Is enough superannuation reform never enough?

• Roundtable part 1: Fallout from the Productivity Commission's super findings
• Roundtable part 2: The trouble with default superannuation funds
• Roundtable part 3: Is enough superannuation reform never enough?
• Roundtable part 4: Has the excess contributions regime become excessive?
• Roundtable part 5: Superannuation lump sums – like it or lump it?

In this session from the 2012 Super Review roundtable, participants examine the scale of the changes to the superannuation industry flowing from Stronger Super and the Productivity Commission's findings on default funds and whether the industry can be ready in time.

Mike Taylor, managing editor, Super Review: One of the things that’s been already discussed here – and which actually I was going to start this roundtable by discussing – was the timetable for all of these things.

We had Stronger Super on default anyway, and then the Productivity Commission findings came along, and suddenly we had this as well.

All things considered, and given the Productivity Commission developments out of this, is the timetable actually adequate, or should the Government really be saying to the industry, “Fix this and then we’ll move onto the subsequent things,” which I guess was really default funds under modern awards. Pauline? 

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Pauline Vamos, CEO, Association of Superannuation Funds of Australia (ASFA): Now, when I think about the history of the industry and the system, there are numerous examples where a change has been made or a policy setting has been done, but the supporting arrangements have not been put in place.

I think the best example of that is when choice came in.

That was a fantastic bit of policy, but in terms of supporting it with better infrastructure, data standards, better information and clear responsibilities on employers per data, we wouldn’t have a lot of the issues today that we have now.

The issue I have with the timetable is that were so many things staggered to start at different times and so many things developing as a moving feast, that we’re not going to have that infrastructure in place.

Whether it’s default or whether it’s MySuper, one of the underpinnings of that is all of the governance around product dashboards, APRA data collection, portfolio holdings disclosure, standard risk measures – all of these pieces of legislation or standards that are all about measuring whether or not you’re properly measuring and comparing. 

They’re not going to be in place until much later. A lot of the MySupers have been launched and a lot of the other changes have been made and that is what worries me.

The timetable is too short on some things and we really need to look at whether we start pushing it all out.

SuperStream is a good example; it can’t all start on the first day, because things are not going to be ready. The system build is too much. So, we’ve got most of SuperStream starting 1 July 2013. 

The average system change, and Peter might correct me on this, is minimum seven to eight months – and that’s for a fairly simple change, by the time you do the testing and the design.

So, we’ve got significant changes, the legislation’s not set. You cannot build yet; you just cannot build – so to me with SuperStream, we’ve run out of time.

If SuperStream’s run out of time, you can’t put the data standards in place. You certainly can’t put in auto-consolidation.

It almost means you can’t put in the new policy, if that gets through on the new definition of lost members – and then where does that sit with your other changes? So, I think it’s time to stand back and look at the timetable. 

Anne Myers, CIO, ING Direct: But Pauline, do you ever have enough time for legislative change?

Having been in the finance industry for 25 years, I’ve heard that complaint about every change that has gone through, and if you wait until the industry’s ready, you never get there.

Pauline Vamos, ASFA: Look, I agree Anne. I’ve been in the industry over 30 years, so I’ve seen the Insurance Agents and Brokers Act, Insurance Contracts Act, the Managed Investments Act, the FSR – all major changes. And you’re right, there was an enforcement closure and the industry moved quite quickly.

The difference now is that, turning the ship around is more difficult, because of so many legacy systems, so many legacy products and so much change.

When you think of SuperStream, MySuper, governance, APRA standards and the new reporting, you’ve got every aspect changing.

It’s not a licencing regime or a disclosure regime.

It’s a fundamental restructuring of the industry, and so whilst we’ve all had a bit of notice, you can’t do manual workarounds anymore.

I’ve launched many products and many PDSs, where we just did manual workaround.

Let’s think of when the changes happened to the Surcharge [relating to] high income earners. We did manual workarounds, that’s how we did it. The tax office did manual workarounds.

You cannot do manual workarounds anymore – and I think the start date was based on the legislation going through at a much earlier time and again, that hasn’t happened. 

So, we’ve got to think about the fact that the legislation hasn’t been finalised in the timetable that was set. Let’s stick to the same transition period, but let’s have the start date, because finalisation hasn’t occurred. 

Anne Myers, ING Direct: Sorry, I wasn’t arguing there that we should take the Productivity Commission findings on top of that, but it does seem to me that there’s been a lot of discussion; a lot in play for a long time.

Meanwhile, our clients, our members, are still waiting for their rollovers for 30 days, while paperwork goes through, while people hang onto money.

So, to me there’s a consumer drive, which should be driving as much as the legislation. 

Pauline Vamos, ASFA: I agree entirely. SuperStream should be number one.

