The superannuation industry needs to resist those who want to take a “reductionist approach” and mandate rigid regulations over the sector, Martin Fahy, chief executive of the Association of Superannuation Funds of Australia, has told the 2018 ASFA Conference in Adelaide, insisting that for-profit organisations have a place.
His comments came amidst a series of heated opening speeches that also included Assistant Treasurer Stuart Robert and ASFA independent chair Michael Easson’s sparring over the federal government’s plans to mandate that insurance cover in superannuation be provided on an opt-in basis for members who are young, inactive or have low balances.
Fahy said the industry needed to reject “ideological purity in the solutions that we seek out” for keeping superannuation sustainable for future generations and that there would always be people advocating one single solution as the right one.
“They’ll say to you, ‘We need a single default system that’s run by the Future Fund.’ They’ll say we need a single governance model that looks like ‘x’. They’ll say we need to allocate to a single asset class or a particular investment strategy,” he said. “And they’ll even say to you we can only have one type of business structure operating in superannuation.
“We have to reject those reductionist views. There has to be a place for the for-profit motive and for-profit organisations within superannuation.”
Despite the upheavals that will probably follow the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s report and the new regulations it’s expected to bring about, Fahy said the industry was “probably at its most optimistic point” and that this time in history would be looked back upon as “a second coming of superannuation”.
“Over the coming years, we’re going to see the system accelerate and grow,” Fahy said. “We’re going to see inevitable consolidation, and we’re going to see some funds crash through not just $100 billion but $200 billion.
“And with size and scale come responsibility. As we go into the next 12 months of torturous and acrimonious public policy debates around the fallout from the [Productivity Commission] and the royal commission and this new legislation, I think there has to be an appeal to civility in the market for ideas and the debate that we engage.”
‘Lazy and misguided’
Before Fahy took the podium, ASFA’s Easson said average retirement balances were still inadequate and sharply criticised the Productivity Commission as having a “lazy and misguided approach to calculations that are vital to public policy determination”.
The Productivity Commission had projected a person aged 21 today earning $50,000 a year would earn $1.2 million in super by the time of retirement at age 67, he said. Calculations like this could lead some to say there was no need for the Superannuation Guarantee to reach 12 per cent of income, Easson said, but he explained that ASFA had arrived at a far more modest $250,000 to $300,000.
“I think we are all damaged as an industry and we need to ensure that the improvements we need to make and the lifting of contributions to enable a decent retirement remain part of our focus,” he said.
He pointed to a range of superannuation bills being introduced into Parliament and said ASFA was “opposed to wiping out insurance cover for vulnerable young workers. We are opposed to substantive changes that add to cost and complexity and strike at the principle of pooling.”
In response, Robert staunchly defended the government’s agenda for legislative change in superannuation, which included five bills now before Parliament.
The government’s Protecting Your Super package addressed the fact there were no specific protections preventing low-balance super accounts from being eroded by fees and inappropriate insurance premiums, Robert said.
He said half of superannuation accounts either had a balance less than $6000 or had no contributions in 13 months or more. He said 40 per cent of accounts were duplicate accounts and that the mean proportion paid in fees by anyone with a balance of less than $1000 was 9 per cent a year.
“Australians should not be defaulted into insurance they didn’t ask for or can’t claim on, or that is significantly beyond what they need,” Robert said. “[Along with] support from the Productivity Commission, the insurance changes in the Protecting Your Super package are consistent with, or build on the momentum of, the Insurance in Superannuation Voluntary Code of Practice – your voluntary code.
“As I’m sure you’re aware, your code requires the automatic cessation of income protection insurance after 13 months of inactivity for members. Your code also requires automatic cessation of death and TPD [total and permanent disability] insurance for accounts under $6000 after 13 months of inactivity for members. The government’s changes apply these automatic cessation rules for all members, as all accounts that are not receiving contributions are at significant risk of erosion.
“I note, however, that there are some insurers and some super funds that have been advocating strongly against these measures with the cross-bench over the last couple of days, which I find odd because these measures are a reflection of what’s in your voluntary code.”