APRA has launched multi-year projects to upgrade the breadth, depth and quality of its superannuation data.
APRA has received significant (and somewhat negative) media coverage during and since the Hayne Royal Commission, but has been carefully planning major upgrades to its data gathering and reporting regimes.
From 1 July 2020, super funds and other financial institutions will need to provide more detailed reporting about choice products they offer as well as their My Super products.
As part of this Choice Product Reporting (CPR), an additional 40,000 products and investment options will now be reported to APRA, and with greater breadth, depth and quality of data. APRA will now be able to undertake greater scrutiny of the performance of all financial products.
The new reporting requires funds to adapt to new standards, utilize a new reporting toolset and test against the new data transfer solution to be ready to report from 1 Juy 2020.
From 2020 APRA will start publishing heatmaps to provide transparency into the outcomes being delivered by every MySuper product across three key areas: investment performance, fees and costs, and sustainability
APRA has stated:
“We expect trustees to analyse why the outcomes in identified areas are relatively poor and whether the problems can be fixed in a reasonable period of time. If trustees don’t fix these issues within a timeframe that is acceptable to APRA, we will be requiring them to consider other options, including a merger or exit from the industry in some cases.”
APRA is now showing its intention to become the regulator that the Australian public is looking for and needs, and it will be adding extra pressure on the super funds to provide data that helps it to regulate the super funds.
This new compliance reporting requirement will place great pressure on super funds to develop their reporting to comply with APRA’s standards by 1 July, so there is no time to waste.
The final day of the ASFA conference started with speeches from the key superannuation regulator and the Minister for Superannuation. The conference hall was full of attentive delegates and Helen Rowell and Jane Hume made important announcements justifying that attentiveness.
The Deputy Chair of the Australian Prudential Regulation Authority Helen Rowell came to the ASFA Conference with a strong message about the urgent need for the industry and the regulator to address underperforming funds – and to announce a powerful new measure to do this.
Helen started by noting that some underperforming funds require additional intensified supervision. Some funds are addressing their issues while others are exiting the industry – “although in a few cases further action may still be required.”
But APRA also believes public exposure is also needed to help weed out underperformers, and APRA is about to release another tool – their heatmap. This will provide insights into the outcomes being delivered by every MySuper product across the key areas of investment performance, fees and costs and sustainability.
At today’s presentation, Helen released an overview, the metrics, and a sample heatmap. The actual heat map with real up to date super fund data is now locked-down and will be released in a few weeks’ time. There are lots of nervous funds out there!
The heatmap is intended to emphasise underperformance rather than highlight top-performing funds. A row of red across a page sends a message so clear and strong it nearly jumps off the screen. Its ultimate purpose is to galvanise trustees of underperforming funds into action.
Because the heatmap is not intended to be an endorsement of high-performing funds, the assessment of high performance is not shown in green but in white.
APRA will be using its new powers to bring about change. Helen expects some parts of the industry to pushback and critique the heatmap but APRA but will not be distracted from this important task.
The Assistant Minister for Superannuation Senator Jane Hume came to the ASFA Conference with an update on the implementation of the Government’s superannuation policy agenda and showed that she was up to speed on super and current issues.
She also came to the stage dressed in white – and suggested this meant the Government was doing pretty well using APRA’s colour-coded scoring system.
The Minister thanked APRA for their work on underperforming funds and expected APRA’s “shiny new teeth” will help exit them from the industry. She went further and specifically identified that funds with less than $1 billion – often with high operating costs and unsatisfactory member outcomes – will be subject to specific scrutiny.
She was pleased to report that the Protecting Your Super and Putting Members Interests First legislation has been successful in reducing duplicated accounts and unnecessary insurance.
Part of this new legislation means that Australians can be reunited with their super, without them needing to take any action. Super funds have to report and pay ‘inactive low balance accounts’ to the ATO – this includes accounts that have not received a contribution for 16 months and have a balance below $6,000.
