Superannuation funds and insurers scramble to be ready for Stronger Super

The challenges confronting the superannuation industry in implementing the Government’s Stronger Super agenda, including auto-consolidation, are considerable. A Super Review roundtable identified the hurdles and how the key parties are approaching them.

Mike Taylor, managing editor, Super Review: Thank you everyone. As you know, the Super Review roundtable this afternoon is centred on Stronger Super, and in particular auto-consolidation and the manner in which that is going to impact both funds and insurers, and indeed most of the players in the game.

I know there is a lot of concern about precisely how it is going to impact insurers and the desire of people to have multiple accounts, because they quite like the insurance package and so on.

So I am going to start off by asking Peter Beck from Pillar to give us his views on auto-consolidation and how it looks to an administrator, and then perhaps we can move on to the guys from Tower for their take on the insurance implications.

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So, Peter?

Peter Beck, CEO, Pillar Administration: Okay, I’ll kick off by trying to give you an administrator’s view, and try to keep it to that.

We do have a problem that there are a lot of small accounts, and that when we try and consolidate those small accounts for our clients we do not get much engagement and it is a very difficult process.

Some form of order for the consolidation is definitely required so that we can actually get rid of the small accounts where there is no value for the members.

There are some thorny issues in auto-consolidation and improving insurance, and a whole lot of rules that need to be put around the process, protocols that are required.

And so as an industry we have got to work through those practicalities and come up with practical solutions.

And I think the concept of starting small and getting a process to work properly and then looking at expanding it later, I think that’s a very sound and sensible way to go.

Mike Taylor, managing editor, Super Review: Sean?

Sean Williamson, head of customer solutions, TAL: Yes, I agree with all of Peter’s points. Particularly the part around starting small. But from an auto-consolidation point of view, or just from a consolidation perspective, we are very supportive of the intent or the objective behind consolidation and reducing the number of accounts.

What we are hoping from an insurer point of view is that there is more debate around the insurance issues, or the potential consequences of consolidation.

I guess we really see that insurance now is deeply embedded within the superannuation environment and when there is change – whether that is regulatory change or market change – then we need to give more due consideration to the insurance impacts.

When we look at mergers and the like, I think most people in the market, in the industry, actually acknowledge that trying to merge two insurance offerings actually creates a lot of member equity issues, a lot of member impacts.

And similarly here, for consolidation, we just need to make sure we have appropriate debate and time to consider what the insurance impacts are.

So from our point of view, we are just looking for more debate on this topic.

Mike Taylor, managing editor, Super Review: Now Russell?

Russell Mason, partner, Deloitte: I am in favour of auto-consolidation for what I believe it was provisionally proposed for.

We all know, you know, the young university graduates, young people who enter the workforce, they’ve had part-time jobs, they’re with two or three different funds, with fairly small amounts of money.

It makes sense for them to have their accounts consolidated, provided that is done with their consent and knowledge.

What worries me are the unintended consequences. I think we have touched on this. People often quite intentionally have more than one account.

It gives them diversification in their investment strategies. You get some additional insurance benefits, especially death and TPD benefits.

So my big concern with auto-consolidation is that it should achieve what was originally aimed to be achieved when the idea was put forward, and that is to eliminate unnecessary accounts of individuals.

Especially for younger people who have just entered the workforce. And it doesn’t have the effect of depriving people of valuable insurance cover, or a diversification of assets down the track.

Long after they have lost these benefits, people start to realise what they have really agreed to. So I think as part of this we have got to go on a big education campaign so that when people do agree to auto-consolidation, they know exactly what they are agreeing to.

Why protect those members under $1000? I am for consolidation because I think it will be auto-consolidation ... it will be more cost-effective in the long run.
 

Mike Taylor, managing editor, Super Review: Tim, you have been part of the process, the discussion behind auto-consolidation. What’s your view?

Tim Buskens, CIO, AAS: That’s right. And I have been part of that Treasury committee that’s been debating some SuperStream changes.

I think generally across the industry there is general support for auto-consolidation, and AAS is one of those voices.

But I think there needs to be more recognition, it sort of goes to what Russell was saying, more recognition that there’s going to be winners and losers out of this.

There will be winners and losers from the insurance perspective; there will also be winners and losers from a cost perspective.

What we are talking about here, or what Treasury is talking about here, is taking 33 million accounts down to something closer to 20 million accounts in the industry.

