Stonger Super - heavy lifting ahead for administrators

The regulatory muscle may have begun to form around the Government’s Stronger Super legislative skeleton but that does not spell an end to the challenges confronting administrators, writes Damon Taylor.

As the superannuation industry continues to march to the beat of legislative change, it seems clear that we are coming to the pointy end of this round of reform.  

Where detail was previously lacking, the legislation underpinning Stronger Super and SuperStream is now clearly defined and yet for Peter Brook, managing director and CEO at Pillar Administration, administrators’ hard work has only just begun. 

“A large proportion of the Government’s Stronger Super legislation has now been released; however some of the regulatory guidance on implementation is still fluid and being worked through by participants, including Pillar,” he said. 

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“From an administrator’s point of view, each time we receive an iteration of legislation or guidance, we have to review our plans and assumptions to ensure they are still valid and ensure that system and process changes accommodate the changes. 

“In June alone, the ATO (Australian Taxation Office) released 14 new versions of guidance,” Brook continued.

“All this impacts resourcing for both implementation and testing, increases the cost of compliance, thus eroding the benefit realisation flowing through to members and challenging administrators’ ability to deliver on time.” 

The issue, according to Hans van Daatselaar, head of policy for Superpartners, is that while the legislative detail has now arrived, its delay has put significant pressure on administrators with respect to implementation in very tight timeframes. 

“There were a number of aspects of the Stronger Super legislation that didn’t pass until June,” he said.

“And, like it or not, some of those have had a significant impact from an administration perspective in terms of how we design, implement, deploy, and test these reforms from a systems and process and procedures perspective. 

“And it isn’t just the legislation itself, it’s also the enormous scope of these reforms that’s affecting individual organisations.” van Daatselaar pointed to SuperStream as the example. 

“In SuperStream, it’s not only about your own organisation being ready and being able to transact in a particular way, it’s the interdependency with other parties,” he said.

“So what I mean is that as a super fund or administrator, you can be ready to send something or see something in the agreed format and in the agreed standards, but is the rest of the industry ready to receive it? 

“And inevitably, the system is only ever as good as the weakest link,” van Daatselaar added.

“That said, Superpartners has been in the fortunate position of being closely involved in the direction of the reform – and in our engagement and collaboration with government, industry bodies and our clients – from the start. 

“This has put us on the front foot, where all 1 July deadlines were met.” 

In fact, according to van Daatselaar, the ability to capture member tax file number consent was implemented progressively from September 2012, with changes to accommodate the superannuation guarantee increase and age limit removal [implemented] by 1 July. 

“We were ready with the new data standards for electronic rollovers and supported a number of our clients with the implementation of their MySuper products from 1 July, with all remaining clients set to implement their MySuper products in line with the 1 January deadlines,” he said. 

“For Superpartners, the game has always been the same; providing a better future for our clients’ members by leveraging our scale, remaining low cost, and providing unmatched service. 

“This is something we will continue to focus on amid an ever changing landscape.”

Yet for Suzanne Holden, CEO at AAS, as challenging as the Stronger Super and SuperStream reforms have been, there have already been benefits that go well beyond the legislation’s intent. 

“Certainly for a number of our funds, I think they’ve used this as an opportunity to do a full strategic review,” she said.

“I think it’s triggered a lot more strategic thinking by a lot of the funds and we’ve probably seen more change in the last 18 months – change prompted by changing legislation – than we have for quite some time. 

“It might have been restructuring, conducting insurance reviews, unitising, rebranding, marketing, or any combination of those, but without doubt there’s been that higher level of activity,” continued Holden. 

“And, to be honest, I think it’s because most funds realise that while the legislation has been time consuming, the real competitive activity is just about to start. 

“So they’ve used this as an opportunity, I think, to structure themselves and be very clear about the market that they serve and how they’re going to serve that market into the future.” 

Of course, if there is one aspect of the Stronger Super and SuperStream reforms which is particularly concerning to administrators, it is the prospect of account consolidation.  

Split between intra-fund consolidation – which is already well underway – and inter-fund consolidation, the long-term impacts of such moves have been the subject of much debate.

Yet for van Daatselaar, it is important to take a step back and realise why account consolidation is a part of these reforms in the first place. 

“It was really to stop the unnecessary account proliferation that was going on because of bad data and because of the disconnect between different parts of the superannuation system,” he said.

“And as a consequence, a number of excellent changes are a part of these reforms, such as the better use of the tax file number and such as the enabling services that will also be provided by the ATO. 

