The Federal Government spending $16 million over three years on a superannuation clearing house is not much more than a “great start”, in the words of InvestmentLink chief executive Peter Philip, with lots of heated debate to come over how such a facility should be structured, and whether one is in fact really required at all.
The Government has flagged a period of much-needed industry consultation before the July 1 2009 start-date, but has specified that usage of the clearing house will be optional, that it will be supported by the Australian Tax Office but contracted to the private sector, that businesses will be ‘in the clear’ vis a vis their obligations to an employee once a payment of the correct amount has been lodged with the clearing house, and that the facility will be free for small businesses with fewer than 20 employees but attract an ambiguously phrased “service fee” for larger users.
Philip makes the entirety of his position on the issue pretty clear. “We feel that [InvestmentLink’s clearing service SuperChoice] is the leader in ecommerce for contributions processing, and we’re well advanced in discussions with the industry around cementing that position.” In short, Philip believes SuperChoice is already the dominant contributions clearer for Australia’s large corporate super funds – among the 1.4 million members on whose behalf it directs SG payments are those with AMP, Mercer, ING, Axa, Asgard, IBM/Russell and Australian Administration Services – and the Government should contract the new clearing house initiative to it.
InvestmentLink’s current focus on speaking to all the member administrators about connectivity reflects the widely held industry belief that for a mandated clearing house to work, it must enjoy buy-in from all the major players. Prior to its days as an ING subsidiary, administrator Citistreet released a white paper supportive of a clearing house, but said its success would hinge on the major players within those major players being directly involved. “Common to [successful cases of consortium-driven financial services reform] was senior executive sponsorship from the key industry players. This level of involvement was a catalyst for breaking down the barriers and mind-sets that often occur in lower levels of management against change,” Citistreet said.
Member administrators worked together successfully five years ago, points out former Superpartners boss turned admin consultant, Frank Gullone, around the development of funds transfer protocols which helped raise service standards, partly because they made it easier for clients to change administrators. With transfers out of the way, Gullone believes the three additional processes which should be standardised – by way of a clearing house or not – are contributions, benefit payments and applications (such as a salary sacrificed voluntary contribution). Gullone estimates that between 45 per cent and 60 per cent of an administrator’s costs are consumed by this trio. There is clearly much to be gained from standardising how they occur, and Gullone says it should be done in a way that maximises member accessibility by minimising industry jargon, and makes sure that any new template forms allow imaging systems to work at their best.
Gullone warns against standardising any flawed processes, singling out the proverbial ‘scrawl on a beer coaster with a cheque attached’ from the small employer, which is currently “nursed through the system with costly remedial activity by the administrator…If the Super Clearing House becomes the primary conduit for contributions, it cannot be expected to work seamlessly or with a useful degree of automation with the many input and process variations that exist today.
The benefits are more efficient administration, lower unallocated pools, fee restraint and fewer queries – it’s worth it.” Most talk of a super clearing house has so far focussed on the employer-facing SG contributions process, but executive director of straight-through processing (STP) specialists Bluedoor Technologies, Karen De Angelis, says this opportunity should be grasped to increase automation on all fronts.
She suggests the clearing house should become the repository for choice of fund elections, and should also be the place that employers can send details of new entrants to the superannuation world, as well as details of voluntary contributions. She also asks whether “product providers should be insisting that employers, members and advisers use online services to submit their contribution returns and new entrant data…rather than focus on contributions only, product providers should transition all transactions to the internet, significantly reducing the number of admin staff required to process all transactions,she says, adding that employers who are already able to transact directly with their funds on an online/STP basis should be allowed to continue to do so.
De Angelis says the work SWIFT is doing with the funds management industry (including Bluedoor) on managed funds transactions may point the way forward. “The use of XML data packets as the method of data transfer is the most likely and widely used method of communication…[if] transactions from the clearing house to all super funds were common across the industry, it may provide further data streamlining opportunities, because files will be received in the correct format and can simply be loaded directly into the administrator’s database with no manual intervention.”
However nobody is pretending that the formation of a clearing house will be easy. As Citistreet said in its white paper, “there are many questions around the degree of change required, ownership stakes, governance of the new entity, technology platforms, people considerations, business principles and operating models to be resolved before reform starts. Association of Superannuation Funds of Australia chief executive, Pauline Vamos, supports a clearing house (while observing that standardised connections among major stakeholders could also work) but asks what is literally the million-dollar question – “The big issue is who’s going to pay for it up-front – the super funds don’t want to pay for it, the employers don’t want to pay for it.”
Clearly, the formation of a clearing house will take months if not years, which is why some are thinking about reforms which may be easier to implement. The banking system should be brought more into play, in the view of Rice Warner director, Michael Rice. He believes the payment of straightforward SG contributions are little different to the payment of wages through the standardised system of BSB numbers. “People ought to know their superannuation details like they know about their tax file number and bank account details,” Rice believes.
When joining a new employer, Rice sees no reason why a worker could not fill out encoded details of their existing super fund on their employer declaration form. “There would be a handful of codes needed for fund administrators to be able to process the information sent to them by the bank – for instance is the contribution concessionally taxed, is it a spouse account, is it SG or salary-sacrificed?” Every fund and every member would have a unique number as part of the coding. Some forms would still be left blank and people would still have multiple accounts – just as the occasional employer who still pays cash wages in the post-GST era might send a contributions cheque – but Rice thinks integration into the banking system would use existing infrastructure – to reduce much of the extra cost generated by choice-of-fund.
Rice admits a hurdle to such reform would be the need for a lengthening of the standardised fields used in the banking system, but says the ATO could bring its authority to bear. “Remember the superannuation guarantee is a Tax Act,” he says. Even if the banking system does not become the conduit for contributions, Frank Gullone says at least that “mechanisms should be put in place to allow members to access base details regarding their supperanuation account (and any First Home Saver Account) via the automatic teller machine network and online facilities…this approach may reduce the number of general enquiries being made to call centres by members.”
InvestmentLink’s Peter Philip says the banking system alone cannot handle all the extra data and complexity involved with superannuation compared with wages. In any case, last month’s Budget made the clearing house a reality. Shaping that reality is likely to be fiercely contested in coming months, despite the collective gains to be made among all the major stakeholders. Will the Government allow ownership of the clearing house by a single provider, or support a consortium structure such as that called for by Citistreet?
How the clearing house provider(s) will be compensated for providing a free service to small business is another major question. Gullone points out that existing clearing houses make money partly from playing the short-term money market as cash passes through them – will the Federal Government be happy for a mandated clearing house to continue this practice?
The extent to which it will control service fees for larger employers is also to be determined. Watson Wyatt perhaps summed it up best in its ‘Budget Bulletin’ reaction to the clearing house – “We wonder if the devil will be in the detail of this proposal.”