Micro reforms to superannuation announced in the Morrison Government’s 2020 Budget run the risk of confusing consumers and having a negative impact on insurance in super, a panel has heard.
A proposal for workers to take their super with them when they change jobs, called stapling, as well as funds facing annual performance tests and public ranking by the tax office will have far-reaching impacts on the industry, say three experts speaking on “A Brave New World of Super” at Investment Magazine’s Group Insurance Summit.
TAL Australia Group Life Executive General Manager Darren Wickham expected stapling to profoundly change the way funds engage with their members.
“It’s interesting to see how stapling will play out,’’ he told the three-member panel.
“I see an increased emphasis on funds building relationship teams with employers, an opportunity in markets currently to engage members. It’s a profound change and we’ll be dealing with ths for a long time.
“When someone changes jobs, that’s a choice; for stapling, that’s a choice. Will employers play an active role in promoting a particular super fund to an employee? The question for funds is: do they have good relationships with employers to help promote their fund to the employer and to the member?,” Wickham says.
Milliman Director of Insights and Strategy Amara Haqqani says reforms “run the risk” of confusing super consumers and did not consider older Australians seeking more choice.
She says default or MySuper makes sense for young Australians in the early accumulation phase but did not assist those in late accumulation looking for advice and other products.
“There’s a world where people should be kicked out of (default) super in their late 40s and early 50s,’’ Haqqani says.
“I’d draw a black line around default. Where choice becomes important is when you form a different financial picture for yourself, choice becomes more important and products become more important as does accessibility to advice.
“People become much more engaged on your fund and where it’s going and you care more about where that’s going, not just ESG (on environment, social and governance grounds.”
She says APRA’s MySuper Product Heatmap, which provides assessments of the performance of every MySuper superannuation product and is designed to lift industry practices and enhance member outcomes by publicly identifying underperforming products, doesn’t work when comparing funds offering choices for older Australians and retirement products.
Rob Prugue (pictured) founder of People Reaching Out to People and Callidum Investment Research Principal says heatmaps are useful only for the “bottom of my birdcage”.
He says other managers’ portfolios did not receive the same scrutiny and comparison such as variable annuity funds and insurance funds.
“I challenge anyone to show me any investment that deals with the best way to immunize a portfolio,’’ he says.
“The investment environment is so unstable and (projects) such meagre returns that it’s difficult to immunise. Government errs on the side of subjectivity but it serves no purpose.”
Prugue sees the Australian super industry entering its third epoch, where distribution will be challenged by an uncertain and directionless capital markets, health care blow-outs, and depleted government coffers.
“We’ve assumed in the medium and long term that if asset classes go up then we can immunise these liabilities accordingly. But what if in the next 20-year period of directionlessness. Can we immunise?,” he says
“No government will sit by and allow the mega funds to fail with over three million members.
“The challenge is not highly related to size or scale but how do we manage a portfolio in an unstable world.”
Meanwhile a 60 per cent of the audience polled during the “Brave New World” session said micro reform changes in Budget and impending governance provisions had been negative for insurance services received by super members.