“The ATO will now also play a pivotal role in the provision of efficient superannuation administration services such as SuperTICK.” 

And thus far, Brook pointed out that the impacts of such services had been entirely positive. 

“So far we have seen a heightened focus on the outcome for members, with multiple strategies being employed by our funds in addressing the consolidation opportunity,” he said. 

“From an administration view point, it has been supporting these opportunities through enhanced services and new initiatives, but this is a problem that really should not exist.” 

Indeed, for Brook, it is a problem based almost entirely on the lack of a common member identifier, like the tax file number, and plain old member inertia. 

“Notwithstanding the heightened awareness regarding superannuation, most people do not take an interest in their superannuation accounts until they start to contemplate retirement,” he explained.

“Changing jobs usually meant changing superannuation funds, and member insouciance meant a proliferation of accounts.

"And yet improved data quality and matching, efficient processes and better member engagement will see this area becoming less important in years to come, and just taken as a given. 

“The future should see a system that enables members to more freely exercise choice in deciding on an appropriate superannuation fund, but be warned that the ease of moving retirement savings around could come with negative consequences,” Brook continued.

“Some decisions may not be soundly based, such as potentially crystallising investment losses or relinquishing insurance entitlements. 

“As an administrator, the next frontier will be to develop and improve the ways of working with employers so that contributions can be properly and quickly matched to member accounts.” 

Yet as well understood as the issue of duplicate accounts is for administrators, it is the account consolidation solution that remains the big unknown.

Indeed, while SuperSeeker and SuperMatch activity has been universally applauded, Holden said that she could not help but be glad that the Government’s remaining consolidation initiatives were firmly on hold. 

“So yes, we’re seeing activity through SuperSeeker and SuperMatch, which is great, because that’s really at the request of the member and something we’re all very comfortable with,” she said.

“But we’re also glad that account consolidation – that is forced account consolidation – has been put on the backburner for the moment.

“Now I understand the Government isn’t really going to open the debate up again until the end of next year, but I think it will be very damaging for the industry and member perception of the industry if that goes ahead,” Holden continued.

“The one thing you end up consolidating are the inactive and low maintenance members and our costs are generally fixed costs so yes, you’d have to redistribute the costs across the remaining members. 

“If it goes ahead, some sort of impact on membership fees would be inevitable.” 

Interestingly, Holden’s concern was not one shared by Brook. 

“I do not believe we will see funds become sub-scale just due to account consolidation simply because the accounts that will consolidate are likely to be the less active ones,” he said.

“The costs of administration infrastructure, whether people, systems or processes, are therefore unlikely to substantially change as a result. 

“At the end of the day, we exist to service members; therefore if we improve a member’s experience in dealing with the industry, we will be a better industry for it,” Brook continued. 

“An environment of more engaged members and a focus on value-adding services provides exciting opportunities – the key will be how we transform current fee and operating models to support this new frontier.” 

Indeed, it seems that while the long-term impacts of account consolidation are largely unknown, a review of administrator remuneration models is becoming increasingly likely.

For Holden, the market is evolving and so too must the relationships between administrators and their client funds. 

“We’ve certainly broached the subject with funds before and talked about fees, because it’s not as simple as saying it’s all around an administration fee,” she said.

“Then there’s also potentially compensation to be had around activity fees, but I think increasingly there’s been a realisation that we’re not just providing administration services. 

“Certainly for us, the model’s changing – the days of just being a very transactional administration shop really have gone,” Holden added.

“It’s an end-to-end service proposition now – not just for us but for the funds as well.

"And so a lot of the work that we do now is really understanding the membership bases, providing deeper insights into the membership, [such as] ‘what kind of activities do you see the members who are likely to roll out from your fund exhibiting; can you predict the members that are going to roll out; and can you start to market to them at the right time; or when do you need to be marketing to your potential pensioners to make sure that they don’t roll out at the time in their life when they have the biggest balance?’. 

“It’s really trying to profile the membership base to help the fund retain their members over the longer term.” 

Echoing many of Holden’s sentiments, Brook said that in what was effectively a new superannuation landscape, the relationship between fund and administrator would have to have synergy throughout the value chain. 

“With SuperStream, the landscape and playing field is being levelled across the industry, which in our view results in there being less focus on how long it takes to process a benefit – as it will always be done quickly – but more so on the value a partner brings and the services they can provide and how they support members, employers and advisers,” he said. 

“Thus, we need to have a model with synergy throughout the value chain; one that caters for both fixed costs and activity costs in providing the services and growth within the sector. 

