Category: Features

A Stronger And Cleaner Economy, Powered By Super

3 November 2021

JIM CHALMERS MP SHADOW TREASURER MEMBER FOR RANKIN

ADDRESS TO THE ACTU VIRTUAL SUPER TRUSTEES FORUM

It’s always a pleasure to be invited to address this Trustees Forum, something I’ve done most years now I think since about 2015. I’m grateful for that and for the opportunity to work closely with you, and for your work with Stephen Jones and our economic team.

Today I want to talk about climate change. But this gathering being so close to the election also gives us a good opportunity to first take stock of where we’ve been more broadly, and where we’re headed. The story of our economy and our super sector are so deeply intertwined over the last decade or so and will be even more so into the future.

Even though super played such an integral role in helping see Australia through the Global Financial Crisis, the Liberals upon coming to government froze the Super Guarantee.

When that freeze was followed by weaker wages growth, and when Australian GDP growth over the past eight years was the most tepid since the 1930s, driven in part by weak investment, the Liberals have still spent much of their time in office attacking super.

Last year, during our first recession in 30 years, they came after super with an early access scheme that bled $36 billion from super balances. And they had a good, long look at another freeze to the SG as well. My point is that at every juncture, the answer to every question, every challenge presented to this government in the economy, has been to blame and attack and diminish super.

This is partly out of envy at Labor’s creation, partly because it’s a partnership model bringing workers, unions and business together, but mostly out of blind, ideological recklessness. What makes this especially dangerous is that we need to get everything right if we are to avoid the future painted by the Treasury’s Intergenerational Report – which forecasts an economy smaller, slower, older, more stagnant over the next forty years than the last forty.

The Next Election is a Referendum on Super So that’s the context. I want to pay tribute to all of you, Scott Connolly and the ACTU, funds and peak groups – everyone who has mostly held these attacks at bay. Securing the legislated increases to the super guarantee this year was a fight we shouldn’t have had to have, but a win worth celebrating. We have won more battles than we’ve lost. And occasionally, even, a policy win – like the legislation introduced last week to remove the $450 minimum threshold for the super guarantee, which we have long supported and took to the last election as policy.

We thank you for championing this policy to protect and support those who would likely suffer the most from the falling living standards that have become a consequence of this Government’s failings – especially when it comes to low-paid working women. But you and I know, we’ve been around long enough to understand, that any victory is just another stay of execution. There’s always another attack just around the corner.

That’s why this next election is about super. It’s a referendum on whether super should be central, or sidelined. Built up or torn down. Because retirement incomes are never safe from a government in which the extremist anti-super tail wags this lightweight Treasurer. Not safe from the stagnant wages this government has said is a ‘deliberate design feature’ of its economic policies – remembering wage stagnation has a devastating impact on super balances as well.

So if the Coalition is re-elected: there’ll be more attacks on super; more attacks on wages; more attacks on Medicare; more attacks on living standards; and more attacks on the working families of middle Australia. That’s the risk attached to an eight-year-old government asking for another three years.

Super is a Solution, Not the Problem
Any objective observer knows super has been our big advantage; our economy’s saving grace. During the GFC, around 150 Australian businesses were able to secure almost $120 billion in new equity to support their growth – and almost half of that came from the super sector.

Despite the past 8 years of otherwise weak investment, super has remained a vital source of funding for our businesses and projects. In June this year, 13 per cent of APRA-regulated superannuation funds was allocated to property and infrastructure investments. That is more than $280 billion to support our fast-growing cities, suburbs and regions.
During COVID, super funds provided billions of dollars in recapitalisation and critical business credit and loans to Australian companies and private businesses, helping to absorb the economic shocks. This put downward pressure on the cost of capital for businesses, sandbagged the national economy, saving local jobs, and generated value for fund members.

Over the 12 months to June 2021, there was almost a 15 per cent increase in total superannuation assets. And in the future, Australian super assets are set to grow from $3.3 trillion today to around $34 trillion by 2060, which means from 157 per cent to 244 per cent of Australian GDP. Anyone who looks at the magnitude of this opportunity and wants to wind it back has got rocks in their head. Why would we undermine this source of business investment, dignity and
spending in retirement, and sustainable long-term growth? In 2020, Australia had the third largest pool of pension assets in the world as a proportion of GDP, ahead of the US and UK – and the fourth or fifth biggest overall.

Over the past 20 years, Australia has experienced the greatest asset growth of any pension market, growing by 11.3 per cent. Critical to this growth has been the compulsory and near-universal nature of the Super Guarantee. It means around a fifth of ASX capitalisation is currently owned by APRAregulated funds. So much more would be possible with a government which sees super at this magnitude as part of the solution to our economic challenges and not
the problem.

Super and Climate Change
Today I want to talk specifically about the opportunities for super in cleaner and cheaper energy and the clean economy more broadly. We know that you invest for the long-term and that means you have a fundamental role to play here. Your primary duty is to invest in your members’ best financial interests. And their best financial interests are served by investing in business and assets that will still be profitable thirty years from now.

This means you are acutely aware of the material financial risk that climate change poses today, and over the decades to come. The RBA, ASIC and APRA all share your views. We know climate change poses a risk to the entire financial system.
Just last month the RBA warned that international investors are increasingly adjusting their portfolios in response to climate risks and that Australia risks facing increasingly higher costs in relation to emissionsintensive activities. So we have no more time to waste.

It’s pleasing to see super playing a role in climate action, particularly the industry funds. We welcome every investment in renewable projects from super, as a much-needed source of capital. We have super funds to thank for investment in WA’s largest operational windfarm, in Melbourne Airport’s recently completed onsite solar farm, and in Ausgrid’s community battery project.

