or a Ford: it’s a trust relationship.

I think people forget that. You’re putting your money away for 50 years, it really is a trust decision, and I don’t believe that is the case with just corporate funds, as many have this trust relationship with their industry fund. Why do people go to retail funds?

Because they actually say, ‘I know that it is still going to be around in the future because it’s got big shareholder support behind it’.

Lots of reasons, lots of decisions, and I believe it’s a trust assessment, not simply a fee comparison issue for many.

Pauline Vamos, ASFA: I agree with everything that is being said. I think what is missing here is this: we need comparability to ensure we are accountable.

Now our fund members won’t necessarily hold us accountable but our regulators will, and my concern with the way we’re compared at the moment is that individual accountability and collective accountability are not able to be done properly.

We’ve been doing a bit of work with Ernst & Young on an efficiency index that measures a bit like the balance score card ...

But you cannot compare a corporate fund with one employer [to] the governance of an industry fund that has 5,000 employers to a retail fund that has 3,000 products. So what we’ve got to do is look at what the measures are that will hold us accountable?

The way we spend our money, the efficiency of where we spend our money, governance, the way we account for our returns, the way we manage our outsource providers and the way we manage our conflicts, that’s what we should be measured against, and we’re not.

Roslyn Ramwell, Harwood Superannuation Fund: But isn’t the real outcome what people receive after tax to their account? This is where I get absolutely frustrated, the focus seems only to be on fees and not the final outcome.

Pauline Vamos, ASFA: Absolutely, but do they get value for money?

John Quessy, NGS Super: As long as that comparison is also [made between similar products].

John Quessy, NGS Super: I got a really ordinary return of 3 per cent and you got 17 per cent, [but] you were in a very high growth portfolio and I was in cash.

Roslyn Ramwell, Harwood Superannuation Fund: I agree with that, absolutely.

John Quessy, NGS Super: And I’m not sure the industry does the consumer any favours by having the variety of options and products that they do.

And one of the issues that’s been raised during this conference is the whole concept of whether there ought to be standardised names.

Do you have ‘balanced’? What does that mean? Do you have ‘diversified’? What does that mean? What is a ‘conservative fund’? What is ‘high growth’?

Maybe the industry should look at a set of names that are generic, and even if you still call yours the ‘blue fund’ or the ‘blue pool’ or whatever you want to call it, you then have the bracketed part that describes the generic things …

It won’t change people’s thinking next week, but in 15 years’ time if you find something and stick to it, it will become part of the language and people will have an idea [of] the sort of risk profile you’re talking about.

Russell Mason, Mercer: An alternative would be a risk scale, and I fear [it’s only a matter of time before it is introduced].

John Quessy, NGS Super: [I’m] not unhappy with that.

Russell Mason, Mercer: Prescribed by the regulators. Call it what you like, you have in the scale one for a low-risk fund or low volatility fund up to 10 ...

At least I’ll know I’m in an ‘eight’ for volatility or whatever position on the scale I select. My fear is getting the industry to agree to that volatility scale, which seems almost impossible.

Pauline Vamos, ASFA: I think we’re just about there now.

Russell Mason, Mercer: Well that would be great, because otherwise the regulators will impose it on us.

Pauline Vamos, ASFA: I think for the first time the industry is starting to agree ... The next step is how we assess assets and how they behave in those portfolios, and that’s where standards will start to evolve.

John Quessy, NGS Super: It’s got to evolve.

Pauline Vamos, ASFA: And it will evolve.

But I agree with you, let’s start [with] risk; let’s get measured; let’s get tested.

Let’s get our regulators to then test whether or not we are true to label, because I think that’s the issue, we’re not true to label.

We were found wanting on that and we have been found wanting on that during the global financial crisis; what we said was cash was not cash and it would never have been cash.

Russell Mason, Mercer: Yep. I know about that.

Pauline Vamos, ASFA: That is what we’ve got to do and it is within our means to do it. While we’re waiting for the Cooper Review or the regulators, we’ve got to just nail this stuff ...

John Quessy, NGS Super: I see this as very much part of education.

If you go wine tasting in Canada - there’s not a lot of wine there and it’s mostly down on the Niagara Peninsula, but every wine has a rating of zero to four, and it measures the residual sugar level.

So what you know is that if you’re a Canadian, if you drink wine in Canada, you know that you like ‘twos’ but you don’t like ‘fours’ [because] they’re too sweet.

So when you go there they will ask you what sweetness level you normally like or what level you like, so that’s where you start your tasting, you start at the appropriate level.

That gives you an introduction and you don’t have to know a lot about wine. [In regards to a super risk scale,] I’d like to have a risk level of ‘three’ at this time in my time in life, whatever that might be.

This will become part of the language in the long term. And I think over time people will do it.

Phil Collins, IUS Life: I certainly hope we achieve that and I hope that it also flows through to insurance, because we’re in just the same mess. No one has the faintest idea what they are and we keep telling them it’s very important.

John Quessy, NGS Super: Well I’ll give you a beautiful example.