Those accounts are small, they’re inactive, they don’t cost a lot to actually administer. So the cost side of administration isn’t going to be changing in the proportion accounts decrease.

The smaller group are going to pay up obviously a higher earn.

Winners and losers: obviously that super fund member who has done the right thing, consolidated their account as they go from employer to employer, maintained one account – they will lose in this process because ultimately they are going to have a higher burden of administration and trustee fee on that account.

The winners will be those that have gone from job to job and haven’t bothered to consolidate.

They are probably going down from five, or on an average three, down to one account. And they will obviously benefit from that. But we have got to recognise there will be the losers in the system.

Mike Taylor, managing editor, Super Review: Anthony, I notice you’re a little animated there. What are your thoughts?

Anthony Rodwell-Ball, CEO, NGS Super: Yes. Look, I agree and don’t agree, in a sense, with what Tim was saying. I am not entirely sure that I agree with the proposition that any balance under, let’s say, $1000, can be run at a low cost and cost effectively.

That may well be true in areas of positive investment returns, but when markets turn negative and benefit protection kicks in, there is no question at all that there is a cross-subsidy, typically in funds that would be in the order of anything between two and five basis points.

Which is small, but nonetheless if you look at the issues of equity, there is still a consideration.

So why protect those members under $1000? I am for consolidation because I think it will be auto-consolidation, because I think it will be more cost-effective in the long run.

The problem with it is at that under $1000 it is arguably good policy; but if the policy is then extended to balances under $10,000, I think then you get into a complexity.

And Russell’s point about the deliberate choice of members – to have a number of accounts – comes in even more forcefully and even more strongly.

That, I think, would then bring in complexities into the scene at this point in time that I don’t think we’ve even begun to grapple with. And I can tease a few of those out in conversation if you’d like me to.

Mike Taylor, managing editor, Super Review: Margaret, you are seeing it from, I guess, an overarching position within ASFA. What’s your take on how things are evolving?

Margaret Stewart, policy director, ASFA: Well, I am certainly in agreement across the industry around auto-consolidation.

But we can see that our members are grappling with the issues. We have auto-consolidation at an interfund basis, or auto-consolidation intrafund.

And the issues are certainly on an interfund the level, should it be we have agreed to keep it at around $1000.

However, on the intrafund consolidation – auto-consolidation – this is where we’re grappling with some issues around whether that should be a higher amount.

However, we are thinking that maybe there should be some trustee discretion there, that the trustee can have some discretion to consider whether to auto-consolidate that account.

Then the other issue of course is insurance. I guess our thinking now is turning towards the idea that, because the issues are so complex, there should be some time allowed.

The industry is trying to come up with a solution: whether to auto-consolidate insurance into one account, or to just allow the insurance that’s in the other accounts to lapse.

Either way it is not necessarily going to be in the best interest for the member. So we are thinking that maybe we should have some time. I think the industry should have some time to come up with a more elegant solution around insurance.

What sort of transition time is needed?

Mike Taylor, managing editor, Super Review: So when we talk about transition time, how long does the insurance need?

This is clearly a much more complex issue than I guess was originally envisaged by the early policy-makers on this.

So how much time, given where we stand now, how much time is it going to take to get this in place and operative?

Gavin Lai, senior product manager, TAL: I think the answer to that question is kind of – what questions do we need to answer?

The problem is we actually haven’t got any opinion, in a sense, on what should happen to the insurance.

We all agree as an industry that the proliferation of accounts is an unintended consequence, so we all agree that there are huge benefits to members in trying to consolidate those.

We also have had this kind of unintended benefit to members who actually have a lot of life insurance attached to those accounts.

Perhaps we need to take as much time as it takes to decide what should happen to the insurance, as really the first question. And then it depends on really what the answer is.

If we are happy to let that insurance lapse, we would have to accept obviously the detrimental consequences to members.

It’d be a fairly easy kind of solution that would tackle it all. You could also exclude the insurance accounts.

I guess the problem that Tower has realised is: there hasn’t really been a lot of investigation about what options there are available to support the auto-consolidation, but also to preserve the insurance.

Russell Mason, partner, Deloitte: I don’t think we should be, though, an industry that drags some of these reforms out.

We have seen others do it in associated industries, and we have seen this industry do it through inactivity. To my mind the answer to many of these things is disclosure to the individual.

