There are many challenges facing all segments of the sector but in order to meet any of them, fund CEOs say they need a break from all this change.
The leaders of some of Australia’s most successful super funds have spoken with a united voice in calling on the federal government to take a breather from announcing any more changes to superannuation laws in 2017.
Investment Magazine conducted a straw poll of chief executives from the 20 superannuation funds recognised for excellence as finalists across 11 categories in the Conexus Financial Superannuation Awards 2017.
We asked these super fund bosses to identify the biggest challenges facing their industry in the year ahead.
The overwhelming majority spoke of fighting an uphill battle to overcome the general public’s mistrust of the system; a problem exacerbated by the confusion over a swathe of changes to tax concessions and contribution rules foreshadowed in the May 2016 federal budget and set to be implemented in 2017.
“Uncertainty driven by continual legislative change serves to erode confidence and trust in superannuation as a reliable, long-term savings vehicle,” says Anthony Rodwell-Ball, the chief executive of NGS Super, the $7 billion industry fund for non-government schools.
The 2016 federal budget included the biggest suite of changes to the regime of superannuation contribution rules and related tax concessions since the nation’s compulsory retirement savings system was introduced in 1992. The crackdown on super tax perks for the rich represents an attempt by the Turnbull Government to make the system fairer and more economically sustainable – a critical challenge as the baby boomer generation enters retirement at a time of turmoil and low-growth in the global economy.
After heated debate, and some modifications, most of the changes have passed into law and will be in effect from July 1, 2017.
The timeline for implementing the changes has left many super funds, particularly smaller providers and those that manage their back-office administration in house, struggling to have compliant systems in place by the looming deadline.
A matter of trust
But perhaps a more important long-term downside of the reforms is that the negative publicity surrounding them has harmed public trust and confidence in the system, leaving members less likely to make engaged decisions – or voluntary contributions.
Australian Catholic Superannuation & Retirement Fund chief executive Greg Cantor lamented that political intervention was derailing the $7.5 billion faith-based super fund’s efforts to improve the financial literacy of its members and help them become more engaged with decisions about their super.
“The government is not making it easy for people to have faith in the system,” Cantor says. “Our members tell us they trust us but they can’t trust either of the two major political parties.”
Intrust Super chief executive Brendan O’Farrell is frustrated by the inability of the major political parties to achieve bipartisan accord on superannuation policy.
“Australia is seen to have one of the best superannuation systems in the world. But there must be a long-term vision to ensure super funds can invest more in building quality solutions, and less in addressing constant legislative changes,” says the chief executive of the $2 billion Queensland-based industry fund.
QSuper chief executive Michael Pennisi is worried that superannuation will “continue to be in the press for all the wrong reasons” in 2017.
“Super was obviously a big election issue in 2016, sparking much debate and a number of tax changes that will take effect from July 1, 2017,” Pennisi says. “What the general public wants from the government is a sense of stability in the direction of future policy.”
The chief executive of the $65 billion default fund for Queensland public servants wants the industry to do a better job of spruiking the “great benefits” it provides.
“It is incumbent on us [the industry], and on the government, for the good of the country, to make sure people believe the super rules of today will stand up tomorrow and the next day,” he says. “Our super system is a fundamental building block of the Australian way of life.”
Frustration and confusion over changes to the super rules has just added to the public’s longstanding disenchantment with the system, MTAA Super chief executive Leeanne Turner argues. She says combatting member apathy has long been, and remains, the biggest challenge for the $9 billion industry fund for workers in the motor trades – and for the super industry at large.
“Apathy and a lack of engagement with super present an obstacle to the adequacy of individuals’ retirement savings and, ultimately, people’s wellbeing in their later years,” Turner says.
Energy Super chief executive Robyn Petrou agrees building member engagement and trust remain the top challenges for the superannuation industry.
“Australians continue to remain largely disengaged from their superannuation until they are only a decade or two away from retirement,” Petrou says. “Too many members don’t understand how their super fund can assist with bolstering their financial wellbeing during their working lives, with insurance and financial advice.”
The boss of the Queensland-based $6 billion industry fund for workers in the energy sector called “the government constantly changing the rules” the leading cause of rising member disillusionment.
National Australia Bank executive general manager wealth products, Paul Carter, whose remit includes the $70 billion MLC Super, agrees a lack of member engagement continues to be the biggest challenge facing the superannuation industry.
“Turning this apathy around will be like turning an ocean liner around. It will be slow but with sustained progress, we can make a difference,” he says.
Carter says super has “been the subject of political whims for too long”. He called on the federal government to be ambitious and aspirational as it readies to introduce new legislation defining the objectives of the super system.
“These objectives should be clear, measurable and robust to ensure they target an adequate replacement income in retirement to mitigate generational inequity and gaps in living standards, as well as costly and destabilising interventions into the future.”
Retail, not-for-profit segments clash over some changes
The not-for-profit and retail segments of the super sector are largely united in their calls for the government to “stop tinkering” with the super tax rules. But there are many mooted changes to the super rules on which the not-for-profit and retail sectors are in staunch disagreement.
Perhaps nowhere more so than on plans to throw open the default fund selection process to encourage more competition from the banks.
UniSuper chief executive Kevin O’Sullivan says responding to the outcomes of a Productivity Commission inquiry into the efficiency and competitiveness of the industry could be one of the biggest challenges for the industry in 2017.
Another top priority for the industry in the year ahead will be ensuring members receive appropriate insurance through their super fund, and ensuring the public better appreciates the value of those insurance arrangements, O’Sullivan says.
The chief executive of the $55 billion default fund for university employees also identified the need for funds to “take concrete steps to deliver truly relevant and appropriate post-retirement solutions” as a high priority.
Investments in technology and data management processes will also be critical, as funds set about meeting the multiple challenges of engaging disaffected members, lifting the quality of their insurance offerings, and developing next-generation retirement income products.
And as super fund chief executives are facing all these challenges, their chief investment officers will be grappling with how to meet their investment return targets in difficult financial markets.
The winners of the Conexus Financial Superannuation Awards 2017 will be unveiled at a black-tie event at the Ivy, Sydney, on March 9, supported by Vanguard and AIA Australia. You can purchase single tickets or tables for 10 by visiting the event website. The Conexus Financial Superannuation Awards proudly support The Wayside Chapel.