It has taken the Treasury 10 months to make its response to the Financial System Inquiry. After all that time, the response is not as detailed or as forthcoming as some might have hoped. Investment Magazine reads between the lines to decode the Treasury’s 387 word statement on how it will respond to the FSI’s recommendations for superannuation – the government’s words are in italics.
“Superannuation is the largest financial asset many Australians have after the family home. Millions of Australians rely on their superannuation to provide income in retirement. The superannuation system has accumulated over $2 trillion in assets, making it the second largest part of the financial system. It is critical that the superannuation system is competitive, efficient and transparent and has the highest standards of governance.”
IM: Members must have total flexibility on choice and boards must have the required amount of independent directors, regardless of any evidence that this will improve outcomes.
“Australians must have confidence to invest in this system and plan for their retirement. By providing retirement incomes for millions of individuals, the superannuation system encourages greater self-reliance.”
IM: Members should rely on the government less, and more on themselves.
“We will enshrine the objective of the superannuation system in legislation. This will help align policy settings, industry initiative and community expectations.”
IM: Everyone agrees this should happen, so we can talk boldly about it.
“There is scope to improve the performance of the superannuation system in a number of areas. The system is fragmented, costly, complex and suffers from a lack of member engagement.”
IM: Lower fees take precedence over any stories we have heard of improved outcomes from higher fees.
“Increased member engagement could improve member outcomes broadly, including putting downward pressure on fees and improving after-fee returns. In the retirement phase, the development of new income stream products can better protect retirees from longevity and other risks.”
IM: The industry has asked for greater flexibility on retirement products; we are not excited about this, but we will get round to it.
“Governance can be improved and conflicts of interests can be better managed. We have already introduced legislation to improve governance in superannuation, committed to enhance transparency of information and to improve competition in superannuation, but more needs to be done. We will implement a number of changes which build on existing commitments to boost efficiency and competition.”
IM: Let’s emphasise that point on lower fees and member choice again.
“We will immediately task the Productivity Commission to develop and release criteria to assess the efficiency and competitiveness of the superannuation system. We will also immediately task the Productivity Commission to develop alternative models for a formal competitive process for allocating default fund members to products. Subsequent to the development of criteria and following the full implementation of the MySuper reforms, we will task the Productivity Commission to review the efficiency and competitiveness of the superannuation system. We will also explore additional measures to improve the efficiency and competitiveness of the current system.”
IM: If we are going to shake up the whole system, we will need evidence to deflect complaints that come our way.
“We will develop legislation to allow trustees of funds to provide pre-selected retirement income products to help guide members at retirement and improve outcomes for retirees, including through increased private retirement incomes, increased consumer choice and better protection against longevity and other risks. We will also continue our work to remove impediments to product development.”
IM: We will put the part we are least excited about at the end.