“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)
After a 4 ½ month “pandemic break”, APRA is poised to push the start button on its policy initiatives, and in so doing will put the cat amongst the pigeons. The industry will be asked to do a lot, in a short period of time and in uniquely difficult circumstances.
While the recommencement of APRA activities potentially involves a wide range of programs, APRA is going to be concentrating its attention on a small number of “high-priority prudential policy reforms”. One reform, in particular, is going to require immediate and priority attention from super funds.
While APRA has deferred data collections from funds until September 2021, it continues to assess the pilot data previously received and plans to release four more topic papers very soon in relation to the following:
- Fees and costs disclosed
- Standard insurance arrangements
- Expense reporting
- Asset allocation
Whilst the industry will be asked to comment on each of these topics, individual super funds will also be required to collect pilot data in each area. So, what hurdles does this present?
- Hurdle 1 – The Double-Edged Data Sword
Asking for comment on data reporting at the same time as requiring data to be reported is challenging when the requirements are new or contentious.
Fee disclosure has been a contentious issue in super for a decade and remains so. Insurance reporting has been a problem area for APRA and remains so. Elements of expense reporting will be new and likely to raise many questions and issues of consistency and comparability in these areas are also raised in relation to asset allocation.
- Hurdle 2 – The Choice Product Clean-up continues
While expanded reporting for MySuper products has been a thing for a while (and is used to populate the MySuper Heatmap) – central to the Superannuation Data Transformation initiative was the expansion of data reporting to each Choice product and investment option. Despite many projects to clean up and rationalise small and legacy products, there are still more than forty-thousand of these.
- Hurdle 3 – An already difficult and challenging track
There’s a pandemic going on, and Melbourne is in hard lockdown! There are limits to the extent to which many funds and administrators are able to do things as quickly and as easily as they once were. It’s not just the immediate effort required to meet the requirements but the increased effort involved in other areas, such as managing Year End.
We understand that it’s important for APRA to get more and better data from super funds in order to improve visibility of fund performance and the industry generally. However, this needs to be balanced with a realistic appreciation of the impact of the current environment and the magnitude of this task.
Luckily, IQ is full of consultants who have been on SuperStream, data reporting, insurance, PYSP/PMIF and other data management journeys over the past decade.We not only help our customers high jump these hurdles and stay ahead of the pack, but we help them improve their technique in preparation for the many more hurdles to come.
By Katherine Forrest (Head of Capability)
I know that it is cliched but my expectations in January for 2020 were nothing close to how this year is turning out. On New Year’s Eve I was standing in the middle of thousands of strangers, in the heart of Vienna, with my mother as we counted down to the New Year thinking about what it would bring. I had high expectations for 2020, it was going to be even more amazing than 2019. I was moving to a new city, starting a new job, learning new skills and knowledge, and making new friends. Then Covid-19 hit Australian shores and the nation, and in line with the rest of the world, we went into isolation.
In the midst of navigating what was our new norm, I watched the IQ team step out of traditional roles and unite as a team, to ensure the transition to a virtual business was seamless and successful. Steering committees were formed, help buddies were assigned and IQ Connects was formed. IQs first priority was reaching out to everyone in our team to make sure they were okay, and they had all that they needed. IQ Connects became the network where internal communication and information tools brought us together. But more than that, it is about conversations, activities and personal connections that provide support and community. We now have virtual exercise, trivia and family fun competitions as well as facilitating our Friday Social Time. We are still a team!
I have been involved in a range of projects since our isolation began in March, allowing me to create a greater knowledge base and seize opportunities I would not have otherwise had. Whether it’s been regulatory change such as the COVID-19 early release of benefits, or Best Practice Business Processes, the past eight weeks have shown me the importance of adaptability, resilience and courage; not just in business but in life. These are qualities that I have noticed IQ Group employees have in spades, qualities that are nurtured and encouraged by the Executive team and have allowed us to continue to do our best work for our customers.
Two-thousand and Twenty has not begun anything like I thought it would. Being a grad has not been what was expected when I first started with IQ Group. The world has changed but this is a time I am going to remember for the rest of my life.
On 5 May 2020, IQ Group’s CEO, Brian Peters, hosted a virtual session on pandemics impact on the Governments regulatory agenda, with IQ Group’s Head of Industry Insights – David Haynes providing commentary on the key impacts for the Industry.
Six months ago, the Regulators were overseeing a substantial regulatory change agenda, driven largely by the findings of the Financial Services Royal Commission. Today that agenda, in most part will experience delay however, even though the Industry post COVID-19 may be quite different operationally, the RC findings incorporated in the Regulators change agenda stand firm for implementation.
The discussion covered a wide range of topics:
NEW LEGISLATION AND THE CURRENT ENVIRONMENT
The Government is still planning to introduce new legislation and implement the remaining Royal Commission’s recommendations. This new legislation will have a significant impact on the financial services industry and is expected in the next few weeks. Upon release, Funds will once again move into “review mode”, assessing current programs and re-prioritising delivery.