More Transparency on Targets and Plans
We also know that behind the scenes, super funds have had a strong record of engaging with the companies they invest in to ensure greater transparency and accountability.

You’re making a difference. The Australian Council of Superannuation Investors has played a leading role in highlighting which companies have committed to net zero emissions and have established targets and plans to get them there. This year, the number of net-zero commitments more than tripled and now almost half of the ASX 200 has set emissions-reduction targets. This is being driven because investors, particularly the industry super sector, are demanding it. In April 2020, IFM supported shareholder resolutions that Santos and Woodside, two of Australia’s largest oil and gas producers, set short, medium and long-term targets in line with the Paris Agreement. At the end of last year, Santos announced new emissions targets, to reduce their emissions by 26-30 per cent by 2030, and to net-zero by 2040.

But despite your best efforts, we know that there’s only so much that you can do in relation to climate risk disclosure when the existing reporting framework is insufficient, inconsistent and inadequate. We agree that regulators and government should provide clearer guidance on this and what companies should be reporting – and we’ll have more to say about it. Like the RBA, we’d like to see disclosures that are usable, credible and comparable, so that there is a baseline, all around the world, that we can measure against. This will help investors make informed decisions.

Last night, the RBA’s Guy Debelle, who has been leading a lot of this work, explained that the Task Force of Climate Related Financial Disclosures (TCFDs) has got a much more detailed, usable, updated guide to disclosure that is going to be the released as part of COP26. This is likely to emerge as the standard that most countries and companies start adopting – and that’s a good thing.

Policy Uncertainty is a Handbrake on Investment
But a lack of consistent and transparent information is only part of the story. Eight years of Coalition policy uncertainty has been a handbrake on super investment in cleaner and cheaper energy. Funds cannot invest with confidence when a government cycles through 22 different plans in 8 years – the last one little more than a pamphlet. Policy uncertainty pushes up the price of finance. That pushes up the price of new projects and technology. It slows the transition. It also means super funds are increasingly needing to look offshore. So we desperately need policy stability, and clear and ambitious targets, which create certainty for super investments to follow.

Economic modelling for IGCC has shown that Australia would create $63 billion in fresh investment opportunities over the next five years by strengthening climate targets and policies in line with reaching net zero emissions by mid-century. And stronger 2030 policies can unlock $131 billion investment in clean industries and new jobs by the end of the decade.
The biggest impediment to tens of billions of dollars of investment in cleaner and cheaper energy is a Prime Minister who can’t get his head around the opportunities here and whose heart isn’t in it. So many missed opportunities to create real jobs, and real investment, in regional communities and economies. Action and leadership that we know won’t cost jobs but will create them. We know the market is there for renewable energy investments in Australia because it has been growing all around the world. And yet, we’ve been bucking the global trend. Australia is losing another race it should be winning.

S&P Global analysis indicates a passive investment in the ASX200 exposes investors to around twice the carbon exposure per dollar invested than in other major markets. Large investment funds report that if they invest in Australia at all, they
spend around 2-3 times as much capital in projects in the EU, USA and Asia than they do on Australian projects.

But these are the numbers that really stood out for me:
A recent survey of Australian investors managing $1.3 trillion found that 70 per cent of them highlighted policy uncertainty as a key barrier to investment, up from 40 per cent last year. This month, HESTA CEO Debby Blakely said, ‘while we want to invest more here, for every $1 we have invested in Australian renewables, we have $3 committed to equivalent assets overseas. The assets are in countries that provide stable, predictable policy settings, which have
given us the confidence to make long-term investments’.

The BCA also identified “policy certainty” as a key factor currently missing in Australia’s energy investment landscape.
This is a devastating vote of no confidence in Scott Morrison and Josh Frydenberg and the wasted decade of missed opportunities the Coalition has presided over.

Super Can Be Central
I know you all understand this. You know that more investment in cleaner and cheaper energy means more opportunities for more people in more parts of Australia. We need a government that understands this too. That won’t be a fourth term Coalition government led by Scott Morrison and Barnaby Joyce. A first term Albanese government would understand and unlock these opportunities.

We know super belongs at the very centre of the recovery. And that this is a key part to ensuring our economy is stronger and our energy cheaper and cleaner after COVID than it was before.

Politicians don’t want to meddle with super

Australian Financial Review

28 March 2022

Chanticleer – Tony Boyd

Superannuation was once a soft target for politicians trying to raise revenue. They have backed off in the face of changed community perceptions and super’s status as a sacrosanct saving vehicle.

It says a lot about superannuation’s changed perception in the community that politicians no longer see it as a soft target for boosting revenue.

There was a time when the Liberal-Nationals Coalition was willing to waste political capital on opposing the move to a Super Guarantee charge of 12 per cent.

Not any more.

In fact, the Minister for Superannuation, Jane Hume, tells Chanticleer in the clearest terms possible that “there will be no increase in super taxes under a Coalition government”.

“There will be no sneak tax increases via by making it more difficult to put money into super under a Coalition government,” she says.

With an eye to potentially wedging Labor over the policies it took to the last election, Hume says there will be no adverse changes to super taxes, no adverse changes to contribution limits, and definitely no changes to the government’s contribution flexibility measures.

She says there will be no changes to catch-up contributions and concessions for a couple downsizing to a smaller house to put an extra $300,000 into super.

The Coalition will not meddle with the ability of retirees up to the age of 74 to make contributions without meeting the work test.

Also, Hume says there will be no adverse changes to the Division 293 tax threshold, which imposes a $250,000 upper limit before the 15 per cent contribution tax comes into play.

Whenever Opposition Leader Anthony Albanese has been asked about Labor’s previous tax policies, he has responded with the phrase: “It is not our policy until we announce it.”