So we are going to consolidate, or we are proposing I should say to consolidate, your accounts. It shouldn’t be a tick-a-box exercise, or silence means automatically [consent]. Let’s make sure they fully understand the consequences and empower them to make a considered decision.

So I think I agree with what’s been said here. Insurance is one of the key issues to auto-consolidation.

Explain that doubling up on salary continuance insurance, for instance, achieves very little.

But doubling up on death and TPD insurance can be very valuable.

Especially depending upon your age. So let’s make sure standards are set so that disclosure is given to the individuals and they in turn can make a considered decision.

I don’t think that necessarily needs to be a long and drawn-out process.

Anthony Rodwell-Ball, CEO, NGS Super: I am not convinced that the industry has really debated this enough, to be honest. Look, I take Russell’s point about us not pre-vacating, but what is the objective?

And that is to protect peoples’ superannuation. Is auto-consolidation the best means of achieving that, or is a public policy that says that there should be some sort of compulsory or legislative earthing undertaken?

The problem with that of course is that quite a lot of funds don’t earth.

I mean, I can name some very large industry super funds with some very low percentages of inactive versus active memberships that’s in the public domain.

But if the policy is to protect super, then put it into a ultra-low-cost environment and allow the individual then to determine whether or not they want to consolidate themselves.

To some extent, while I understand the philosophy, I am just wondering if going down this route is going to introduce so much complexity and back-office cost and inefficiency that the exact opposite to the public policy, the good public policy, is going to be achieved.

What are we doing here at the end of the day?

Russell Mason, partner, Deloitte: But Anthony, doesn’t this get to a key point that I think this industry faces, that we don’t really understand and know our members as well as we need to.

Anthony Rodwell-Ball, CEO, NGS Super: Yes, perhaps.

We can’t assume someone with $5000 or $500,000 in an inactive account is engaged or unengaged. We have got this multitude, millions of members out there, and one size won’t fit all. So we need to better understand them.
 

Russell Mason, partner, Deloitte: We can’t assume someone with $5000 or $500,000 in an inactive account is engaged or unengaged.

We have got this multitude, millions of members out there, and one size won’t fit all. So we need to better understand them.

Anthony Rodwell-Ball, CEO, NGS Super: That’s absolutely true. You’re looking at an individual who has got two active accounts in funds other than NGS super.

And I mean, I have got $70,000 in one and $100,000 in the other one. Deliberately taken that in order to keep abreast of what those funds are doing in the competitive environment, and also on a death basis to give me more death cover that I couldn’t get in the one fund.

Now, okay, I am not going to be auto-consolidated because $70,000 and $100,000 is well and truly above the minimum threshold.

But you know, what about others who have got that deliberate strategy? Whether this is a nanny state approach to be taking is the question that I don’t believe has been sufficiently answered.

Nanny state approach?

Mike Taylor, managing editor, Super Review: Tim, you have been a part of the Treasury panels. Is it a nanny state approach? What is the thinking at a Treasury discussion level?

Tim Buskens, CIO, AAS: Well the base thinking of Treasury is, if you really value the insurers engaged in your superannuation, when given the opportunity you will opt out of auto-consolidation.

The Treasury then goes to the point of view that says, ‘well, if you disengage you don’t know what you don’t know, you don’t know what you’re losing, you’re allowed to claim on it anyway’.

So I think they are some fundamental premises they’re working on. But I guess from my point of view, and being part of the discussion in the industry, I keep scratching my head.

I wonder, and with all due respect to my insurance colleagues, whether we’re making a mountain out of a molehill here: we have no problem removing insurance when they earth, trustee decision, no problems removing insurance when they drop, when certain members drop to a certain level, or when they leave their employment.

There are decisions to take away insurance made by the industry all the time. This is just another one of those where there’s a small inactive account, a decision is made, they’re given an opt-out. If they don’t choose to take that opt-out, the insurance goes.

Mike Taylor, managing editor, Super Review: Peter, just as another administrator and from a slightly different perspective?

Peter Beck, CEO, Pillar Administration: Well, I guess to support that proposition, and to answer your question about a nanny state, I think the first thing is, we shouldn’t just call it auto-consolidation. We should call it ‘opt-out auto-consolidation’.

I know that’s a lot of words, but the problem with auto-consolidation is that we find that we’re going to do it whether the member wants us to do it or not.

They do have an option to say no. We kind of lose sight of that.

