The Federal Government’s choice of Medicare as its free super clearing house for small businesses has baffled private service providers, who say the hasty decision smacks of a Band-Aid applied hastily to cover election promises . However, the Association of Superannuation Funds of Australia (ASFA) is cautiously optimistic that “SupiCare” (as industry wits have dubbed the proposed Medicare exchange) could introduce much-needed mandatory standards and possibly cut SMEs’ costs. In theory, the clearing house/ exchange service will be working from July next year for small- to medium-enterprises with fewer than 20 employees. But, as one industry source said: “It took us more than 10 years to get clearing house processes correct: how’s Medicare going to get it right in three months? “The announcement reeks of knee-jerk political opportunism.

They made an election promise to launch an SME super exchange, but not to make it work. ” Chris Bowen, Federal Minister for Superannuation, said Medicare was chosen because “it has significant capacity in payment processing which can be readily adapted for superannuation contributions”. But, as another industry source commented: “If it’s just about handling lots of money, then why not get the TAB to do it? Place your bets, and pay your super?” Pauline Vamos, CEO of ASFA, said her concern was that the announcement was “very short on detail. ASFA is urgently seeking meetings with Medicare and the Treasury, and this could be either a fizzer or a tremendous opportunity”.

The decision, announced in early November by Chris Bowen, has left super industry veterans puzzled. When Senator Nick Sherry was Minister for Superannuation until June this year, he had indicated that the private sector would be in the loop, and that the election-promise superannuation clearing house would be funded through a $16.1 million allocation in the 2008-09 Budget. However, no tender was announced, and the private sector clearing houses are wondering about the “fit” of medical claims and superannuation payments. The best that can be said, according to Peter Philip, CEO of the largest clearing house SuperChoice, is that the decision has “removed ambiguity from the market and funds are now willing to move forward on their plans”.

The Opposition spokesman on superannuation, Chris Pearce, MP for Aston, is also puzzled at the choice. Medicare is proficient in dealing with individuals, he said, but he questions its choice because there are more “businessaligned organisations better suited to this task”. “I think the Government panicked and the Minister has chosen Medicare because it’s in his portfolio, he can do it quickly and have complete control. Will $16.1 million be enough to get Medicare’s system infrastructure changed in time for the July 1 start date? I predict a significant Budget blowout on this.” Vamos identified four current problems that the Medicare exchange will have to address: • the often poor quality of data from employers • the fact employers are not compelled to pay electronically • the tax file number (TFN) cannot be used as an identifier because of privacy concerns • data standards are not mandated ASFA has been pushing for better data standards for at least the past two years, Vamos said. The employers’ portal at the front end would be relatively easy, she said, “but the back-end is the problem.

It can be done if Medicare uses industry data standards, and if it uses the existing infrastructure of the private clearing houses”. Some of the key features of “Supi- Care” will be: • an employer will make one electronic payment to the Medicare exchange which will then disperse payments to multiple funds • the service will be free to small to medium businesses with fewer than 20 employees, and • the clearing house will manage employers’ choice of fund obligations • the employer’s legal obligations will be discharged when the correct amount is paid This last feature is a sticking point for the Australian Institute of Superannuation Trustees. “We don’t consider an employer to have fully met their superannuation guarantee obligations until the payment is in the employee’s super account and the details supplied have been verified as accurate and up-to-date,” said Fiona Reynolds, AIST’s CEO.

She also urged the Government and the Cooper Review into superannuation to consider extending the use of TFNs as the key identifier in the collection and processing of superannuation payments. “This would not only address the issue of employer non-compliance but also help solve the lost super problem and drive industry efficiency,” Reynolds said. Businesses with more than 20 employees will not be allowed to use the free service. In announcing this, Chris Bowen said this rule was in line with the Government’s “focus on assisting small business while also seeking to minimise the impacts of the measure on competition in the existing clearing house market”. This comment has also puzzled the private sector.

An industry source said, “almost the entire superannuation industry is outsourced to the private sector, so why suddenly make an exception for SMEs?” Chris Bowen also announced that another reason for Medicare’s choice was that it could ensure “the privacy of information and the security of funds”. “This decision was based on a number of considerations including the financial risk associated with channelling potentially large amounts of employee superannuation contributions through a private sector operator – counter-party risk,” he said. “Delivering the clearing house service through Medicare Australia will minimise the risk to the security of employee superannuation entitlements, while ensuring that the service provided to small businesses is in line with the Government’s election commitment – this includes allowing employers to discharge their superannuation guarantee obligations on payment to the clearing house.”

However, rigorous financial controls are already in place to safeguard funds, claim industry stakeholders. For example, private clearing houses must have an ASIC-enforced non-cash payments licence. Another industry source suggested that, if the Federal Government is particularly worried about the safety of SMEs’ funds, then private exchanges could be required to have, say, $5 million capital adequacy in a bank account. Bowen’s office did not answer Investment & Technology’s questions about Medicare’s use of the money between receipt and disbursement.

The Opposition’s Chris Pearce asks “for how long will Medicare sit on the funds? What will be happening with that money before it’s sent to employers, because contributions don’t start working for the employees until the super funds receive them.” In announcing the service, Bowen made much of it being free to SMEs. He said, “commercial clearing house services are currently available, (but) the Government has identified a specific need for a free service targeted at small businesses that will reduce compliance costs associated with meeting their superannuation obligations”.

“The Government’s clearing house facility will help relieve this burden by allowing small businesses to pay their superannuation contributions to a single location. The clearing house will also manage employers’ obligations under Superannuation Choice, including the process of giving effect to choice-offund nominations.” Industry sources say the Government’s reasoning on this is disingenuous and self-serving, to say the least. Sources question drawing the line at 20 employees: why not make all employers’ contributions fee-free, and have the Federal Government fund those contributions? Another source points out that Medicare’s costs will be funded through taxes, and so members – and employers – are paying anyway, despite the Government’s rhetoric about a free service. As well, there is the existing 15 per cent tax on superannuation contributions, which is money in Federal coffers.

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