Jack Gray has been a contrarian voice as superannuation marks 20 years of existence. The academic and company director has criticised the industry for its migration away from a defined benefit system. Meanwhile, Pauline Vamos, CEO of ASFA, paid tribute to both Labor and Coalition Governments and their recognition of the “desirability, indeed the necessity, of compulsory superannuation” at a $298 per head gathering of more than 250 industry executives at Parliament House on August 16. Colin Tate, publisher of Investment Magazine attended the event.
Speaking at the function, Bill Shorten, Minister for Financial Services and Superannuation, reminded the attendees that average Australians need a 70 per cent replacement rate of their accustomed income to live comfortably in retirement, but only 35 per cent of the population are in that category – which shows the urgent need for lifting the super guarantee to 12 per cent. However Gray argues for a structural change in superannuation. “Making the funds defined contribution and leaving decisions to individuals has predictably created a massive agency ecosystem that spans trustees, consultants, managers, internal staff, lawyers, custodians, financial planners,” he says. “They all extract economic rent – often through overservicing,” Gray says.
The irony in this is that Gray is a former investment manager and fund executive. He is now an academic but also a director of Brookvine, a placement agency. He admits the contradiction. Gray believes the Australian system abandoned defined benefit funds too early. The “radical idea” of going back, he says, is not out of the question. “It just requires courage.” He advocates the Dutch approach of developing a defined benefit-like system that is portable, risk-shared and still has a nominal guarantee. “My big policy idea for designing an optimal retirement system is to drag all the supposedly smart over-paid financial engineers out of Wall Street and ‘re-educate’ them to finally do something of social value and develop a modified defined benefit scheme that avoids the problems of lack of portability, inequity and balance-sheet risk. “Is it a bit too radical? Sometimes a collective approach generates far superior individual results. It certainly does with insurance and other forms of risk-sharing,” Gray says.
At the Canberra function, Shorten said that women continue to be disadvantaged because they live longer than men but on average have super balances that are 30 per cent lower. “Currently, around 2.1 million women get no tax benefit from contributing to superannuation, due to the 15 per cent superannuation contribution tax being at or below their income tax rate,” he said. Vamos said that when the then Treasurer John Kerin introduced the superannuation guarantee in 1991, said, he noted the system was vital to ensure that all Australians had a secure income in retirement. Event attendees amounted to a roll call of the of the Australian super industry, both past and present. Stalwarts included the Kerin and Tony Cole, current Mercer partner who was Treasury Secretary from 1991 to 1993. Garry Weaven, current chairman of Industry Funds Management, and who was assistant secretary at the Australian Council of Trade Unions was involved in the industrial campaigns that preceded compulsory super, also attended.