In our fund we have a lot of members who are in both the Non Government Schools Superannuation Fund (NGS) and the Catholic Superannuation and Retirement Fund (CSRF), and they don’t know that they have two lots of income protection insurance, because with NGS they’ve got income protection insurance and with CSRF they’ve got salary continuance.

And I talk to them, my day job is talking to these people, and they do not know that they’re the same thing.

Pauline Vamos, ASFA: Wouldn’t they cancel each other out?

John Quessy, NGS Super: Yes, you can’t claim on both.

Pauline Vamos, ASFA: Exactly, so you’re paying for nothing, that’s terrible.

Phil Collins, IUS Life: The issue of confusion is very evident in the insurance arena.

We’ve done our own surveys, as well as other people in the industry, and the ignorance around names such as income protection, disability income and salary continuance is very high, but there is also this dreadful lack of understanding about what the products actually provide.

Some people think it’s actual unemployment benefits.

Some people think it’s when they get retrenched, they don’t understand at all.

John Quessy, NGS Super: They’re not nearly as underinsured as they are mis-insured.

I still think there’s probably not a lot of reason for a 23-year-old single bloke to have a couple of hundred thousand dollars worth of life insurance; there is a very real reason for him to have some disability insurance, because if you are seriously disabled you’ll be in a wheel chair for a long time ...

It’s mis-insurance, and I reckon that extra dollar we’re paying to both funds should be placed somewhere else.

Russell Mason, Mercer: So we’re coming down to say if we can rate on a scale of one to five, one to four, the products, we’ll never get the names standardised, but if we can get an underlying ranking or rating ...

Russell Mason, Mercer: Members should be able to see those products as understandable, they know what they’re getting.

Whether it’s insurance called disability income, income protection or salary continuance, they will know it’s the same thing. Likewise with investment options, they will know if I’ve got an option two or a risk scale two, that’s pretty conservative. If I’m near an eight then I’m willing to take more risk.

John Quessy, NGS Super: The other thing about that is at different stages in your life you’ll prefer a different ‘sweetness’ level.

Roslyn Ramwell, Harwood Superannuation Fund: Just on the global financial crisis, you hear them talking about that and how it’s created all the uncertainty.

My view is that in fact members, now luckily the markets have turned around, have understood investment cycles.

Long-term members have seen this before ... I actually believe the Government’s changing and meddling with superannuation creates more concern among my members, as they have understood the markets but are nervous about the Government changing things.

The markets go up and down and some have realised they’ve chosen something that’s too high risk for them; they have learnt a lesson and in future some people will make different investment decisions ...

But there is uncertainty around superannuation, and I think it’s completely wrong to believe it’s just high-net-worth people. People out there are making huge sacrifices to have $100 a week more in their retirement.

Pauline Vamos, ASFA: Yes, that’s right.

John Quessy, NGS Super: [In regards to] issues of confidence, a simple way of looking at it is, ‘Well I understand superannuation goes up and down and I understand I’ve taken a big hit, but why is the Government now saying I can’t put it back?

Does the Government not actually believe that it’s a good thing for me to put it back?’

Russell Mason, Mercer: And it’s an urban myth that its only very high income earners who exceed those caps ...

John Quessy, NGS Super: It’s the same thing to say that abolishing tax is a necessarily expensive thing. That’s just the Treasury’s way of saying, ‘We’d actually like to have all of your income, not just a small part of it, and any part of it that you keep is our money that we’re not getting’.

John Quessy, NGS Super: That’s exactly the way Treasury thinks.

Roslyn Ramwell, Harwood Superannuation Fund: And they talked today about having future certainty, but I spoke to many blue collar workers when Better Super or Simple Super came in who asked can we trust the Government?

And my response was obviously I can’t make that commitment, but it was a bipartisan agreement. Now to say not so far down the track don’t worry as we’ll get it all fixed up and be bipartisan again, you know it’s just as uncertain as ever.

John Quessy, NGS Super: Well, the best piece of legislation would be the piece of legislation that says you cannot make policy things on Budget night.

Roslyn Ramwell, Harwood Superannuation Fund: Absolutely.

John Quessy, NGS Super: Yeah, there needs to be some core policy … It would be a really good idea if the core policy could be set in such a way. Obviously it won’t be by legislation, it would [have to be] by agreement.

Roslyn Ramwell, Harwood Superannuation Fund: Like to have that pre-estimate standard of living.

John Quessy, NGS Super: Yeah, you can play around with the edges, but this big space here is sacrosanct.

Pauline Vamos, ASFA: You’re talking about governance with government.

Roslyn Ramwell, Harwood Superannuation Fund: That’s right.

Phil Collins, IUS Life: It’s a wonderful idea, but I don’t know how it’s going to work.

John Quessy, NGS Super: I’m not sure that it’ll ever be introduced, but the other thing, going to the level of questions in some of the Cooper review stuff, when you get to board structures, what bloody business is it of theirs?

[If] you get to the stage that they’re really going to be looking at making recommendations about what boards might look like then they’re so far removed from the core business of regulating or advising on anything financial.

Roslyn Ramwell, Harwood Superannuation Fund: [Super System Review chair Jeremy Cooper] said he was surprised that they had so many submissions on governance; I was surprised that he was surprised.