So to some extent we are still giving the member the option. This is the point, we have a default system, right? So people have to put money into super.

To expect 100 per cent engagement is ludicrous. To some extent we have got to manage a starting position, which is retelling everyone they have to do it.

Once you have decided that, you have got to do the follow-through. You have got to have the follow-through and say, ‘okay, what do we do with unengaged members?’ Because you’re going to have them, right?

And you have got to have a set of rules for those unengaged members, and yes, there will be unintended consequences.

Because you have got to have a set of rules for unengaged members that suits the majority, not the minority.

There is no point in putting up arguments about the minority, because the minority still has the option to opt out, so they can always say no, right?

But you’ve got to have a set of rules to auto-consolidate for the unengaged person.

And no one can argue that there is value for money in a $1000 contract which is inactive, right, where we’re charging fees to those people?

Now, to pick up the other two points. One is that the whole system is not going to save a lot of money. This to me is much more an equity issue of individual members not getting a fair deal. And so there will be some savings out of consolidation.

But to pick up Tim’s point: as an administrator, the cost of having records that are never accessed or inactive is very small, right?

So when those accounts disappear, there is not going to be a lot of savings in the system as a result of that.

The real question is in equity.

Because for that person’s $1000, the $50 he gets charged for his administration is a significant amount of money in percentage terms.

It’s much more of an equity issue dealing with those small players. The main argument has always been the insurance argument. There is nothing really other than the insurance argument that is stopping us doing this.

In my mind these are the options. You either say that the insurance gets cancelled, that’s the default. Or the insurers get together and you transfer the cover across with the consolidation.

But those are the two options. I don’t think there are really any other options. Or we can sit and argue about what those protocols should be. So we either transfer it or get rid of it.

Now, there is an argument that it’s small sums, small amounts of money, so cancellations probably are a very practical and easy way to go, alright?

But when you start moving from inactive $1000 accounts to active $10,000, I think you have got two different situations on your hands.

And at $1000 you might just say let’s just cancel it, and all insurance gets cancelled once someone gets to a $1000 balance.

But the whole system has got to agree with that, and the trustees and everyone has got to be supported.

If we do that, we can’t have people coming back and saying, ‘well, I wanted my insurance, you should have got hold of me’.

If you don’t have a person’s address and you’re going to cancel the insurance, it’s going to have to be a default situation. And we need legislative protection to be able to do this.

So we not only have to come up with a set of rules that is practical, but it has also got to have legislative power to protect it.

Gavin Lai, senior product manager, TAL: Just picking up on your point about members actually having the opportunity to opt out. I think it’s kind of ironic in the sense that all members have always had the opportunity to combine their accounts.

We know that that has not worked.

So I am not convinced that we can kind of assuage our consciences by saying, ‘well, you know, on an opt-out basis you can give them lots of information, and members will have the opportunity to opt out, and therefore we are all okay’.

We know that that’s the reason why the opt-out method is being adopted, because they want results. And coming back to your earlier point, I mean that’s the only way to get results, is to actually rely on the fact that no one is actually going to do anything.

To my mind, the reason why insurance is a big problem is because it’s such an important part of the retirement system.

You have accumulated contributions protecting against your normal retirement, right? Whereas insurance actually is a fundamental part of protecting against a forced retirement due to ill health.

And that’s the reason why it’s really important. And I think my view is that having an opt-out situation is not necessarily giving you as much protection as you really want.

Anthony Rodwell-Ball, CEO, NGS Super: And I’ll give you a practical example of that.

Three years ago I administered the estate of a late sister-in-law. She died at 45 from terminal cancer.

She left a 14-year-old daughter. She was a battler. She was a single mother. She had three superannuation accounts, one of which was active, two of which had long since defaulted with under $1000 in each.

In respect of the two smaller accounts that were dormant that would have been auto-consolidated on her behalf, the trustees with me facilitating it collected two minimum death payments of $40,000 each.

She ended up, instead of having $40,000, she had three policies of $40,000. Instead of having a $40,000 death claim, she had a $120,000 death claim, and let me tell you that has made a huge amount of difference to the 14-year-old surviving orphan.

Now okay, right, can that particular circumstance justify a larger public policy issue? Probably not. But that’s the reality of what’s happening out there in battler world, in the constituency of the industry funds in particular.

Gavin Lai, senior product manager, TAL: It’s a matter of perspective.