Opposition treasury spokesman Jim Chalmers tells Chanticleer: “We’ve said consistently that we won’t take the same policy agenda to this election that we took to the last election.

“All of our policies will be clearly set out before the election.”

But that is not a denial. It is pretty clear that a decision is yet to be made on these issues, which could potentially boost Labor’s revenue by multiple billions of dollars.

Doing nothing

With about six weeks to go before the election, there is still time for Hume to wedge Albanese and Chalmers, but that pressure is most likely to be greeted with a commitment by Labor to do nothing.

Super’s ascension to a position beyond the reach of politicians seeking revenue matches changing community attitudes, which are well summed up in research by CT Group.

The research, which was commissioned by the Association of Superannuation Funds of Australia, found that super was not on the issue agenda for the vast majority of Australians.

“Australians believe that more money should be saved for their retirement, not less,” the research found.

Although many are concerned they might not have enough money saved to live well when they retire, they are also concerned that others who don’t save might become a burden on taxpayers.

Australians are happy with the performance of their super funds and there is strong support for not allowing early access to super across the full spectrum of different demographic, socio-economic and voter groups.

“The industry is viewed highly favourably, and Australians are satisfied with how the industry is performing across a range of key metrics,” the research found.

“There is high support for maintaining the legislated increase in the Super Guarantee to 12 per cent, and high support for ensuring that any additional super contributions are taken as compulsory retirement savings.”

Budget 2022: Treasurer reassures retirees as budget super tax fight looms

The Weekend Australian

26 -27 March 2022

GEOFF CHAMBERS CHIEF POLITICAL CORRESPONDENT

Self-funded retirees will be allowed to store more cash in their nest eggs to shield them against global security threats and market volatility, as Josh Frydenberg sets up a budget clash with Labor over superannuation tax.

Ahead of delivering his fourth budget and the government’s cost-of-living package, tipped to include $250 payments and a temporary cut to fuel excise, Mr Frydenberg made a pre-election pledge that the Coalition will not “increase superannuation taxes”.

Announcing an extension of the 50 per cent reduction in minimum drawdown requirements to mid-2023, impacting about 1.8 million superannuation accounts, the Treasurer said his message to older Australians was “your super is safe with us”.

“This will provide retirees with greater flexibility and certainty over their savings. We recognise the valuable contribution self-funded retirees make to the Australian economy and the sacrifices they made to provide for their retirement,” Mr Frydenberg said.

“At this election, we are again saying to retirees – under a Morrison government there will be no increased superannuation taxes.

“It’s not a guarantee Labor can be trusted to match. Labor sees success as something to be taxed, not celebrated.

……”

APRA super heatmaps reveal a quarter of choice super products ‘poor’

The Weekend Australian

18-19 December 2021

Richard Gluyas – Business Correspondent

The Australian Prudential Regulation Authority’s review of superannuation member outcomes revealed that poorly performed choice products were concentrated in the hands of eight trustees.

More than 60 per cent of investment options in the prudential regulator’s first heatmap for the choice superannuation sector failed to meet benchmarks, with one-quarter delivering “significantly poor performance”.

The choice sector, where members make an active decision to invest and have a wide range of investment options, is now expected to go through the same process of product closures and fee reductions as the MySuper sector after publication of its first heatmap in 2019.

Since then, 22 MySuper products, comprising 1.3 million member accounts and $41.8bn in member benefits, have closed, with three of them failing the new “Your Future, Your Super” performance test this year.

The Australian Prudential Regulation Authority’s review of superannuation member outcomes, released on Thursday, also revealed that poorly performed choice products were concentrated in the hands of eight trustees.

Of the eight, Christian Super, EISS and Australian Catholic Super had a MySuper product that failed the performance test as well.

In aggregate, the two heatmaps cover about 60 per cent of member benefits in the $3.4 trillion, APRA-regulated super sector. The inaugural choice heat­map focuses on multi-sector investment options in open, accumulation products, excluding platforms, representing 40 per cent of total member benefits – about $394bn – in the choice ­segment.

APRA executive board member Margaret Cole said the regulator would now intensify its supervision on the trustees of products delivering substandard member outcomes, with the new choice heatmap expected to have a similar impact to the MySuper exercise.

“With a legal duty to act in their members’ best financial interests, all trustees should now be scrutinising the heatmap findings to assess the outcomes they are delivering members, better understand any drivers of poor performance and then taking prompt action to address areas of concern,” Ms Cole said.

“If they are unable or unwilling to do so, they need seriously to reconsider whether their members would be better served with their money elsewhere.”

 

Superannuation members also deserved to have confidence that their retirement savings were being well looked after, regardless of what type of fund or product their money was invested in.

“Although there have been benefits generated for members from industry consolidation and reductions in fees in recent years, these heatmaps show there remains considerable room for ­improvement in member outcomes,” she said.

“In particular, a sizeable proportion of the choice sector has been exposed for delivering poor outcomes, especially considering these products generally charge higher fees than their MySuper equivalents.”

The key findings from the latest refresh of the MySuper heatmap were that 45 per cent of products, or 31 of 69, delivered returns below APRA’s heatmap benchmarks.

Investment returns were found to be the main driver of underperformance and while fees and costs were falling, there was still “considerable scope” for more reductions.

The heatmap incorporated 75 MySuper products covering 14.2 million member accounts and $853bn in member benefits.

The first annual Your Future, Your Super performance test for MySuper products was conducted in August, consisting of an assessment of investment performance and administration fees.

The test found that 13 MySuper products failed, comprising one million member accounts and $56bn in benefits.

A further seven default products only “marginally passed” the performance test, including $67bn industry fund Rest Super, which has 1.8 million members.

Most of Rest’s members are in the default product.

