2016 will be a year of consolidation for the Super industry before the next innovation wave in 2017
David Haynes explains that, while there aren’t going to be so many big picture changes in 2016, it will be an excellent time to consolidate the gains and allow super funds to showcase their points of difference. As the saying goes: “We cannot direct the winds but we can adjust the sails”.
The first term of the Liberal-National Party Government is drawing to a close, and the big question for the superannuation industry is: What changes will be put in place before the election? And what will they mean for the superannuation industry?
The Federal election may be a brake on change
The likely answer is: not very much. We are in an era when Government reform agendas are tested and often stymied, rightly or wrongly, by powerful cross-benches. The significant changes in 2016 will be from the implementation of initiatives already in train. I believe 2017 will be the year of real change – no matter who wins the next election.
Even if the election is as late as November – as mooted by Scott Morrison this week – the Government is perhaps only going to be able to convince parliament to pass a relatively small part of the reforms recommended by the Financial System Inquiry. The more ‘acceptable’ changes include to superannuation fund governance, the new requirement for portfolio holdings disclosure, ‘product dashboards’ for non-MySuper products, and the extension of ‘Choice of Super Fund’ to a small percentage of employees covered by Enterprise Agreements who don’t presently have it.
The proposed governance changes were frustrated by a coalition of cross-bench Senators shortly before Christmas 2015. The changes were intended to require super funds to have a minimum of one-third independent directors, and an independent chairperson.
New disclosure measures on a tight timeframe
The Government has made concrete proposals about improving disclosure, in relation to both the assets held by super funds and about the return and risk characteristics of individual super funds.
The MySuper product dashboard requirements, introduced by the previous Government, are going to be extended to the ‘Top 10’ investment options of each superannuation product. If the legislation is passed, both these and the portfolio holdings disclosure requirements will have to be in place by 1 July 2016, making it a very tight timeframe for implementation.
The Government also wants to extend Choice of Superannuation Fund to employees covered by enterprise agreements. Unlike other Australians, people covered by EBAs can be excluded from being able to choose their own super fund.
Of course, if the election is earlier in the year, the Government might not even have time to push these initiatives further.
The move to extend Choice of Fund is likely to be the entrée for changing arrangements for the selection of default funds. This is currently done under industrial relations arrangements but the Government would like the Productivity Commission to design a new model, as well as develop criteria for the competitiveness and effectiveness of the super industry. As the Productivity Commission has not yet been handed the formal brief, it is almost impossible for it to report before the election.
There’s a long list for after the election
The long list of issues that will be waiting to be substantially progressed until after the next election include:
- Changes to selection of default super funds
- Legislating the objectives for the superannuation system
- Comprehensive Income Product for Members Retirement (CIPR – the pre-set/default pension option)
- Tasking the Productivity Commission to review access to and the use of data
- Legislating a requirement for technology neutrality
- Single Touch Payroll
SuperStream the quiet achiever
The quiet achiever of the Stronger Super reforms has been SuperStream. All APRA-regulated super funds are now SuperStream-compliant, as are most medium and large employers and very many small employers. Enormous numbers of SuperStream transactions are being processed every day.
While implementation is likely to be a challenge for some small employers, error messaging continues to be a work in progress, and overall governance arrangements are still in flux, the introduction of uniform data standards and what will be near-universal e-commerce in a controlled and orderly fashion, is an enormous achievement.
The level of uptake of SuperStream will slowly and steadily increase through 2016, and these problems will be resolved. SuperStream will then start looking at other areas where it can assist in facilitating data transaction, and I am confident it will be used to improve efficiencies in many areas.
In the relative lull of 2016, the super industry has time to consolidate the gains. And there are things that super funds can do in partnership with IQ to help foster innovation and support innovative undertakings that will improve your members’ experience and help you develop points of difference.
Regulation versus innovation
The focus of this blog has been on regulatory change. Of course, as super funds grow very large, the question is: When will innovation overtake the need to comply with new regulations as the major driver of change in superannuation? This, and the opportunities for super funds to invest in innovation, will be the subjects of my next blogs.
The IQ Group partners with numerous super funds to operationalise regulatory change, and supports others in their development of innovation to improve the fund member experience. Growth will help super funds transcend the treadmill of regulatory change, and we look forward to working with the breadth of the super industry to achieve this.
Executive Superannuation Policy Advisor, VIC