With all of the focus on the Federal election and the changes to superannuation from a taxation perspective, it’s important to remember that we still have a job to do. With the goal for the raft of Stronger Super and SuperStream initiatives to produce a system that is easier to deal with, it’s an interesting marker point for the Productivity Commission to now have its say on exactly that. Have we built a better mousetrap?
From APRA’s perspective “An efficient and competitive superannuation system should lead to enhanced retirement outcomes for members”. Whilst many of us within the industry for years have been focusing on the retirement outcomes, it’s now time for us to collectively prove that we have made inroads to being more efficient and more competitive. For the regulator it’s not a simple case of lower your fees and better outcomes for members will follow. APRA acknowledges that there are a wide range of variables that will influence the outcomes for fund members. Investment performance is impacted by insurance policies and potential influencers of fees, costs, taxes and when and how members access their savings.
Of more importance is taking a look at the entire performance measures and assessing whether the net return for members has been achieved. In plain speaking, how well you are able to retire. And for many Australian workers facing hefty mortgage re-payments and a reduction in the amount of money they can allocate to a low-tax super environment, there very well may be a greater search for value than ever before.
In a way we now have to take our own medicine. For years we have built up investment incomes for fund members to help them plan for the future. Now it’s our turn. And with this increased focus on strategic and business planning processes for RSE licensees is the clear message that it is our turn to join the wider financial services industry with the same set of checks and balances, the same level of investment into new or enhanced systems and processes that deliver ‘enhanced member outcomes’ as well as the proper management of cost and risk.
And to shine a light on why this is all so relevant is the changing demographic that Australia faces. These changes will impact the growth and cash flow component for funds and in fact changes are being felt now. Cash outflows are ‘slowly trending upwards’ with 45 percent of APRA-regulated funds having a net cash outflow ratio ‘exceeding 100 percent for year ending June 2015’. Australians are also very slow to move away from the lump sum superannuation payout tradition, placing even further stress on funds.
So where to for the industry with its 40,000 odd superannuation offerings? APRA has made a stand that traditional measurement techniques – short term and against competitors – needs to be reworked and instead focus on the appropriate overall retirement outcomes. Did they over the course of the member’s superannuation journey deliver? For some they may wholeheartedly believe that they are delivering on their contractual obligations to fund members. However, for the 570,000 SMSFs controlling $600B in assets they may beg to differ and this move towards a more direct, transparent and informed structure continues to gain traction. APRA itself has acknowledged that much more can be done to achieve a more transparent environment for fund members, such as the ‘reporting and disclosure of fees and costs’.
Also of note was the trend to insource investment management to achieve greater control and potentially drive costs down. However, this may not be the most efficient nor competitive outcome for a fund – it simply may not have the expertise and services internally and establishing these requirements can be a significant investment.
The one thing that we can all rely on at this point is change. It will continue and how we respond to it will shape our collective futures.