APRA said it expected trustees to improve the performance of all underperforming products “in a timely manner” to protect all members. “This is particularly the case where the product has failed consecutive performance tests and becomes closed to new members, which may result in further sustainability challenges for the trustee,” the regulator said.

APRA said the impact of staying in a poorly performed superannuation fund was significant.”

A Stronger And Cleaner Economy, Powered By Super

3 November 2021

JIM CHALMERS MP SHADOW TREASURER MEMBER FOR RANKIN

ADDRESS TO THE ACTU VIRTUAL SUPER TRUSTEES FORUM

It’s always a pleasure to be invited to address this Trustees Forum, something I’ve done most years now I think since about 2015. I’m grateful for that and for the opportunity to work closely with you, and for your work with Stephen Jones and our economic team.

Today I want to talk about climate change. But this gathering being so close to the election also gives us a good opportunity to first take stock of where we’ve been more broadly, and where we’re headed. The story of our economy and our super sector are so deeply intertwined over the last decade or so and will be even more so into the future.

Even though super played such an integral role in helping see Australia through the Global Financial Crisis, the Liberals upon coming to government froze the Super Guarantee.

When that freeze was followed by weaker wages growth, and when Australian GDP growth over the past eight years was the most tepid since the 1930s, driven in part by weak investment, the Liberals have still spent much of their time in office attacking super.

Last year, during our first recession in 30 years, they came after super with an early access scheme that bled $36 billion from super balances. And they had a good, long look at another freeze to the SG as well. My point is that at every juncture, the answer to every question, every challenge presented to this government in the economy, has been to blame and attack and diminish super.

This is partly out of envy at Labor’s creation, partly because it’s a partnership model bringing workers, unions and business together, but mostly out of blind, ideological recklessness. What makes this especially dangerous is that we need to get everything right if we are to avoid the future painted by the Treasury’s Intergenerational Report – which forecasts an economy smaller, slower, older, more stagnant over the next forty years than the last forty.

The Next Election is a Referendum on Super So that’s the context. I want to pay tribute to all of you, Scott Connolly and the ACTU, funds and peak groups – everyone who has mostly held these attacks at bay. Securing the legislated increases to the super guarantee this year was a fight we shouldn’t have had to have, but a win worth celebrating. We have won more battles than we’ve lost. And occasionally, even, a policy win – like the legislation introduced last week to remove the $450 minimum threshold for the super guarantee, which we have long supported and took to the last election as policy.

We thank you for championing this policy to protect and support those who would likely suffer the most from the falling living standards that have become a consequence of this Government’s failings – especially when it comes to low-paid working women. But you and I know, we’ve been around long enough to understand, that any victory is just another stay of execution. There’s always another attack just around the corner.

That’s why this next election is about super. It’s a referendum on whether super should be central, or sidelined. Built up or torn down. Because retirement incomes are never safe from a government in which the extremist anti-super tail wags this lightweight Treasurer. Not safe from the stagnant wages this government has said is a ‘deliberate design feature’ of its economic policies – remembering wage stagnation has a devastating impact on super balances as well.

So if the Coalition is re-elected: there’ll be more attacks on super; more attacks on wages; more attacks on Medicare; more attacks on living standards; and more attacks on the working families of middle Australia. That’s the risk attached to an eight-year-old government asking for another three years.

Super is a Solution, Not the Problem
Any objective observer knows super has been our big advantage; our economy’s saving grace. During the GFC, around 150 Australian businesses were able to secure almost $120 billion in new equity to support their growth – and almost half of that came from the super sector.

Despite the past 8 years of otherwise weak investment, super has remained a vital source of funding for our businesses and projects. In June this year, 13 per cent of APRA-regulated superannuation funds was allocated to property and infrastructure investments. That is more than $280 billion to support our fast-growing cities, suburbs and regions.
During COVID, super funds provided billions of dollars in recapitalisation and critical business credit and loans to Australian companies and private businesses, helping to absorb the economic shocks. This put downward pressure on the cost of capital for businesses, sandbagged the national economy, saving local jobs, and generated value for fund members.

Over the 12 months to June 2021, there was almost a 15 per cent increase in total superannuation assets. And in the future, Australian super assets are set to grow from $3.3 trillion today to around $34 trillion by 2060, which means from 157 per cent to 244 per cent of Australian GDP. Anyone who looks at the magnitude of this opportunity and wants to wind it back has got rocks in their head. Why would we undermine this source of business investment, dignity and
spending in retirement, and sustainable long-term growth? In 2020, Australia had the third largest pool of pension assets in the world as a proportion of GDP, ahead of the US and UK – and the fourth or fifth biggest overall.

Over the past 20 years, Australia has experienced the greatest asset growth of any pension market, growing by 11.3 per cent. Critical to this growth has been the compulsory and near-universal nature of the Super Guarantee. It means around a fifth of ASX capitalisation is currently owned by APRAregulated funds. So much more would be possible with a government which sees super at this magnitude as part of the solution to our economic challenges and not
the problem.

Super and Climate Change
Today I want to talk specifically about the opportunities for super in cleaner and cheaper energy and the clean economy more broadly. We know that you invest for the long-term and that means you have a fundamental role to play here. Your primary duty is to invest in your members’ best financial interests. And their best financial interests are served by investing in business and assets that will still be profitable thirty years from now.

This means you are acutely aware of the material financial risk that climate change poses today, and over the decades to come. The RBA, ASIC and APRA all share your views. We know climate change poses a risk to the entire financial system.
Just last month the RBA warned that international investors are increasingly adjusting their portfolios in response to climate risks and that Australia risks facing increasingly higher costs in relation to emissionsintensive activities. So we have no more time to waste.

