As we wait for the Retirement Income Review report to be released, we thought we’d ask one of our very own, George Georgiou, how he feels personally about getting closer to retirement and find out just how good the superannuation system, in particular, has worked for him.
George, please tell us a bit about yourself. What are your likes, dislikes?
I’m in my 60s and married with 3 adult daughters. I enjoy spending time with family and watching my beloved Tigers. What I dislike is spending time commuting and seeing the Tigers lose!
What’s your dream retirement?
It’s important to me to retire with good health, and not ‘work myself to death’, so whilst I am feeling ok and making a contribution I will keep working. The move to working from home has helped me a lot, not having to travel for 3 hours a day. This has been a factor in my thinking about transitioning to retirement in a stage approach. Once I retire, I think there will be some travel, local and overseas, but spending time with family and friends will be important to me.
Are you likely to live out your dream retirement?
I hope so – the cost of living is going up all the time, so I keep trying to put money into areas that will save me money once I am retired – home renovations are top of the list.
What will be most important to you in retirement?
The most important things for me will be good health – to be able to do the things I want to do; no pandemics to interfere with my holiday plans; and an income – that supports the lifestyle I want to have.
Have you planned for your retirement and if so, how?
I am putting some extra dollars into super each pay day to help boost the final balance. I am making sure that I don’t take have any debts when I get to retirement age. Also, we are looking to manage our lifestyle to spend less each week.
What has the current pandemic highlighted for you and does this affect your plans?
The pandemic has made me realise how much time was lost travelling into the office every day. Working from home will now be a constant part of my remaining work life. I feel that I now have the ability to work longer than might have been the case if I had to continue to commute every day to work.
How do you feel about getting closer to retirement?
I am reasonably confident as my super balance has not been greatly impacted by the pandemic – a zero return for the last year is about all I could have expected. Using the calculator on my fund’s website says I need to keep contributing a little extra regularly to my super to ensure my retirement income meets my lifestyle.
What has your experience of the superannuation system been like?
Super is a very major part of my retirement planning. I only moved from a retail fund to an industry fund 5 years ago and, looking back, I wish I had moved earlier. The clarity of the reporting from the industry fund has made it much easier for me to understand where my money is invested and the returns it is generating – this was not there 5 to 10 years ago.
I feel that having the flexibility to choose where my money is invested is a positive feature, especially if you believe that you would prefer your savings to be invested in the industries you support rather than those selected by your fund’s investment committee.
As you get closer to retirement, what message do you have for people younger than you?
I encourage everyone to look at the lifestyle of your seniors or parents, and ask if they have the lifestyle that you would like to have when you reach their age.
Consider how they have achieved that lifestyle, positive or negative, and ask yourself what lessons you can learn from their position. Then, set the plans in place to achieve your preferred retirement lifestyle.
By George Georgiou (Principal Consultant)
As part of the Federal Budget, the Government’s Your Future, Your Super reforms have been announced. Provided the measures are passed by Parliament, by 1 July next year, the following changes will take effect.
Stapling Employees to a Super Fund for Life
- Employees will keep their super fund when they change jobs, and thus stop the creation of unintended multiple super accounts and the erosion of super balances.
- Employers will pay super to an employee’s existing super fund unless the employee selects an alternative fund. Employers will obtain information about an employee’s existing super fund from the ATO by logging onto ATO online services.
- If an employee does not have an existing super account and does not make a decision regarding a fund, the employer will pay the employee’s superannuation into their nominated default fund.
YourSuper Comparison Tool
A new, interactive, online comparison tool will help members decide which super product best meets their needs. The YourSuper tool will:
- Provide a table of simple super products (MySuper) ranked by fees and investment returns.
- Link to super fund websites where members can choose a MySuper product.
- Show a member’s current super accounts and prompt them to consider consolidating if they have more than one.
Annual Super Fund Performance Test
- MySuper products will be subject to an annual performance test.
- If a fund is determined to be underperforming, it will need to tell its members of its underperformance by 1 October 2021.
- When funds communicate their underperformance to members, they will also be required to provide information about the YourSuper comparison tool.
- Underperforming funds will be listed as underperforming on the YourSuper comparison tool until their performance improves.
- Funds that fail two consecutive annual underperformance tests will not be permitted to accept new members. These funds will not be able to re-open to new members unless their performance improves.
- By 1 July 2022, annual performance tests will be extended to other superannuation products.
New Best Financial Interests Test for Trustees
- Trustees will be required to comply with a new duty to act in the best financial interests of members.
- Trustees must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests.
- Trustees will provide members with key information regarding how they manage and spend their money in advance of Annual Members’ Meetings.
The Federal Budget did not announce any change to early release arrangements, freezing the SG, or launching an insurance review.
IQ have been full steam ahead in working through the many changes that are happening within the superannuation industry and our clients are well and truly supported by our consultants as we work through the challenges at play whilst in the midst of a global pandemic. Australians deserve a top-class retirement income system and, whilst some changes on the horizon require careful consideration and negotiation in order to ensure better outcomes for all, we are heading in the right direction.
Matt Giuliano (Managing Principal)
“Every system is perfectly designed to get the results it gets.” Donald Berwick
With the release of the Retirement Income Review (RIR) expected soon, let’s take a moment to reflect on why it’s so eagerly awaited and what it might mean, particularly for those in the superannuation industry.
