2020 will forever be a year to behold and certainly the events of last year have shaped our present-day superannuation environment. This year many of the threads, in regards to monitoring, regulating and challenging super, will finally come together. How well these threads are woven, into a better future for people in retirement, is yet to be seen. However, one thing is for sure, they will change the system for ever. 2021 is the year it all gets real.
Some of us were in superannuation thirty years ago when it really was a cottage industry. But at $3 trillion dollars, and with about 50% more assets than the nominal GDP of the Australian economy, the super industry is now well and truly a force to be reckoned with. The past and continuing growth of super brings with it growing pains, and the need to continually ratchet up the quality and standards being delivered to Australians.
More regulation is inevitable
The idea that any government would just leave the private sector provider of such an important public good alone, and not subject it to increasing scrutiny, is fanciful. It is both inevitable and appropriate for the Government to pay close attention to super, when such a large bucket of money and the value of tax paid and super tax concessions is in play.
Over a decade ago, the Super System Review recommended many changes to improve the system, especially for people who weren’t really engaged with their super. MySuper, SuperStream and improved governance standards are all important and successful legacies of that Review.
An interesting development of the past year or so is that better tools, to support improved oversight, are finally catching up with the Government’s aspirations to make further significant changes to superannuation policy settings.
Better data is key to … everything!
There was one major area where previous recommendations weren’t quite as successfully implemented, and that was in relation to data. Back then, the prudential regulator, APRA, got a lot of data but only for MySuper products. Also, issues with delayed and changing projects and consistency and quality, meant promises to support comprehensive public analysis of the data wasn’t fulfilled.
In the past couple of years, there have been some positive developments. The pandemic delayed these to some extent, but it also underlined the need for good, effective and even-handed regulation.
Initiatives to publish comparative MySuper performance (the Heatmap); consolidate small and inactive accounts; remove insurance from accounts being eroded by the cost of premiums; and increase focus on performance reporting and disclosure, each have an impact on serving members better. However, they are even more impactful when taken as a whole and treated as the foundation for the next phase of improving the system.
All of the fund and regulator assessment tools need the basic core that good quality reporting gives. This is needed for Member Outcome Assessments, Business Performance Reviews, the Financial Accountability Regime, meeting Design and Distribution Obligations and for the YourSuper comparison and performance assessment tools announced in the budget.
The Government is on surer ground when it gets its agencies to extend the breadth and depth of data reporting. It is terrific that the current timetables, for initiatives such as the extension to Choice products and the Heatmap to all products, look like being met.
The super industry is adaptable and robust
The findings of the Royal Commission, and the implementation of tighter rules around financial advice, saw most of the banks selling off their wealth and superannuation businesses. However, this along with the cost of adhering to higher standards, has accelerated the growth of the largest funds and the merger of funds across the industry.
There are now less super accounts, less accounts with insurance, less lost super, less APRA-regulated funds but more mega funds with more than $100 billion in assets.
The super industry is proving resilient to Government curve balls and, whether it is the measures allowing early release of super in response to the pandemic or a potential freeze in SG increases, it will continue to thrive and maintain a focus on members.
The future may be complicated but … it is bright
There are still some problems with providing an even playing field for measuring products but provided the Government doesn’t get too caught up in the culture war with industry funds, the overall trend is in the right direction.
The layers, complexity and interrelationship between the various initiatives can be difficult, even for seasoned industry veterans to follow, and the cost of implementation can be eye-watering. However, IQ has been working in this space for 20 years and continues to be the market leader in operationalising regulatory change and making transitions, integration and improved operating models happen.
Within a year or so, all the key data initiatives and the assessment tools will be in place and super funds, their members, the retirement income system and the community will be better for it.
We look forward to supporting our clients with the challenges that this year will present and, we are well placed for the next round of changes that will inevitably be around the corner.
By David Haynes (Head of Industry Insights)