It’s pleasing to see super playing a role in climate action, particularly the industry funds. We welcome every investment in renewable projects from super, as a much-needed source of capital. We have super funds to thank for investment in WA’s largest operational windfarm, in Melbourne Airport’s recently completed onsite solar farm, and in Ausgrid’s community battery project.

More Transparency on Targets and Plans
We also know that behind the scenes, super funds have had a strong record of engaging with the companies they invest in to ensure greater transparency and accountability.

You’re making a difference. The Australian Council of Superannuation Investors has played a leading role in highlighting which companies have committed to net zero emissions and have established targets and plans to get them there. This year, the number of net-zero commitments more than tripled and now almost half of the ASX 200 has set emissions-reduction targets. This is being driven because investors, particularly the industry super sector, are demanding it. In April 2020, IFM supported shareholder resolutions that Santos and Woodside, two of Australia’s largest oil and gas producers, set short, medium and long-term targets in line with the Paris Agreement. At the end of last year, Santos announced new emissions targets, to reduce their emissions by 26-30 per cent by 2030, and to net-zero by 2040.

But despite your best efforts, we know that there’s only so much that you can do in relation to climate risk disclosure when the existing reporting framework is insufficient, inconsistent and inadequate. We agree that regulators and government should provide clearer guidance on this and what companies should be reporting – and we’ll have more to say about it. Like the RBA, we’d like to see disclosures that are usable, credible and comparable, so that there is a baseline, all around the world, that we can measure against. This will help investors make informed decisions.

Last night, the RBA’s Guy Debelle, who has been leading a lot of this work, explained that the Task Force of Climate Related Financial Disclosures (TCFDs) has got a much more detailed, usable, updated guide to disclosure that is going to be the released as part of COP26. This is likely to emerge as the standard that most countries and companies start adopting – and that’s a good thing.

Policy Uncertainty is a Handbrake on Investment
But a lack of consistent and transparent information is only part of the story. Eight years of Coalition policy uncertainty has been a handbrake on super investment in cleaner and cheaper energy. Funds cannot invest with confidence when a government cycles through 22 different plans in 8 years – the last one little more than a pamphlet. Policy uncertainty pushes up the price of finance. That pushes up the price of new projects and technology. It slows the transition. It also means super funds are increasingly needing to look offshore. So we desperately need policy stability, and clear and ambitious targets, which create certainty for super investments to follow.

Economic modelling for IGCC has shown that Australia would create $63 billion in fresh investment opportunities over the next five years by strengthening climate targets and policies in line with reaching net zero emissions by mid-century. And stronger 2030 policies can unlock $131 billion investment in clean industries and new jobs by the end of the decade.
The biggest impediment to tens of billions of dollars of investment in cleaner and cheaper energy is a Prime Minister who can’t get his head around the opportunities here and whose heart isn’t in it. So many missed opportunities to create real jobs, and real investment, in regional communities and economies. Action and leadership that we know won’t cost jobs but will create them. We know the market is there for renewable energy investments in Australia because it has been growing all around the world. And yet, we’ve been bucking the global trend. Australia is losing another race it should be winning.

S&P Global analysis indicates a passive investment in the ASX200 exposes investors to around twice the carbon exposure per dollar invested than in other major markets. Large investment funds report that if they invest in Australia at all, they
spend around 2-3 times as much capital in projects in the EU, USA and Asia than they do on Australian projects.

But these are the numbers that really stood out for me:
A recent survey of Australian investors managing $1.3 trillion found that 70 per cent of them highlighted policy uncertainty as a key barrier to investment, up from 40 per cent last year. This month, HESTA CEO Debby Blakely said, ‘while we want to invest more here, for every $1 we have invested in Australian renewables, we have $3 committed to equivalent assets overseas. The assets are in countries that provide stable, predictable policy settings, which have
given us the confidence to make long-term investments’.

The BCA also identified “policy certainty” as a key factor currently missing in Australia’s energy investment landscape.
This is a devastating vote of no confidence in Scott Morrison and Josh Frydenberg and the wasted decade of missed opportunities the Coalition has presided over.

Super Can Be Central
I know you all understand this. You know that more investment in cleaner and cheaper energy means more opportunities for more people in more parts of Australia. We need a government that understands this too. That won’t be a fourth term Coalition government led by Scott Morrison and Barnaby Joyce. A first term Albanese government would understand and unlock these opportunities.

We know super belongs at the very centre of the recovery. And that this is a key part to ensuring our economy is stronger and our energy cheaper and cleaner after COVID than it was before.

Frydenberg, Hume must force all superannuation funds to disclose their unlisted property, other assets

The Australian

1 November 2021

Robert Gottliebsen – Business Columnist

As industry and retail superannuation funds plan to increase their investment in unlisted securities, APRA and ASIC have disclosed dangerous gaps in the valuation processes of some of the funds and the willingness of some executives, trustees and their spouses to engage in a form of insider trading to take advantage of those bad valuation practices. It is the long term fund members who have been hit.

That means Treasurer Josh Frydenberg and Superannuation Minister Jane Hume must step in and look after members by forcing all funds to disclose their unlisted property and other unlisted assets; the valuation of each of these investments; the regularity of investment review: and in the case of income producing property the yield that is used to calculate the value. This is an absolute minimum. There is a good case to follow the US and demand details of all transactions. While most members will not read the disclosures, they will enable analysts and journalists to undertake the much needed task of monitoring fund valuations.

The existing legislation appears to already require the funds to disclose unlisted holdings and their values but the regulators have not enforced it. Clear regulation is urgently required and later changes need to be made to the legislation to stop the director/trustee rorts — albeit that a only small minority have abused their power and taken advantage of the doubt as to whether insider trading laws apply to superannuation funds when trustees, directors and their spouses switch their fund holdings to under valued unlisted assets.