I mean, numbers may justify. You know, there may be 10 million account holders who benefit, but I guess from an insurance perspective we are used to seeing those individuals.

And I guess trustees would also be in the position of whether they’ll be having to explain, ‘well, actually that piece of paper you got two months ago, you know, we transferred all of your super and investments over and your insurance fell away’.

So I guess what we are saying is, we completely agree that going forward, we need to prevent this situation. In all of the arguments we are talking about here, we’re all in furious agreement that we actually need to prevent this from happening.

But I think the issue is that we have got this problem now. It’s not a problem, we’ve actually got a pretty good benefit. There’s lots of insurance out there. You don’t want to necessarily lose that...

Sean Williamson, head of customer solutions, TAL: Yes, I believe we need to start considering solutions just outside the two that are commonly spoken about, and those two are — as Peter mentioned – one is your lose cover, and the other one is you aggregate it.

I think on the ‘lose-cover’ Tim mentioned, yes that currently exists in the market rebirthing, but part of this is about setting the principles when we go forward.

Both Anthony and Peter have acknowledged that once we move to $10,000 or other limits, the game changes. So this is about the opportunity to get those principles right on that side.

But also on the aggregation of insurance: I think that that has a lot of operational issues and it’s probably even more complicated than losing cover.

So this debate needs to just probably centre back on what the member impacts are going to be, and start thinking what are the best member solutions going forward.

And so I guess our preference is to think outside those two solutions, probably even to start excluding insurance from that consolidation process in the early stages, and that’s going to go a long way.

Even if we do take that approach, that is going to go a long way to achieving consolidation of accounts. We have got 33 million, there is probably eight million accounts that don’t have insurance, and we will reduce a quarter of that almost day one.

Russell Mason, partner, Deloitte: Peter also raises a very good point about protection of administrators and trustees.

You can just see some time down the track someone passing away and the estate, through a litigation lawyer, coming back and saying, ‘you didn’t properly explain that X or Y lost all this insurance cover’.

Now, through another fund I am involved with, I saw an estate successfully argue for the reinstatement of cover that was accidentally dropped, where for three years the member got a benefit statement that says your insurance cover is nil.

And despite that all the lawyers agreed, on both sides, this is a no-win, we will have to pay out.

Now, if something like that can get up, then it is going to be relatively easy for someone to argue that it wasn’t fully explained. I think trustees have to be practical.

Don’t bury the auto-consolidation letter in with the annual report and the annual benefit statement. It needs to be a separate mailout.

But on top of that I agree with Peter: the Government needs to put indemnities in place that if the trustees and the administrators abide by certain protocols, then they are protected in the event that a member or an estate comes back down the track and says, ‘I didn’t fully understand the implications of what you did, now I am disabled, or my ex-husband or wife has passed away, I am now claiming a substantial amount of money’.

And it is going to happen – guaranteed.

Mike Taylor, managing editor, Super Review: Margaret?

Margaret Stewart, policy director, ASFA: Yes. I think just listening to the conversation, you can see how complex the issue is.

And I think it is important that there is some sort of safe harbour for the trustee, and then in turn the administrators.

We really should involve the Superannuation Complaints Tribunal in the discussion as well, because on a day-to-day basis they see these issues and they are considering them quite often.

And the issue around insurance within super, and how it’s paid or how it isn’t paid, is a major issue within the SCT. I think the other issue that it’s based around, and what the industry is grappling with at the moment, it’s around confidence in our superannuation system.

These stories will come out … the good and the bad and the ugly, and they will.

If people lose their insurance and, I don’t like to sort of say it, but do you want to see these terrible stories on A Current Affair.

And I just think it’s an issue, it is complex, and the industry should take and should be allowed some time to think it through. Not auto-consolidation, but the insurance issue.

The logistics of Stronger Super

Mike Taylor, managing editor, Super Review: So to bring us back to one of the questions raised – that there needs to be a transition period.

Clearly it’s obvious listening to the entire panel that no one believes that this is anything that can be done quickly, and that there are a whole lot of loose ends that need to be sorted out before you can move forward.

So looking at the sort of program that was in place with respect to Stronger Super, it sounds to me as a journalist that auto-consolidation is something that is going to take a bit longer than the Government might have originally envisaged.

And I will go back to Tim on that because he is the guy who has been sitting on some of the committees. What’s the view there?

