29 November 2017
When leaders of the $2.5 trillion superannuation industry gather in Sydney today for the Association of Superannuation Funds of Australia’s annual conference, the increasing regulation of the industry will be a key theme.
Australia has one of the best retirement savings systems in the world — a compulsory superannuation regime that is widely accepted and has increasingly focused ordinary people on the importance of putting money away for their future. But the danger is that constant regulatory changes, the progressive cutting back of tax concessions, criticisms of the system and now the prospect of another round of politically generated inquiries will erode confidence in a system working well.
There is always room for improvement. The compulsory 9.5 per cent needs to move up to 12 per cent to generate more adequate levels of savings, and there needs to be more focus on generating post-retirement income products.
But the system that has built up in the past 30 years has generated an impressive capital pool of $2.5 trillion and meant that Australians have been far more focused on saving for their retirement than they have ever been before.
Superannuation is an industry that involves a high level of public trust and needs good regulation.
But the unexpected tax changes under the Turnbull government announced in the 2016 budget and that came into force this year have shaken the confidence of many people about making extra voluntary contributions.
There is also uncertainty about what might come out of the Productivity Commission’s review of the efficiency of the superannuation system.
The commission is expected to deliver an interim report early next year and a final report later in the year. That report has the potential to deliver recommendations for more regulation and changes.
As ASFA chief executive Martin Fahy points out, there has been much criticism that the super system is not working because the government is still spending significantly on the aged pension.
But the fact is that compulsory superannuation — and the broader savings culture it has generated — is resulting in more people moving from the full aged pension to a part pension and, over time, to becoming self-funded retirees.
As Fahy points out, while the amount being paid in pensions is large as a percentage of the economy, particularly going into the future, it is set to be far less than in many other OECD countries.
The new level of concern is that superannuation is in danger of being drawn into the attacks on the banking system.
What started out as a criticism of the activities of the big banks is in danger of producing yet another layer of regulation and control of the superannuation system.
There is a danger that Trump-like populism will not only erode confidence in the system but lead to more regulation that could inhibit the growth of the industry and its potential to play a more effective role in the economy.
In a surprise move in this year’s budget — particularly for a conservative government — the Coalition announced the banking executive accountability regime, which will give the Australian Prudential Regulation Authority the ability to review the appointment of bank executives and their remuneration packages.
There is increasing concern that this will all too easily roll over into the superannuation and insurance industries. And increasing anti-bank sentiment, which is playing into political uncertainty in Canberra, now seems almost certain to draw in the superannuation industry in any inquiry to be announced.
It is one thing to question the banks’ role in Storm Financial, or to raise questions around practices adopted by CommInsure, or the bank bill swap rate allegations, or bank ATM fees, or the allegations made by anti-money laundering agency Austrac against CBA.
But just how this should lead to an inquiry or even a royal commission that takes in the superannuation industry, which has already been subject to a raft of reviews and regulatory tightening over the past decade, defies logic.
There is also a difference between banking and superannuation at the grassroots level. While Australians may have complaints with their banks — from fees to issues around loans, and concerns over the financial planning industry — there has not been a groundswell of member complaints about super funds per se.
The superannuation system is not broke and there is a danger that the rank populism we are now seeing amid the increasing political uncertainty in Canberra can add to an erosion of confidence in the system that is already occurring as a result of the constant government changes to the super tax regime.
Super industry leaders argue that reviews of the super system be linked to the five-yearly intergenerational report. This would provide some consistency in the logic around any changes to the system.
Fahy argues that the super industry needs to redefine itself as a retirement savings industry with a broader focus on issues such as aged care and how people manage their finances while in retirement.
The increasing longevity of the population has created big issues to deal with.
What is needed is an approach that takes a broad look at the challenge of our ageing population and our retirement system.
The issue needs long-term thinking that builds on the bones of the good system we already have in place — not short-term populism where various political agendas might undermine confidence in the system.
(emphasis by Save Our Super)