For more than a year the ALP and some superannuation fund executives have been campaigning to prevent their members from being told the values of the properties they own and how those values were arrived at.

Among the superannuation executives who have been campaigning are people I respect and I am sure they had no knowledge of the dreadful practices that have now been revealed by APRA and ASIC.

The ALP appears to have been motivated by the cash it receives from unions.

Whether it be the superannuation fund executives or the ALP, the arguments they used to prevent disclosure were dubious at best.

In unlisted property trusts it is common not only for the individual property valuations to be revealed but also the yield which is used to calculate those property values. Naturally these values change especially in times when there are sharp fluctuations in interest rates as we have seen recently.

Superannuation funds every day are paying out pensions and lump sums to retiring people and at the same time taking in funds. It is totally unfair not to have up to date valuations on all unlisted assets — especially when there are major changes — because without them either the buyer or the seller is in danger of being disadvantaged.

Some of the arguments used to urge the government not to do the right thing by superannuation members by not disclosing valuations make no sense at all. For example it was even suggested that disclosure would impact the ability of a fund sell an asset. Buyers of a particular property will want to know the rental income and will make their own judgment on recent sales and yields in the sector. Book values of the non listed assets in a fund change regularly so the way the property is listed in the books is almost an irrelevancy in the sale process.

Meanwhile, the findings of APRA and ASIC are sickening given this is a $3 trillion industry where members trust their directors and trustees to undertake proper valuation processes and not to turn bad valuation methods to their own benefit.

APRA found few big superannuation funds had “robust, pre-existing frameworks for implementing, monitoring and reverting to regular valuation approaches following out-of-cycle revaluation adjustments” — ie they did not quickly adjust unlisted asset values when there was a major rise or fall.

Among the APRA discoveries were: the absence of formalised monitoring processes for valuation adjustments; no framework for the alteration of valuation adjustments; inconsistent valuations for different classes of unlisted assets; and board and management time dedicated to devising processes, rather than considering and challenging valuations

This is elementary stuff.

Then ASIC discovered how some trustees, directors and their spouses abuse the consequences of this bad management.

An ASIC surveillance about personal investment switching by directors and senior executives of superannuation trustees has identified “concerns with trustees management of conflicts of interest”.

ASIC looked at a sample of 23 trustees (including trustees of industry and retail funds) and focused on conduct during the time of increased market volatility arising from the Covid-19 pandemic.

They often found “clear failure to identify investment switching as a source of potential conflict, resulting in a lack of restrictive measures and oversight to adequately counter the risk”.

“This is very concerning given the level of sophistication and governance required of trustees when managing millions of dollars in assets on behalf of fund members.

“The superannuation funds had failed to identify investment switching as a risk and there was a disparity in board level engagement, lack of restrictive measures and in adequate oversight of investment switching and lack of oversight of related parties”

Frydenberg and Hume have done a wonderful job cleaning up the superannuation industry to the benefit of members but there is more work to be done.

Super test failures ‘looking to merge’, says APRA

The Australian

28 October 2021

Patrick Commins – Economics Correspondent

Five of the 13 super funds that failed this year’s inaugural ­investment performance test are actively looking to merge with other funds, APRA has said.

The Australian Prudential Regulation Authority chairman Wayne Byres told a Senate estimates committee hearing on Thursday that “the trustees of those 13 products now face an important choice: they can ­urgently make the improvements needed to ensure they pass next year’s test or start planning to transfer their members to a fund that can deliver better outcomes for their members”.

APRA figures from August 31 show there were one million members in the 13 super funds that failed the performance test, with assets totalling $56bn.

The trustees of the failed products included some big names, including Colonial First State and Asgard, alongside ­others such as Maritime Super and Christian Super.

The 80 MySuper products that were subject to the test represented 134 million members, with a combined $844bn in ­assets under management.

Recently appointed APRA member Margaret Cole said the actions the regulator was taking in regards to funds that flunked the test were “intensified supervisory activity and a great deal of contact with those trustees of those failed funds”.

Ms Cole said APRA had ­already received or expected to receive shortly “contingency plans” that would show how the trustees planned to improve their investment performance and pass next year’s test.

The Your Future, Your Super reforms, which kicked off on July 1, require APRA to conduct an annual performance test for ­MySuper products, which are also ranked via an online tool ­offered by the Australian Taxation Office.

From July 1, 2017, all member accounts in default investment options have been required to be invested in MySuper products, which are now subject to annual performance tests and ranked online. A fund that fails the performance test in two consecutive years is not able to take on new members, and will not be able to reopen to new members until their performance improves.

Ms Cole said the “biggest lever” trustees could pull to ­improve their performance would be to reduce fees – a key objective of the YFYS legislation.

Superannuation Minister Jane Hume noted that since the Morrison government introduced the reforms, 37 of 81 MySuper funds had cut their fees.

Ms Cole said “where it ­appears there will be difficulty passing next year’s test”, the regulator was pushing trustees to make an “appropriate” merger.

APRA puts more than 116 super funds on notice with retail sector in firing line

The Australian

20 October 2021

Cliona O’Dowd

The prudential regulator has taken aim at nearly 120 superannuation funds it says will struggle to remain competitive into the future, with the retail sector set to bear the brunt of the pain.

Australian Prudential Regulation Authority’s chief super enforcer Margaret Cole warned Wednesday that the sheer number of super funds and investment options in the market was a detriment to members. She said time was running out for 116 of 156 regulated super funds as mega funds bolster their position and influence.

While 17 super funds manage 70 per cent of all assets in the APRA-regulated system, a “shocking” 116 funds manage less than $10bn each, with the bulk of those — 78 in total — operating in the retail sector, Ms Cole said.