Despite the RIR being delivered to Government back in July and the Federal Budget due to be delivered within three weeks, no date has been announced for its public release or when Government will provide comment.
The objective of the RIR is to establish a fact base of the current retirement income system that will improve understanding of its operation and the outcomes it is delivering for Australians.
The COVID-19 pandemic did not change this objective, but certainly added an extra layer of complexity that Government will need to consider prior to offering any commentary. However, while the industry awaits the report’s release, speculation is growing about what it contains. The longer the delay, the more time groups have to campaign in the media on several topics, including the hotly contested Superannuation Guarantee (SG) increases and early release scheme for first time home buyers.
According to the Grattan Institute, just over 50% of submissions on the RIR related to superannuation and 30% related to the Aged Pension. Of course, for many, superannuation is synonymous with retirement and it is on the super component that I will comment on in this post.
It is on proposals for ongoing superannuation early release that Australia needs to tread lightly. It would be irresponsible to break open the piggy bank for purposes other than the intended purpose of catering for an adequate retirement income. If this becomes the norm, many retirees may become fully dependent on the Aged Pension which will not only impact their quality of retirement but also place unnecessary strain on the system. And down the rabbit hole we go.
Despite strong economic growth and investment returns over the past 28 years that enabled a comfortable retirement (for some), the calls to keep SG flat need to be considered (and then be rejected) against the backdrop of an aging population (16% of the population is now over 65); increased life expectancy; changes in home ownership that means retirees are more likely to carry mortgage dept at retirement; low wage growth; and low returns on fixed interest investments impacting savings for retirement. Also, let’s consider for a moment, that retirement provisions for low and middle income households are more likely to feel the negative impact of static wages and low fixed investment growth than those who were able to fully partake in the 28 years of growth.
Australia’s retirement income system is the envy of many around the world. The RIR is timely and the objectives noble. In times of crises (like the current pandemic) we should be practical rather than align purely to some aspirational system. That said, let’s hope that interpretations of the RIR Committee’s observations, and subsequent implementation by Government, remains true to the purpose of the superannuation system and aren’t based on populist choices just because it is easier in the short term.
Australians deserve a robust system that can tick the boxes of adequacy, equity, sustainability and cohesion and we look forward to seeing how the Government will place the sign posts for the industry to achieve this. IQ are ready and waiting for the report’s release and look forward to working with clients to deliver the results, improve the system and ensure we stay well and truly away from the rabbit hole.
By Jaco Van Tonder (Principal Consultant)
As we expected post the Royal Commission, the rules are being refined and all super funds need to jump higher if they want to stay in the race.
APRA has recommenced seeking more information from super funds for its Superannuation Data Transformation project – so that it can include choice products and investment options in an expanded heatmap. This is just one of the tools the regulator will use to foster a “superannuation trustee culture of continuous improvement, including addressing underperformances in the superannuation industry” (as outlined in its recently updated corporate plan).
While a one-year deferral for data collections is still in play, super funds are asked to respond to APRA’s recently released consultation pack (on a voluntary basis). Submissions and pilot data are to be submitted by various dates over the next eight weeks ahead of finalising the nine reporting standards.
The consultation pack is made up of topic papers, draft reporting standards and data collection templates in regards to:
- Fees and costs: expanding APRA’s collection of fee and cost disclosure data to choice products and options, and providing key forward-looking drivers of member outcomes for all superannuation products;
- Insurance arrangements: collecting more data on insurance policies including premiums, claims payments and processing stages, as well as outcomes for members across different member cohorts, including occupation categories;
- Expense reporting: utilising a look-through approach to superannuation fund expenditure and establishing more granular and consistent reporting categories to enable more effective analysis and assessment of levels and types of expenditure; and
- Asset allocation: expanding the reporting of asset allocation data to choice products and options, and collecting more granular and consistent MySuper data to provide a more complete picture of superannuation investments at the investment option level.
This is going to be complex and time-consuming for super funds – but also vital to their ongoing viability and marketability. It will be particularly challenging for super funds with large numbers of Choice products and investment options; more than 40,000 of these are in retail funds.
While super fund involvement in this stage is voluntary, it soon won’t be, and funds will have to use this information to fulfil existing regulatory requirements such as their Business Performance Reviews and Member Outcomes Assessment. Just as importantly, the data collected will determine how funds are rated in the APRA league tables – the Heatmaps.
Some funds have chosen to allocate responsibility for this stage to a dedicated team with reporting expertise, some are divvying it up between topic areas, whilst others haven’t yet started to address these requirements.
This stage will be demanding for both funds and APRA alike:
- the Insurance paper raises issues about consistency and comparability that have long troubled APRA and it’s not clear that APRA will be able to solve them now;
- the Expense paper doesn’t resolve the issue of materiality – how this is addressed will make a big difference to how big a project this is; and
- the Asset allocation paper raises many issues which funds will struggle to manage.
Super funds are also required to simultaneously address policy and technical questions raised by the topic papers. For example, will Asset allocation reporting make funds look risker? And will APRA’s insurance categories easily align to all funds?
All this, in the midst of a pandemic, is certainly going to test participants in the race. However, with good support and coaching from companies like IQ, super funds will recognise the criticality of this work and put in place comprehensive and cohesive project plans that will jump over the multiple hurdles and meet next year’s deadline with a winning celebration.
Let’s just hope there’s time for a break, and for the sweat to evaporate, before more hurdles are added to the track!
By Katherine Forrest (Head of Capability)
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.