Tim Buskens, CIO, AAS: Well, I suppose if you look at the timeline, 2013 is where the Government is currently saying things will be SuperStream-ready – electronic rollovers and electronic contributions – although contributions won’t be mandated for some time after from employers.

But between the administrators and sort of Pillar and AAS, in collaboration with super partners and a group of the retail funds, have already started some electronic rollover work.

So the mechanisms, the operational mechanisms, will be in place in 2013. In terms of the legal mechanisms and insurances and policy around insurance, you know, let’s see how the government responds to that.

The other issue I see, from the transition perspective, and again it hasn’t really been raised in any great form yet, is the cash flow element once we start washing effectively 25 per cent of accounts in the system.

Funds, cash flow (will affect) particularly the smaller funds.

I don’t think the larger funds would have an issue with that, but a lot of the smaller funds will, where they have 25 per cent of their accounts, what’s going to be their cash flow burdens? I think that is an element we will have to think very carefully through, and particularly from the transition side.

Gavin Lai, senior product manager, TAL: Yes, in terms of SuperStream, you’d also be needing – if for instance you want to combine insurance or transfer the insurance over with the investments – you’d also need to be potentially considering capturing other bits of information that you would need to actually apply to that insurance under the new fund.

You need to come up with rules about what happens if you can’t match certain levels of the coverage, and differences between occupations, and the way that insurance is charged.

I would think that you’d actually need to start thinking about that fairly soon.

Tim Buskens, CIO, AAS: I agree with that, we need to get some more information around what that will look like.

Earlier on in the debate with the Treasury and the Treasury SuperStream working group, FSC facilitated a discussion with the insurers.

It goes to the point made earlier.

I’d like to see where that discussion is up to, whether that has progressed.

Because I think that will be fairly important in coming up with some innovative ideas around what eventually happens with the insurance. And then we need to feed it into the administration process, to say ‘what does that mean from an administrative perspective in terms of your data relevance, your member records?’, and so on and so forth.

Are the insurers communicating?

Mike Taylor, managing editor, Super Review: I am wondering, listening to the panel again, to what degree the insurance parties have actually talked about this.

It seems to me that there is a recognition, but there’s a problem there too: have the major insurers, and particularly the major group insurers, have they actually had a conversation about this, and about how you would overcome some of these technical hurdles?

Russell Mason, partner, Deloitte: Mike, you would almost have to standardise entire contracts.

Those of us who have been involved in moving a fund or a group of employees from one insurer to another know that the hardest part of the job is the actual matching up of contractual terms and conditions, and making sure that members or employees are in no way disadvantaged.

What you are almost getting to, and I am not advocating it, is a nationalised death and TPD insurance arrangement.

Because there are subtle differences – even subtle differences between the insurers – that will keep lawyers in court for years and years.

So we have to be careful that in suggesting, for instance, that we can transfer insurances, that we don’t create an even bigger problem for ourselves.

Because it’s not just about the level of cover or the basic definitions, it’s the entire terms and conditions in a 20- or 30-page contract.

It is a massive exercise. And I think to throw that back on the group insurers could be quite unfair. Each of them is looking for their own commercial advantage.

At one level they would argue, ‘why should we drop to a standardised level, which could at the end of the day disadvantage all of us?’, because we have seen the innovations insurers have made over the years.

I can remember when I started in the industry many years ago, and I compare the insurance that was available then to today through commercial competition.

The group life insurers have gone ahead in leaps and bounds, offering a wealth of innovations and terms and conditions. I’d hate to see that stifled.

Sean Williamson, head of customer solutions, TAL: I think there is a role for the fund, the insurer, the administrator, to work together at a fund level.

What are appropriate transfer rules into a fund? I think the idea, Russell, of moving towards a standardised or a national approach is almost impossible.

But I think it comes down to the individual funds and them developing their own set of rules or standards on which they will transfer insurance business in.

Margaret Stewart, policy director, ASFA: We at ASFA have an insurance sub-committee and we have group life insurers on that sub-committee. And to be honest, they’re grappling with the issues. It’s hard to reach an agreement on it.

Sean Williamson, head of customer solutions, TAL: I sit on that ASFA sub-committee, and it’s one of the things we have had a fair bit of debate around.

We have varying degrees of views on it, but I think we’re probably coming closer to a united view. If as a sub-committee we can come to an agreement, then we’ll feed that through to the SuperStream part of ASFA.