Get SuperStream through, the standards finalised, get the protocols in; get the gateways actually designed and the commercial arrangements in place. It is the most important industry-facing issue with their employers and their consumers and we’re not there yet, so I agree entirely.

Peter Smith, head of distribution, Metlife: And that’s interesting, because I think the whole industry would agree with that sentiment – that that should be the first one.

But we’re still not there, so why? It’s something so simple and we’re not there.

Anne Myers, ING Direct: I think there’s also a number of vested interests that don’t want to see it change. As a relative newcomer to the industry, one of the things we’ve certainly seen is: the bigger the cheque for the rollover, the longer it’s held onto, and that’s not a system issue. 

That’s simply a policy issue within the various superfunds and so on, so I think there is a lot of money made in holding out over that rollover as long as you can; in holding the money and contributions in slush funds before it gets to the members’ accounts.

Those sort of issues are not legislation, they’re not insurmountable and they’re not necessarily all system-based either. 

Pauline Vamos, ASFA: I agree entirely. Had the industry agreed to put its own standards in place, put its own service protocols in place, to really discuss and set the interoperability of the system, confidence would be so much higher.

And I agree with Anne, we only have ourselves to blame.

Russell Mason, partner, Deloitte: I think one area where we need to put far more effort in and help the Australian Taxation Office – and many of us won’t often say, “We want to help the ATO” – is in the collection of employer contributions in arrears.

And while large employers and most ASFA [Association of Superannuation Funds of Australia] members – I mean employer members – would not fall in that category, across Australia every day of the week small to medium employers are, at times, significantly in arrears with their contributions, and they tend to be with the very people who can least afford not to get their contribution.

So, you see employers months and months and months in arrears.

Now we wouldn’t tolerate that with salary. People get concerned if their salary’s a day late into their bank account, and yet I regularly see with funds I advise, employers who are six, nine, 12 months in arrears with contributions for ordinary people, who don’t fully understand their rights and don’t fully understand [the system], because they don’t see the super as cash in hand, how much they’re missing out on.

Anne Myers, ING Direct: I think also they often don’t know, because they get a statement once a year, so they’re not actually aware that their employer’s not paying.

Russell Mason, Deloitte: So, the more resources that can be given to the ATO to help with that enforcement mechanism to bring employers into line, the better, so that they pay at least quarterly, if not monthly, as under many trustees they’re required to do monthly.

It would be a great step forward and a real benefit too.

Peter Beck, CEO, Pillar: The government reform program is tackling a lot of thorny issues that have been around in the industry for a long time.

So I’ll take my hat off to them for tackling these issues, but the very fact that they’re thorny and they’ve been around for a long time, means they are complex and there are going to be winners and losers in the process.

We do have to put vested interests aside and ultimately focus on the objective, which is efficiency and trying to bring the cost down for our members. I think we need not to lose sight of that.

In the process of the discussion, a lot of time is spent trying to find that middle road, that equity, and there are many unintended consequences that come out of these discussions.

I’ll just use one example. Pillar, as an organisation, has a lot of automated contributions already.

We do it very efficiently for a large percentage of our contributions, and with a lot of the new regulations we needed to make sure that we didn’t end up with a system that gives us the same outcome and is more expensive for our members.

There are potentials for that to happen, so we need to protect the members’ interests in this discussion.

I don’t know if I can use this, but this is a bit of a show and tell. This is a chart, which has all the changes we’re currently working on. The red is Stronger Super, the green’s all the rest. There’s a whole lot of other stuff we’re working on. 

So, people say, “There’s a lot of change.”

Well, we see it all as administrators, because ultimately we’ve got to implement the stuff, right.

Now, I don’t want to be sounding like a whinger, because I think the changes are good, but clearly when you’ve got a task like this ahead of you, you’ve got to prioritise what’s really important and get the priorities done first.

The last thing I’d like to say, which is my favourite hobby horse, is: administrators always get left till the end and we just have to pick up the pieces, and people always say, “Yes, but you’ve known about this for two years.” 

The point is we can’t do anything until the rules are clear. Until the rules are clear, we can’t start building system, we can’t start managing change and so often, because these are complex issues, the decision making is pushed further and further back. 

I’d always ask, “Just give us six months after the rules are clear and we can deal with most things. We’d prefer more, but just give us six months to make the changes, after the rules are clear or substantially clear.”

They’re never always 100 per cent clear, but once the rules are substantially clear, if you give us six months, we can deal with most things that get thrown our way. 

But, also bear in mind that you can’t have all these things happening in the same six-month period, because we will face a crisis of resources and funding, if all the stuff is put through together. So, in summary, they’re good changes, but they need to be prioritised.

We need to get the biggest bang for our buck for the member first, and I would agree SuperStream is probably the one that’ll give the biggest bang for the buck.