The Minister announced that the ATO has received over 2.3 million inactive low balance accounts from super funds, valued at approximately $2.2 billion. The important next step is that the ATO is now working to reunite Australians with these amounts by either transferring it into an active super account or directly into their bank account where the amount is less than $200 or the member is aged over 65 years.
She was very pleased that the ATO have reunited just over 841,000 accounts worth nearly $1.38 billion. This includes approximately 684,000 accounts worth $1.22 billion that have been transferred into an individual’s active super account and approximately 157,000 accounts worth $161 million directly to individuals’ bank accounts. The ATO will be continuing this work throughout November and into the future. On top of this, more than one million people will receive a direct payment in their bank account.
The Minister also addressed the question of fund mergers head-on. She lined up the ‘merger myths’ and demolished them all one by one. Funds with poor quality assets (where are they?), too hard to merge disparate funds (others are doing it), tax uncertainty (the government has fixed) and resistance from shareholders arguments (‘outrageous’) were all addressed.
She also chastised those in the industry who let self-interest – a job or director fees – get in the way of pursuing members’ best interests.
“Now it’s over to industry to do your part.”
Change is the only constant.
It’s a theme that permeates through all sectors and for the superannuation industry, it’s certainly not just about regulatory change.
Super Funds and providers are in the midst of transforming their service models for their respective members and clients, which leads me to the session – “The Perils of Misreading Changing Customer Preferences” chaired by our very own, Brian Peters.
Yes, that’s one mouthful of a title, however what a fascinating talk by Tom Armstrong from the New York Times. They had a colossal challenge…changing their business model from print media to digital media. It seems easy from the onset – how hard could it be to create web pages full of content, throw in some ads (lots of ads actually) and voila job done… not exactly.
With news content for free, it was the ads that brought in the revenue and hence the problem that over time digital ads actually generated less revenue with volume and scale at speed leading to inferior customer experience – so how did they turn it around?
The new business model introduced paid subscription however the product “had to be worth paying for” and so the product changed immensely. The news stories essentially came to life with a combination of content and rich video and I have to say – I was digitally engaged.
It made me think of our industry and what we need to re-invent. There’s no doubt the Australian superannuation system is a success story, however, I’m drawn back to my opening line: change is the only constant. For me, it’s “whole-of-retirement” planning and living. That’s the challenge to nail.
Having been to a few ASFA Conferences over recent years, you do come to expect some impressive and confronting day 1 keynote speeches. This year’s presentations once again did not disappoint. They covered a diverse range of topics and provoked an even more surprising range of emotional reactions.
The first keynote speaker was Sebastian Mallaby, who talked about what he called “the central paradox” between the global political instability and the global economic performance.
“Basically, the economic news has been pretty good but political news has been pretty awful. Normally, unstable politics would lead to unstable economics but the paradox…is that this really hasn’t happened” said Mallaby.
Mallaby also talked about how politics around the world is in the grip of five forces, which he described as:
- the rise of the strong man and
The session was a thought-provoking and somewhat terrifying presentation on the global political and economic landscape.
The Honourable Julie Bishop was the second keynote speaker of the day, who provided further insight into the unstable political environment by exploring the trade conflict between the U.S and China and the “cold war on technology”.
Julie Bishop discussed several factors including:
- High level of indebtedness
- Low/negative interest rates
- Industry disruption and the consequences
- Technology as a disruptor including AI, automation, and robotics
- That 1 million jobs will be lost due to technology disruption but an estimated 1.5+ million new and different jobs will be created
- The need for reskilling and retraining people for these new jobs not yet envisaged/created
- The ethical consequence of some of the applications of new and emerging technology, and raised the question: Just because we can, should we?
I personally hung off every word. It was an insightful and inspiring keynote address.
In the afternoon, Moshe Milevsky talked about the difference between chronological age and biological age including some correlations to a person’s financial wealth position relative to age. Moshe believes that longevity planning for retirement should be based on biological age (not chronological age) and that this could be a way of getting people to take longevity planning seriously.
This presentation has kept me wondering what my own biological age is.
The day came to an end with two highly emotional but inspiring speeches that caused glassy eyes for many delegates.