Gavin Lai, senior product manager, TAL: I think Mike, to answer your question with insurers, at Tower we have actually identified the issue and we’d be trying to model the impacts.

But it’s really difficult, because a lot of the information just isn’t there to gauge the likely outcomes.

So I guess what we are doing with our clients and in forums like this is trying to raise the profile of the concerns that we have. I think it is a little bit lost in all of the changes that are going on.

This insurance really has been forgotten in all of the moves that we need to do, and the preparation that needs to be made.

So certainly I think you raise a good point. We need to come up with a workable solution, one that actually achieves the really noble aims of consolidation.

Russell Mason, partner, Deloitte: And let’s not use a sledgehammer to crack a nut. I mean, let’s get back to what the basic problem is: why Jeremy Cooper’s committee, and the Government, have embraced auto-consolidation, and let’s make sure that we don’t over-engineer this so that we create huge expense for the industry.

Because at the end of the day that expense is going to be passed on to members – or that huge complexity, which is going to yet again leave this industry open to the criticism that we create a complex mystical industry that the average consumer can’t understand.

So at the end of the day we need to keep it simple and not over-engineer it.

Gavin Lai, senior product manager, TAL: Well, that’s why we were looking at where less than $1000 accounts are targeted.

We were modelling what would happen if we just excluded all in short accounts on that, and as Sean was saying, you get quite a lot of accounts being merged just because of the difference of RSAs.

I guess that, combined with potentially the greater kind of data requirements that APRA is asking of funds, it’s going to give us some time to both figure out what’s happening, and also then to get some information that we can use to figure out what maybe we can do.

Margaret Stewart, policy director, ASFA: And we do have credential standards being released where trustees will be required to develop an investment strategy. APRA are releasing their data collection consultation paper again, that package in June, and from what I have seen there is a lot of detail around insurance there.

Then from 1 January next year, 2013, members will have access to ATO online where they will start being able to see their individual accounts, their active and inactive accounts, and we need some time to see how people engage with that as well.

I think that there is so much change, that maybe with some of these other issues we should just be able to set them aside, and let the change settle down and think about the members. I think that’s an important issue.

Anthony Rodwell-Ball, CEO, NGS Super: Can I just ask the – sorry, if I could describe you in this way – the policy wonk on the roundtable – and I’m clearly not one of them when asking this question: This isn’t a one-off event, is it?

This is a policy that will need to be enacted every 12, 24 or whatever months as are deemed appropriate. So I mean, in thinking through the structure and the logistics of it, has that been taken into account? Some of the ongoing issues in perpetuity.

Has anyone thought about those sorts of implications?

Margaret Stewart, policy director, ASFA: Yes, we have. And I guess just the ongoing issues are around where people are holding separate accounts for their insurance. I think that again, it’s just an issue that we need time to think about.

We certainly agree with the public policy position of auto-consolidation, that it’s a good thing.

But as far as concerns the research around ongoing issues, we haven’t really spent much time analysing that.

But we just think that because of the issues and the complexities, that we need to get it right now, to see how it pans out with auto-consolidation and some of the other changes that are coming through. Then we can look at insurance.

Member communications

Mike Taylor, managing editor, Super Review: I’m going to throw one in here, and we’ll wrap it up on this question I guess. And it’s somewhere that Russell took us at the beginning, which is that auto-consolidation or opt-in or opt-out consolidation, whatever you want to call it, is a complex message to get to members.

I think the member education piece is the big challenge for funds. I do wonder whether all the funds, as they stand, are capable of conveying that message in an easily understood way that says to their members, ‘this is a change, it’s coming, you are going to have to think about it, you are going to be asked to make a decision, and you will need to know the basis for that decision’.

So I guess, and I will start with Anthony on this one because he is running a fund, what is NGS Super going to do in terms of communicating to its members the need to think about the question, if and when it’s asked?

Anthony Rodwell-Ball, CEO, NGS Super: One very simply communication. Not something buried in annual reports or any other sort of stuff.

But the truth of the matter is that probably 10 to 20 per cent of members will actually read what you sent them.

The interesting thing is that it’s obvious to us as we have launched the program – and I am going to trivialise this to make a point – that they are more likely to open and read a birthday card that we send them on milestone birthdays, than they will actually read something that’s relevant to their retirement savings and wealth creation. It’s sad but true.