“It’s here in particular where we can see the potential vulnerabilities the retail sector faces in coming years,” she told a Financial Services Council event.

“Size is not the sole determinant of performance … But it is absolutely a key factor influencing not only member outcomes, but also the sustainability of outcomes into the future.”

Ms Cole, who was appointed to the regulator for a term of five years from July 1, said increased scale allowed trustees to spread fees and costs over a larger membership base while accessing higher earning investments in unlisted assets, such as major infrastructure projects.

“APRA doesn’t have a rigid view of what size a funds needs to be to compete with the emerging cohort of so-called “mega-funds”, but we broadly agree with industry sentiment that any fund with less than $30bn may struggle – and any fund with less than $10bn, without some other redeeming feature, will definitely struggle to stay competitive into the future,” Ms Cole warned.

 

The performance and sustainability challenges facing the smaller end of the industry long tail will not get any easier, she told the audience.

“If anything, they are likely to accelerate, as the mega-funds use their financial strength and higher profile to grow further by attracting new members, and fund stapling breaks the traditional nexus between employers and default super funds.”

Greater transparency, through APRA’s heatmaps and expanded data collection, and the recent Your Future, Your Super reforms, would make it easier for workers to identify the poor performers, and move their money elsewhere, she predicted.

Already, all but one of the 13 funds that failed the first MySuper annual performance test had seen a decline in membership, she revealed.

The named-and-shamed funds that failed the test include AMG Super, LUCRF, Colonial First State’s First Choice Employer Super Fund, Maritime Super, Christian Super and Commonwealth Bank Group Super. (See the full list here.)

“These drops are marginal to date but any reduction in scale is unhelpful for trustees trying to improve their performance,” Ms Cole said.

APRA is watching for a similar response when the results of the first performance test for choice products are published next August.

At the other end of the spectrum, the nation’s largest super funds are gaining 1000 new members every day, and $500m of net new cash flow each week, she noted.

“The funds (members) move to will often be those brands they are most familiar with, further bolstering the influence of the largest funds,” Ms Cole said as she pointed to the problems besetting the retail sector: substantially higher average administration fees than for MySuper products; far greater variation in performance; and significantly higher levels of underperformance

“The challenges many retail funds face will become evident in coming weeks when we publish the findings of APRA’s new information paper analysing the choice sector in preparation for our first choice product heatmap in December,” Ms Cole warned.

While the regulator’s analysis covers choice products in all industry sectors, including industry funds, the majority of products and options analysed were operated by retail funds.

As consolidation in the sector ramps up, Ms Cole warned smaller funds against “bus stop” mergers, telling them to join forces with larger, better performing funds.

Ms Cole also took aim at the sector’s “serial acquirers” who take over one fund after another and often move on to a new deal before bedding down the previous one.

“Given the time and cost involved in executing a merger, it’s vital the benefit to members isn’t squandered through poor execution or deferral of the integration needed to avoid problems down the track.”

Retail funds, in particular, should consider the benefits of consolidating their own product lines, she said.

How to future proof your super

The Australian

3 September 2021

James Kirby – Wealth Editor

If you consider that we have a compulsory system where everybody has to put away 10 per cent of their earnings into a super fund, it’s hard to believe the wider public had no way of comparing their fund’s performance until this week.

The release of the government’s super fund performance figures – and importantly the decision to name and shame the worst funds – is a genuine breakthrough. The trillion-dollar question now is what happens next?

It’s worth picturing what is going to occur when more than a million households will soon receive a letter from their fund telling them the most important investment in their life (outside of their home) is in a ‘dud’ super fund.

We should not be surprised if there is uproar from this unfortunate constituency where people who may not always keep up to date with the super industry will be confused and angry.

What’s more this group of stranded investors is going to get a lot bigger in the near future when the exercise is expanded to include all super funds.

In this first version of the performance assessment 13 funds out of 76 in the MySuper category failed to pass industry standards. (If you want to compare your current super fund and see how it fared alongside the 13 loser funds tagged as ‘underperforming’ then simply go to ato.gov.au and it’s all there under ‘YourSuper comparison tool. The best way to do this is to use your MyGov personal password if you have got one of those.)

Within those funds are big names. There are funds linked with CBA and Westpac along with well known industry funds such as the Maritime Super.

Importantly, the majority of the investors stuck in these loser funds were in so-called retail funds from banks and insurers. As expected, non-profit industry funds which often have trade union links were the overall winners.

So what are you supposed to do if you find you are in a dud fund? Should you contact the fund where some call centre operator will probably read a script telling you things are about to get better.

Should you pull out of the fund and move to one that has a better record. You will have to expect that the fund you pick this year (which will be on the basis of its recent performance) turns out to be just as successful in the future. Remember, statistics strongly suggest the winners of today are rarely the winners of tomorrow.

Or maybe you turn your back on institutional super entirely by opening a self managed super fund.

Top advisers suggested this week there could be a material increase in SMSFs when people realise they are in dud funds.

Perhaps this will happen, but you have to ask, would an SMSF be the right choice for people in this situation? Even if they were capable of running an SMSF would it be economically feasible? You need to digest costs of $3000 a year in fees to make an SMSF really work and that rarely makes sense for anyone with less than around $600,000.

Certainly people are more likely to switch funds if they are seriously worried – we know for example that switching activity inside big funds tripled in the immediate aftermath of the sharemarket crash last year.

What to do?

It just so happens that the super system is about to experience some very big changes that are mostly for the better. In a few weeks time – November 1 – the old arrangements where each successive employer could default workers into a different fund is due to formally end.

