It seems unlikely that any superannuation funds will be up and running with First Home Savers Accounts (FHSA) by the October 1, 2008 launch date.
According to a consultation paper released last month by the Australian Prudential Regulation Authority (APRA), super funds will not automatically be able to offer these accounts. Under the FHSA Bill, super funds will have to set up a separate trust for this purpose.
Andrew Barr, policy and research manager at AIST, said that the cost of creating a separate trust will make it hard for many super funds to offer FHSAs. “It will duplicate costs in exchange for a small number of low account balances,” he says. “The trust will have to pay for audits, investment management contracts, trust deeds, regulatory policies… it would have the same inefficiencies as a very small super fund.”
Barr predicted that the initial uptake of FHSAs would be slow, and given that the whole sector is only anticipated to reach around $4 billion, the trusts could not achieve the economy of scale that give superannuation funds a competitive advantage.
Pauline Vamos, chief executive at the Australian Superannuation Funds Association (ASFA) said that while the FHSAs may require different budgeting, the separate trusts can still leverage off the scale of infrastructure and administration systems that superannuation funds already have in place. “It may not be for every fund, but for those with a large proportion of members interested in a FHSA, it could be worthwhile.
Those that have decided there is a potential market will not be put off by APRA,” she said. “There is the initial cost of setting up a trust, but the systems, process, human resources, and governance are already in place.” Vamos said for some funds the FHSA could be considered simply as growth of the business, like offering another product.
Barr agrees that for funds with the infrastructure already in place, offering FHSAs may be easier, but for the many funds that outsource, it will involve extending contracts or even finding another provider. “In terms of the policy, the funds could have offered a good product,” Barr said.
“I know a couple of funds that would like to go ahead with it, but no one has even started yet because the legislation is yet to be finalised.” LUCRF Super’s general manager, Greg Sword, said having to establish a separate trust would be cumbersome, but it would not affect the fund’s plans to offer the FHSAs. “We think it is an important product, and with 60 per cent of our membership under the age of 40, it would be remiss of us not to offer it,” he said. “It extends the range of services to a broader group of people, and it is good to see super funds becoming more like financial institutions.”
The Superannuation Industry (Supervision) Act 1993 will not apply to the new trusts. APRA has prepared an application process and a draft prudential standard for super funds wanting to operate FHSAs.