So in a very real sense, to ask people to opt out actively and to expect to get more than a 10 or 20 per cent response, is the best we’re going to get. We can do everything that we need to do in terms of sending communications, electronic communications, written communications, social media and a whole range of other communication strategies that NGS and other funds are now engaged in.

But I would be very, very surprised if we get more than 20 per cent uptake on response from this initiative. And it will therefore be a compulsory thing, and people will then wake up later and say we have done it to people.

The numbers of people that we get complaining to us when we earth them is quite surprising.

We can be earthing them in their own best interest – we have got an active earthing policy in NGS – and we will get members coming back to say, ‘you have transferred my money into an eligible rollover fund, I don’t like it. Can I get it back out of there please, I’m quite happy with my $150 NGS super’.

Bizarre but true.

Russell Mason, partner, Deloitte: I think that’s absolutely right. I come back to my point that we need to know and understand our members.

If I could use a teaching analogy, imagine putting a teacher in Anthony’s schools, in front of classroom of kids, and the teacher not knowing whether they speak English, what their level of education is, what their background is, and expecting the teacher to be able to teach them a complex subject, ungraded, and everything else that goes with it.

And that’s in fact what we are doing with the members of super funds.

We are sending out a message while not really understanding them enough, and I think Anthony and I’m sure others too are starting to look deeper at the membership, and look further than just name, address and date of birth.

I think we have got to put more work into understanding the members so that we can more effectively communicate with them.

Mike Taylor, managing editor, Super Review: Peter, administrators get to carry the heavy load on things like this. I mean, member communication is kind of your bread and butter.

How hard is it going to be to convey that message?

Peter Beck, CEO, Pillar Administration: I think Anthony’s point is the most relevant on this. You know, it doesn’t matter how good the message is. If people don’t read it – you can spend hours and months designing communication programs – but if people don’t read it, it’s not going to have any impact. And we aren’t talking about unengaged members, that’s the issue.

Look, I think we’ve got to have a go at being creative. I know that, for example, mobile telephone numbers are probably the most successful way of tracking people down.

It’s the most reliable thing that we have got. There is a whole new way of communications through smart phones, which is an opportunity to try and re-engage the unengaged.

And just a simple SMS saying, ‘your funds are going to be merged and you are going to lose your insurance’. You know, two lines.

You’ve got a better chance that way than using mass communications, and fancy documents and whatever.

Just get to the point, tell people what the point is.

The point is, ‘you have $20,000 in insurance, it’s going to be consolidated, you’re going to lose it’, and make sure that people then just go, ‘okay, I’d better do something’.

And I think that’s the modern way; we’ve got to try new ways of getting to the unengaged.

Gavin Lai, senior product manager, TAL: I think what we’re all saying is, if we do elect to have cover cancelled on an opt-out basis, we are actually saying we want to remove cover for the vast majority of those people who are at this point of, say, less than $1000 who aren’t engaged.

And my view, and I think it’s probably shared by many of us, is that it’s not those members that don’t need insurance.

Just because they have less than $1000 and they aren’t engaged, it doesn’t mean that they need insurance any less than the people who would have $2000 and are either engaged or disengaged.

I think that’s the big decision we need to make.

And I prefer that that’s done with enough time to consider ways to mitigate the risks, rather than leaving it too late and just being forced into having either the insurance cancelled or something else.

Peter Beck, CEO, Pillar Administration: There might be some lessons from the banking industry here. We worked in banking for a while, and there are rules in banks that if you don’t transact on an account in a significant period of time, then the banks can transfer that money across to the ATO.

So you know, we’re talking I think periods of three years or five years or something like that. You’ve got to put money in, or take money out.

To some extent maybe we need a trigger point to say that if there has been interaction declined for a significant period of time, then those are unengaged members – and that’s what these rules should apply to, rather than we just say $1000.

But $1000 with an active account is no problem. I mean someone could have just started their account and they’re just on their way. It’s inactive accounts that are going backwards that are the issue.

Maybe the rules for identifying who it should apply to need to be a little bit more robust.

Instead of jumping quickly to the conclusion, let’s take a little bit of time to figure out if people really are unengaged.

And you know, if nothing has happened on an account for five years and all we have done is taken insurance out, I don’t know whether we can really say that person wants or doesn’t want their insurance.

Mike Taylor, managing editor, Super Review: And with that, ladies and gentlemen, thank you very much. That brings the roundtable to an end.