Combine this new era of stapled super (where you can choose to take the same fund with you through your working life) together with regular publication of performance tables and we are going to get a much more active super investing public.

This is the perfect juncture to explore the idea of a national super fund – a fund that would be run by the government and very likely managed by the Future Fund.

The idea has been bounced around for some time. However, ‘big super’ – industry or retail – does not want to hear about it. Similarly, Self Managed Super Fund professionals won’t like it because people might surrender their SMSF management to a government fund faster than an institutional fund – especially if it is run by an operation with scores on the board.

To be precise, first the government would have to launch the concept and kickstart a fund. It would then have to put the management of the fund out to tender. Under current circumstances, the Future Fund would simply have to win the mandate because it’s returns are exceptional. Across the spectrum, the worst super funds have been doing about 6 per cent, the best have been doing closer to 9 per cent – the Future Fund has been doing 10.1 per cent.

For the investor the winning aspect of such a plan would be that the regular competition to win the right to manage the money would mean it is always underpinned by the best funds – the Future Fund might not always be top dog.

What we got this week is improved transparency in the superannuation system, but we have not seen substantial improvement in the system itself.

Every investor – the apprentice starting out, the young family with multiple accounts, the older couple petrified of low interest rates – are all still mandated to make a choice.

A national fund would allow them to join a fund that sits above and beyond the current choices.

Seven things we learned from the first superannuation ‘shame file’

The Australian

1 September 2021

James Kirby – Wealth Editor

The government’s debut list of dud superannuation funds offers key pointers to the realities of how your money may be managed in our compulsory system

Not a moment too soon the government has published a long-promised super fund performance table: Specifically the recent outcomes at 76 default ‘MySuper’ funds where 13 funds have failed to reach industry standards. It’s a landmark for super and the scheme is only going to get bigger and better. Here’s what we found out:

1. Brand names mean nothing.

Some of the worst performing funds among the 13 dud funds have been offered by the biggest names in the game. Remarkably, a wing of the nation’s biggest bank is here, the Commonwealth Group Super – Accumulate Plus Balanced fund. Similarly, BT – an operation at the heart of the financial services system and a wing of Westpac – is smack in the middle of the sucker list with Retirement Wrap – BT Super MySuper.

Don’t assume a well known name automatically offers a strong fund.

2. There are losers among both retail and industry super funds

Industry funds are the big winners in our super system over the last decade – especially since the Hayne Royal Commission humbled the big banks and insurance groups. But the new ‘shame file’ has both retail names such as Colonial First State FirstChoice Super Fund along with industry funds like the Maritime Super (MySuper Investment Option) and the LUCRF (Labour Union Co-Operative Retirement Fund) MySuper Balanced fund.

3. Savers inside these funds need to be rescued

The government hopes funds which have been cast among the dud list will improve their game or get taken over by larger entities: This might be wishful thinking. A fund that has lost the confidence of the wider market will find it hard to regain momentum. Meanwhile, though large funds might cherry pick among the losers, there is no guarantee the worst funds will be acquired by bigger operators – there will need to be further incentives to get these dud funds to pack it in.

4. Loser funds always say the same thing

Some years ago when it was extremely difficult to compare super funds The Australian – using figures from the prudential regulator – published an extensive performance table of super funds. For weeks afterwards the worst performing funds complained loudly that the cut off point for performance was unfair. Others claimed that they had done wonderfully well since the day the regulator closed off the exercise, etc. The funds at the bottom of this week’s list are offering very similar explanations in their defence.

5. The comparison tables are free and easy to understand

The Australian Taxation Office has managed to present the performance figures very simply for free to anyone who accesses the tables through the MyGov website using their personal username and password.

Using the system on its debut day, the tables divide the funds between ‘performing’ and ‘underperforming’ – with a very useful 7-year net percentage return and fees comparison attached. What’s more there was no delay, crash or waiting time … hats off!

6. Some funds did not present their numbers

Even among the 76 funds that are examined, the regulator discovered that essential numbers were ‘not available’ among several funds which means an investor cannot make a full assessment: Here’s the funds – Mercer Super Trust (Virgin Money MySuper), Mercer Super Trust (Mercer Tailored CRG MySuper), Super Directions Fund (Water Corporation MySuper), the Retirement Portfolio Service- ANZ Smart Choice Super for QBE Management Services, Australia Post Super Scheme, and Australian Defence Force Super Scheme. For its part Mercer notes the performance test requires more than five years of data, and these two Mercer funds have existed for less than five years. Mercer notes that APRA’s separate assessment has the two funds listed as ‘Pass’.

7. It’s not perfect, but it will do for a start.

There are many failings in this exercise: Splitting funds into ‘performing and underperforming’ is simple and uncomplicated but then the process does not fully account for risk weightings or any scoring on the basis of Environment Social or Governance (ESG) considerations.

This is powerful public shaming: But more than a million investors may now realise they are in dud funds and on that basis alone the means should justify the end.

Failing products

AMG Super – AMG MySuper

ASGARD Independence Plan Division Two – ASGARD Employee MySuper

Australian Catholic Superannuation and Retirement Fund – LifetimeOne

AvSuper Fund – AvSuper Growth (MySuper)

BOC Gases Superannuation Fund – BOC MySuper

Christian Super – My Ethical Super

Colonial First State FirstChoice Superannuation Trust –

Commonwealth Bank Group Super – Accumulate Plus Balanced

Energy Industries Superannuation Scheme Pool A – Balanced (MySuper)

Labour Union Co-Operative Retirement Fund – MySuper Balanced

Maritime Super – MYSUPER INVESTMENT OPTION

Retirement Wrap – BT Super MySuper

The Victorian independent Schools Superannuation Fund – VISSF Balanced Option (MySuper Product)

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