Challenger's Jeremy Cooper
Challenger's Jeremy Cooper

Challenger chair of retirement income Jeremy Cooper, who reviewed the superannuation system for the government in 2009, warned against further inquiries into Australia’s retirement system as urged by the Productivity Commission.

“There is a degree of incumbency and a degree of change resistance, so while the superannuation industry does need to be shaken up regularly, constantly putting it under review is unfair,” he said.

While Cooper concedes the PC identified flaws in the country’s $2.7 trillion super system, he remains critical of its accumulation-centric view of the sector.

“The report had nothing to do with retirement. It was all about the best-performing fund over the long term. The commission obviously seemed to think that the retirement income phase is too hard and hence the call for another inquiry,” said Cooper, who will be speaking at the Investment Magazine Retirement Conference on March 19 in Sydney.

He took exception to the PC’s terse comments about the retirement income covenant, which would, for the first time, require super trustees to help members reach their retirement income objectives by offering a comprehensive income product for retirement (CIPR).

“Trustees do not always want to offer these products, and forcing them to do so may conflict with their obligations to act in members’ best interests,” the PC’s report, released in January, stated. “The government should thus reassess the benefits and costs of its proposed retirement income covenant, and abandon it if the flaws cannot be sufficiently remediated.”

The pension specialist said industry consultations on the covenant had dragged on for a long time but added that the big industry funds that were already working on creating longevity products were serving their members best.

“And the minute they see the actual legislation, they will get their skates on,” Cooper said.

On the other hand, he warned that engaging with the technicalities of the retirement phase, life expectancies and new products would put a strain on some smaller, less-resourced players, which would probably look to third-party providers for product.

“Right now, the industry is looking at options available to them. Should they build a collective pension group self-annuity – in which funds create longevity risk products by pooling within their own membership – or go with a life company annuity, either immediate or deferred?” Cooper explained. “Funds are talking about what sort of combination of those things would suit their members.”

Looking ahead, Cooper said it was difficult to predict what the super landscape would look like in even five years, given the hurdles ahead.

As examples, he cited dealing with mortality and life expectancy – which he said was a different proposition to simply collecting money and engaging fund managers – and the question mark over how many funds would join together to build scale.

“We don’t know what sort of regulatory supervision we will get if funds elect to build a collective pension annuity,” he said. “How will the prudential regulator regulate super funds that go down the collective pathway? Will they be treated the same as a defined-contribution fund or looked at more as a defined-benefit fund because it is promising an outcome?”

An accumulation fund, he noted, merely offers an estimate.

Elizabeth Fry is the editor of Investment Magazine's digital platform. Fry has been a financial journalist for more than 25 years and has written for a number of publications, including CFO, The Financial Times and The Australian Financial Review.
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