The moving stories of both Kath Koschel, Founder of Kindness Factory and Michael Crossland showed me the impact kindness, resilience and a positive mindset can really have.
I think all delegates welcomed (and needed) a refreshing drink and some networking time after day one.
With major changes for Insurance in Superannuation being a hot topic in the industry, the AIST Insurance in Super Symposium was due to have some lively discussion and it didn’t disappoint.
Key topics were the recent changes implemented under the Protect Your Super Bill (PYS). There was some reflection on how that was rolled out by the regulators (particularly around the short timeframe) and the Trustees communication to its members. Not to mention the large responses generated by members to their funds.
Also discussed was the recent passing of the Putting Members Interests First Bill 2019, fondly referred to as PMIF or PM-IF (not sure if we have a common pronunciation of this acronym in the industry yet!) and how Trustees can clearly communicate to affected members on how this will affect them and that they need to take action if they want to keep their insurance cover.
For those not familiar with the bill, from 1 April 2020, members under 25 years old and/or any members with less than $6k in their account will need to ‘Opt-In’ for insurance cover. The key challenge is that the demographic this change largely affects are known to be highly disengaged with super and have trust issues with financial institutions.
With the recent changes under PYS where members also had to ‘Opt-In’ for cover, there seems to be a split of opinions within the industry on the interpretation of the changes on whether members that have already ‘Opted In’ under PYS need to be asked to ‘Opt-In’ again under PMIF.
This was raised with both ASIC and APRA at the Symposium, who were both represented at the event. The answer from them was yes, but it looks like further discussion and clarification is still required.
Other key points raised during the event where around the amount of data that is now available and how better analysis of this data is required so that more tailored and proactive actions can be taken to improve a member’s health during a claim.
There will also be a focus on ensuring that members are still getting value for money for their insurance cover as a result of the changes. This is on ASIC’s Radar so Trustees should keep this in mind.
With great speakers and representation of delegates across Super and Insurance in attendance (there was even mention of a frozen chicken!), this was another well-organised event by AIST.
I read somewhere recently that kids today graduate able to do calculus, but helpless with a check book. That was me when I graduated from university. My first job paid monthly, and the first two weeks after payday, I lived like a queen. But the last two weeks… I vividly remember only having ketchup in the fridge with three days to go.
No one – not my parents, not my school, not my friends – had systematically taught me how to manage money. Sure, I’d been exposed to the idea of a budget, but I’d never seen one in use. I’d heard credit cards were bad, but everyone I knew had one and used it regularly. On the outside, everyone looked fine, including me. But on the inside – ketchup. Eventually, I said to myself, “You’re a college graduate. Figure it out.” I bought my first financial self-help book. Then another, then another, until I sorted myself out.
Eventually I had kids. I’m desperate to help teach them what they need to know to avoid poverty because, ultimately, when we talk about financial freedom, there’s a reality in the word ‘freedom’.
They’re still young, but the same issues started playing out for them as for me. Their school doesn’t seem to have a class on home economics, or if it does, why is my daughter trying to spend all of her allowance on Robux?
This blog shares the concepts that I think are important to teach, and how it’s going with my own kids. What worked for me, what didn’t work – and if you have suggestions of your own, please for the love of humanity, comment and help me! 🙂
Here are the first key concepts I tried to get across to my kids, classroom style (don’t try classroom style, it doesn’t work unless you’re an actual teacher, I discovered):
- Having money is equivalent to freedom. You don’t need a lot. In fact, the more modestly you live, the easier it is to be ‘financially free’. (I wanted to delve into passive income exceeding lifestyle, but their eyes were already glazing over, so I decided to just go to point two).
- Stay out of debt, or if you get into debt, do it for something where the payoff exceeds the debt. This means, regardless of what your friends are doing, don’t use a credit card to buy coffee. Do use debt to finance education – if you’ll actually use that education in a manner that increases your income – or things that build equity (like buying a house, which you may as well do if you need a place to live).
- Where you end up on the wealth spectrum is really linked to only four variables – where you start, how much income you make, how much time you have to make it, and how much you lose along the way. None of these variables are completely out of your control, and they’re happening whether you control them or not. (This turned into an argument – I told them to go do some research and prove me wrong, but so far they haven’t taken up the challenge).