“We work closely with our clients to find this balance and it is a continuing focus, as operating in such a dynamic environment, it cannot be a set and forget proposition,” Brook continued.

“The key, in our view, is to shift the discussion away from cost and to focus much more on value and sharing growth opportunities in a true partnership. 

“If you are delivering value, and members and employers see this value, then everybody wins.” 

Brook added that the member, employer and adviser experience would all be major drivers within the remuneration models that came to pass. 

“Whilst technology does allow for cost efficiencies, in many cases it is an impersonal and blunt instrument which may not be the optimum approach when your member is uncertain and making decisions with what may be their largest and perhaps most important asset,” he said. 

“We are and will continue to work with our clients on getting the balance right for their members, employers and advisers, with the remuneration model needing to be responsive to that balance.” 

So in the wake of legislative reform, it is perhaps telling that administrators are already looking to the future. Super fund and service providers alike are anxious to move beyond reform and for Brook, that new focus starts with growth. 

“Growth and a renewed focus on the value-add services provided to members, employers and advisers,” he said.

“With the increase in SG (superannuation guarantee) and returns on the rise, combined with the approaching wave of baby boomers, engagement and activity is set to take-off, particularly with a focus on advice and the retirement options. 

“What this means for the administration space is more phone calls, processing and more informed members actively managing their wealth.”

Indeed, van Daatselaar said that he was looking forward to a similar change of focus. 

“The one area that I think as an industry we haven’t fully explored is in the post-retirement space,” he said.

“We’ve been very successful as an industry, particularly since the superannuation guarantee was introduced, but in the post-retirement market, we’re still waiting for Government policy. 

“And that’s where, I think, as an industry we should be focusing,” van Daatselaar continued. “That, and the advice space, particularly the provision of relevant and scalable advice.” 

But for van Daatselaar, the last and most important piece for administrators and the wider industry is a need to focus on collaboration. 

“We’re all competitors but, as we’ve seen, there can be some really good outcomes from work where we’ve collaborated with other parties,” he said. “And ASP (the Affiliation of Superannuation Practitioners) is the perfect example. 

“So as a precursor to electronic rollovers, we had a proof of concept around sending rollover money and data electronically and now, just in the last 22 months and well before the SuperStream legislation was introduced, we’ve transacted over 125,000 rollovers to the value of $1.8 billion. 

“And that was done on a voluntary basis without any mandated requirement from Government,” van Daatselaar explained.

“So, again, I think that collaboration was just fantastic and I sincerely hope we see more of that going forward. 

“Because ultimately, it’s in the best interests of members and it’s the best way to get good innovative solutions that are relevant to members’ needs.”

Collaboration delivers results

With so many legislative challenges in the wind, one could forgive administrators for battening down the hatches and focusing within.

Yet if there is one aspect of the super industry that has risen to the reform challenge with aplomb, it is its willingness to collaborate, a willingness Suzanne Holden, CEO at AAS, hopes will continue. 

“Early on, I think we realised that you can’t be isolated in this process,” she said.

“We realised that in order to be successful, very very strong collaboration would be necessary and I think we’ve demonstrated and championed that through the Affiliation of Superannuation Practitioners (ASP).” 

In fact, for Superpartners’ head of policy Hans Van Daatselaar, the work done by ASP is representative of what is a new way of doing business within superannuation administration. 

“The interdependency (between administrators) has basically meant that we have to talk to other people, we have to collaborate, and Superpartners has always been a champion for the work that the Affiliation of Superannuation Practitioners has done,” he said.

“We were one of the founding members, we’ve been involved in this from the start, and it’s terrific to see the gateway working as well as it was originally intended.” 

For Van Daatselaar, ASP and the gateway service it now provides to so many retail and industry super funds is a perfect example of the industry stepping up to the challenges set by the Government. 

“Essentially, the Government said ‘look, we’re going to put this in place, here’s the legislation, here are the regulations, now industry, step up,’” he said. “And ASP is the industry doing exactly that – this is what the industry stepping up looks like. 

“ASP is absolutely collaborative in making sure that we get the best outcome in the industry for members and that’s why this is such a different way of doing business compared to previously, where it really was only up to the individual organisation to make it work and you had no influence or interest in anything else,” Van Daatselaar explained. 

“The level of collaboration is absolutely astounding given that we are competitors. 

“And there’s a continued role there for ASP to play because these reforms are not just one off – this is going on until at least 2015 when we include small businesses.”