CHOICE PRODUCT REPORTING
APRA will be updating MySuper Heatmaps from December last year and will be issuing a revised version for June 2020, with updated information on fees and performance. The interesting development here relates to Choice Heatmaps, with an expected delay of a year or so. The Retail Funds have been identified as the most impacted by the Choice Product Reporting and no doubt this delay will suit their operations and provide further time to assess product offerings for rationalisation.
DATA COLLECTION & OUTCOMES ASSESSMENT
Following on from Choice Product Reporting, there was general discussion on Outcomes Assessment and how Funds should already have similar/and or same data points about their products as normal course of business. That certainly is the case for Funds with a dedicated Product team whose responsibility is to continually assess product benefits for value-to-membership and prospective members. The trick here is that the final APRA data requirements for Choice Products will have nuances of difference, compared to internal Fund reporting. Couple that with the Data Collection specifications and technology which has experienced delays in the rollout of the upgrade, and all of a sudden we are now looking at a greater complexity associated with this requirement.
LIQUIDITY & EARLY RELEASE OF SUPER BENEFIT
Liquidity is a hot topic at the moment and questions were put forward about the Regulators and how they are viewing liquidity. There is certainly a heightened focus on liquidity, with APRA and ASIC issuing a joint letter to Trustees on the matter. With respect to the new Early Release of Superannuation benefit, there will be continual monitoring and reporting by APRA which is expected to be maintained whilst this benefit remains available to Fund members. At this stage $7.5b is forecasted for withdrawal across the approx.1 million applications received. In the coming weeks, we can expect a Fund Level report to be made available by APRA regarding this benefit. The real interesting story here, is that if it wasn’t for the MAAS, MATS and Single Touch Payroll implementations, the Government would not have been in a position to model the impacts of such a benefit and determine a “best duration period” that supports both short term benefit to Australians with the least amount of long term impacts on retirement. There’s a big tick here across Government, Regulators and Funds on the call-to-action in mobilising these payments.
THOUGHTS ON THE NEXT 12 MONTHS
There’s a rich landscape of priorities and many challenges.
First thoughts go to Accountability. Apart from the immediate WFH impacts, what we are really talking about is the Financial Accountability Regime – FAR. This framework will crystalise the weight of responsibility on key organisational roles to ensure appropriate and transparent processes are in place, and carried out on both material decision making and day-to-day running of superannuation funds.
Next on the list is Communications, engaging with members and the technology that supports a level of agility to respond to varying circumstances for growth, retention and issue resolution.
And finally, we come to Data….can’t stress enough that prudent decision making is underpinned by readily accessible, near-to-real-time data. Technology is a key component, driven by appropriately skilled personnel with a wide range of expertise across the Industry.
Managing Principal – IQ Group
If you would like to find out how IQ Group can help your organisation, please email us at: firstname.lastname@example.org.
Under Super Early Release (SERS), the ATO approves the release of money from superannuation accounts. However, funds will be responsible for executing benefit payment requests. Payments will follow the established process for early release on compassionate grounds.
A key distinction to the current process is that SERS involves payments on a far greater scale (466,000 ATO approvals to date), a fast turn-around-time and reduced scrutiny of the reason for the payment.
While this process will no doubt assist many thousands of Australians suffering financial hardship, it unfortunately also increases the risk of fraud.
AUSTRAC is the government body that monitors suspicious financial transactions. In response to the coronavirus pandemic, AUSTRAC has made a rule under the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF) to ensure that superannuation funds making ATO-approved payments don’t have to conduct additional customer verification under the AML/CTF regime.
This serves the purpose of speeding up the process for super funds, however it also creates additional opportunity for fraud to be successfully perpetrated in the form of unauthorised ATO approvals being issued. Responsibility remains with super funds to satisfy themselves that they are dealing with a bona fide application, whilst balancing the pressures to complete payment of monies to people in need.
This isn’t an academic or theoretical concern. Funds and government agencies have already detected attempts to defraud people of their super. An example of this is the ACCC has stated that scammers are cold-calling people claiming to be from organisations that can assist members to obtain early access to their superannuation account.
The super industry and the ATO must work closely together to ensure that fraud monitoring and detection systems continue to work well, safe-guarding member’s super. In particular, vulnerable Australians seeking to access their super are acutely at risk.
The protection in place includes funds having to notify AUSTRAC and the ATO of suspicious activity. For example, there may be some questionable bank accounts that are used multiple times. A process must be put in place across whole of the industry and government bodies, that identifies and “red-flags” these types of bank accounts. This action must be implemented asap to enable a quick response and provide the necessary protection of members’ money.
If you would like more information, please contact IQ Group at: email@example.com.
Senior Consultant Fraud and Regulatory Compliance – IQ Group