Dear readers,

We hope you are enjoying the holiday season and wish you all the best for a happy and prosperous 2018.

The Investment Magazine team is taking a glorious two-week break. We’ll be back with more news, features and expert opinion from January 8, 2018.

Until then, here’s our prediction for 10 big issues likely to keep the superannuation sector busy in the year ahead − and a glance back at how we got here.

1. A royal affair

The superannuation industry was always bound to get caught up in the crosshairs of opposition leader Bill Shorten’s planned banking royal commission. Nevertheless, when Prime Minister Malcolm Turnbull surprised with a royal backflip and initiated the current government’s own Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, it caught the sector on the back foot. With a year to get the job done, former High Court judge Kenneth Madison Hayne has a massive task ahead, so it will be interesting to see what issues the inquiry homes in on. We’ve got $5 that says there is no way this thing is coming in on time or budget.

2. The Productivity Commission’s default shake-up

Stage three of the Productivity Commission’s major inquiry assessing the competitiveness and efficiency of the default superannuation system is expected as early as January 2018. This is tipped to recommend a massive overhaul of how employers and unions negotiate which super funds win lucrative default mandates. If you thought the industry infighting between retail and non-profit funds was ugly already, grab your popcorn for a showdown once this report lands.

3. Pressure to lift standards in group insurance

Hundreds of hours were poured into the Insurance in Superannuation Industry Working Group (ISIWG) in 2017, only for its highly anticipated Insurance in Superannuation Code of Practice to be deemed a huge disappointment by the government and consumer groups. But ISIWG chair Jim Minto has predicted the voluntary code would lead to higher standards and said it could save super fund members up to $3 billion a year. A number of funds, including AustralianSuper and Cbus Super have already launched new insurance offerings designed to reduce the risk of premiums eroding younger members’ account balances. The pressure is well and truly on for more funds to follow suit, and this could intensify if the Productivity Commission finds group insurance should no longer be a mandatory component of default offerings.

4. APRA’s new ‘member outcomes’ test

The Australian Prudential Regulation Authority’s new member outcomes test is meant to replace the scale test as a measure of the performance of superannuation funds. It was finally unveiled in the lead up to Christmas. As anticipated, it is set to intensify the regulator’s scrutiny of how funds make spending decisions and crack down hard on related-party deals, trustee junkets and the like. A consultation on the new test closes on March 29, 2018.

5. More mergers

Items 1, 2, 3 and 4 above are all set to drive more industry consolidation, as less-sophisticated funds find they can no longer compete. The pace of mergers has already picked up. Deals inked in 2017 included Sunsuper bagging Kinetic Super, the tie-up between Aon and Equity Trustees’ superannuation businesses, Concept One folding into WA Super, and Equip Super swallowing the Rio Tinto Staff Super Fund. APRA has a hitlist of about 25 funds it wants to see shape up or shut down, pronto, and extended powers to make that happen. We’re tipping more mergers in 2018.

6. Navigating abnormal markets

 Australia’s major super funds have just delivered a sixth consecutive year of investment gains, with a number of them posting a double-digit return. But investment chiefs have been warning for years now that members need to lower their return expectations. All major listed asset classes are sporting toppy valuations and despite the ‘Fear Index’ being eerily quiet, fears abound that risks are bubbling. With the influence of central banks fading, many are asking whether 2018 will be the year markets turn. Throw into the mix the global rise of populism and the potential for geopolitical turbulence becomes another factor keeping CIOs on their toes.

 7. Meeting the retirement income challenge

In the back half of 2017, the government’s plans to force all super funds to offer retiring members a Comprehensive Income Product for Retirement (CIPR) option ran out of steam. But mandatory or not, and regardless of whether you call them CIPRs or MyRetirement options, pressure is mounting for all funds to meet older members’ retirement income needs. As a first step, funds have been urged to develop a retirement income framework.

8. Engaging members

All of the above points to funds contending with increased competition. That means they all have to get better at engaging members. A rash of upstart funds with slick marketing launched in 2017 should serve as a reminder to get more savvy about digital services. Meanwhile, as ESG investing hits the mainstream, more funds are expected to follow the likes of UniSuper and AMP in launching revamped sustainable investment options.

9. RG 97 under review

A collective sigh of relief could be heard in November when the Australian Securities and Investments Commission announced a review of its much-maligned Regulatory Guide 97 (RG 97) just weeks after it had come into effect. For a brief moment, some pondered whether swathes of the new rules for Disclosing Fees and Costs in Product Disclosure Statements (PDS) and Periodic Statements might be headed for the dustbin. However, the review will probably lead only to yet another extension on the deadline for compliance, plus a few minor tweaks − most likely around problematic areas of disclosure, such as reporting property management costs.

10. Federal budget changes

The May 2018 federal budget is tipped to be relatively light on changes to superannuation, but you can be sure there’ll be a couple of surprises. Meanwhile, there are still plenty of changes filtering through from the May 2017 budget. Just before the Christmas break, the government succeeded in pushing another batch of its legislative reforms through Parliament. Three external dispute resolution bodies, including the Superannuation Complaints Tribunal, are set to be abolished and replaced by the Australian Financial Complaints Authority (AFCA). The First Home Superannuation Saver Scheme and new downsizer provisions passed into law as well. Still with the Senate is an extension of Choice of Fund legislation, and a bill to force all super funds to appoint independent directors as one-third of its board, including an independent chair.

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