In one year, the superannuation system will be structurally different. There are imminent forces of change at play. The Cooper Review has pushed for better administration and a universal low-cost default fund, while financial services Minister Bill Shorten is campaigning to upsize the rate of super contributions to 12 per cent. Shorten has backed Cooper’s SuperStream and MySuper proposals, and after making his formal response to the review before the close of 2010, he will undertake broad consultation with industry stakeholders – “because a good idea is most vulnerable at the implementation stage,” he says – in the new year.
In spring 2011, the Government aims to hand down legislation to implement structural improvements to the system and then ring-fence it from tinkering at each Federal Budget. This makes 2011 a crucial opportunity for the industry to put its views on the gamut of reform topics – adequacy, remuneration conflicts, tax concessions and costs – to policy architects in Canberra. Other forces of change in the industry are slow-burners. For super funds, the long period of automatic member growth is ending as account consolidation continues and the tax office claims inactive balances. The culling of the 33 million balances held by 11 million working Australians has begun, and this pressure of declining memberships is one motivation for fund mergers.
In November, First State Super and Health Super previewed Australia’s next big fund when they flagged their aim to combine into a $28 billion entity. In a world of fewer accounts, scale is one way to compete. If AMP’s bid for AXA Asia-Pacific succeeds, it will create a retail superpower harnessing its internal advice networks to gather inflows. Industry funds will need big memberships and the per-account revenue they generate to avoid lifting fees as they compete with retail services. Some funds have committed to stay solo, but the industry is likely to see more mergers as competitive pressures increase. And if Shorten rallies enough support to sign 12 per cent contributions into black-letter law, he must ensure that Australians – in whose name the adequacy debate is being waged – will benefit at least as much as the industry does from boosted inflows. This is why 2011 will be a year of structural change for the industry.