- People who achieve huge amounts of wealth are either born into it or set up systems that exceed their personal ability to gather wealth (see things like investing in passive income or starting a business where they own the wealth generated by others). That is, working for a living will only get you so far.
- There’s a huge gap between what people think they do, and what they actually do. Our brains are wired against our making wise decisions for the future, even when we know what we ought to be doing. Sometimes the best way to manage money is to beat your worst psychological habits at their own game.
- It’s okay to want to be wealthy enough to be financially free, but there comes a time when wealth accumulation becomes amoral. We as humans are part of a collective, and we have a duty to one another to care for our society as much as our personal circumstances allows. This is why the rich should pay more taxes, and why I am not setting up a dynasty where my kids can fantasize about me dropping dead at Christmas (at this point, the conversation turned humorously morbid and we had to stop).
Okay, these are all important lessons, but to be honest, just coming out and saying ‘hey, these are the lessons I want you to learn’ didn’t really get the level of engagement that I was hoping for. To wit, it ended with “So, wait – Mom, if you die, will I be a millionaire?” Noooooooooo.
So how do you do it? I’m still working on that myself, but here are a few things I tried (with a bit of research). Some are more successful than others, but this is what made it into my parenting arsenal:
- Role modelling – they may not listen to a word I say, but apparently my kids are actually watching what I do, for better or worse. Knowing this, I’ve made a deliberate effort to handle my finances transparently. On Saturdays, when I’m sitting down to do the bills, I let them know that’s what I’m working on, and I talk in front of them with my partner about what bills are being paid, what bills I know are coming and am saving for, etc. I’ve even asked my kids to show me their budgets in Google sheets too, like as if it’s just natural that they’d start budgeting their allowance, and taught them how to improve their budgets by suggesting savings goals and investment pools.
- Be informed – look out yourself for good sources on the topic. I love reading about financial management, and I share those resources with my kids (er, broken down into bite sized tidbits). I try to engage them in conversations about what I’ve learned by asking them what they think and actively listen to the responses. I’ve even tried a ‘would you rather do X or Y’ questions during car rides to see what my kids would say. It’s interesting to hear them debate why they’d choose $100 today rather than $10 for ten weeks, then explaining present value. (Tip: it worked best for me once I got the hang of letting them answer first, and listen to their answers fully before trying to teach anything)
- Allowance – The kids have a set of chores they earn money for doing, BUT we are careful that it’s only a subset of the work that they do around the house. We’re trying to balance the idea that they get money for directed effort, but they’re still responsible to contribute to the household. This is a continuous adjustment, and I’m not certain we’ve nailed it – please comment and let me know what works best for you in this area! As it is, we aimed for an amount that isn’t so low that they can’t afford anything, but isn’t so high that they don’t need to save.
- Rewards – I, uh, bribe them to do what I want to see. Did they save according to their budget? I might match their savings or give them a bonus for hitting a target. (Once, this backfired when I promised to match their savings for a trip to Singapore and somehow they managed to save over $300… so be prepared for surprises!)
- Independence – from a very young age, I would get my kids to buy things themselves. We’d go to the register together, but I’d give them the money. They’d complete the transaction themselves, and I’d help them count the change. I also set up joint bank accounts with them and am in the process (around age 10) of teaching them how to use internet banking, savings accounts, trade accounts, and debit cards.
- Reinforcing values – my personal favourite wealth management book is The Richest Man in Babylon by George S Clayton written in the 1920s because it taught me to separate wants from needs (a man’s capacity for desire is as big as his imagination, for example), and what worked is how it worked parables into everyday situations. I often wriggle little comments into our conversations about the importance of charity, managing one’s own emotions, and how what you focus on grows.
I’m not certain how this journey will turn out yet, but I’m well on my way for better or worse. I’d love to hear thoughts and things other parents have attempted. Heck, if you disagree with me, please feel free to comment below. 🙂
Senior Consultant, IQ Group.