Reactions to yesterday’s final Cooper Review report were mostly predictable, with the recommendation that super funds have capital backing perhaps the most controversial.
The Australian Institure of Suiperannuation Trustees was concerned at the recommended need for capital backing, while the Financial Services Council (formerly IFSA) enthusiastically applauded it.
“Superannuation funds, like banks, should be required to hold appropriate levels of capital to protect fund members,” said FSC chief, John Brodgen, whose core banking and insurance company constituency have the large balance sheets which AIST members, the industry funds, currently lack.
The head of SuperRatings, Jeff Bresnahan, said capital backing would not help members in serious cases of fraud, and said the same effect could be achieved by trustee companies being made to hold appropriate levels of professional indemnity and director liability insurance.
Meanwhile, the AIST said the proposed Productivity Commission review of the practice of naming default super funds in awards required “clarification”.
That review was welcomed by the FSC, with Brogden saying the Commission referral “emphasises the need to improve competition in this sector”.
Bresnahan said that the FSC’s retail constituency were paying the price for industry funds’ “having so effectively tied up distribution through labour channels…they didn’t care about it 15 years ago, but now it’s big they’re jumping up and down about it.”
Among the Cooper Review’s 177 recommendations were measures that would see trustee boards face many of the same disclosure responsibilities faced by public company boards. The Cooper resolve to eliminate the ‘armchair trustee’ is clear throughout, witrh a total number of superannuation funds less than 40 the ultimate desired result.
The ‘MySuper’ proposal casued another predictably mixed reaction.
The AIST’s CEO, Fiona Reynolds, said the MySuper model “recognised that all working Australians – including those who are not engaged with their super – deserve the protection and benefits of commission-free, low-cost super, already provided to the estimated 6 million workers who belong to not-for-profit funds.”
Reynolds continued that reforms such as requiring funds to offer low cost financial advice for members, post-retirement products and ensuring that consumers could easily compare their fund’s performance were welcome.
The FSC take on MySuper was different, with Brogden thinking the model, which requires a separate set of accounts to eliminate cross-subsidisation, a blight on an otherwise tidy package of recommendations.
“The MySuper proposal is overly paternalistic and will entrench disengagement and [lack of] interest, [and is] likely to increase cost rather than reduce cost,” he said.
“The Future of Financial Advice package – which will remove conflicted remuneration structures, provide greater transparency and simplify super for all consumers – and the introduction of shorter and simpler disclosure documents will make MySuper redundant.
“The super industry formally began moving away from commission-based super products in 2009. Inexpensive, consumer-friendly super products are now widely available without the additional regulatory impost and expense imposed under MySuper. We are failing consumers if we give up on engagement and disclosure by effectively legislating for [lack of] interest and apathy. It dumbs super down to the point that control and choice is removed from members as is disclosure.”