Leading industry figures have called on the new Labor government to clarify and codify the overarching role superannuation is expected to play in Australian society, arguing politicisation and conflicting messages are interfering with the industry’s role as long term investors.
In a post-election roundtable discussing what the election outcome will mean for superannuation and the retirement income system – hosted by Investment Magazine and insurer Metlife – participants from some of the nation’s largest funds said success can only be properly measured when it is clear what the objectives are.
Questions for which there is not a clear answer include: Should the industry be helping younger people buy housing? Should funds provide vertically-integrated advice models? And more broadly, should funds simply be considered service providers, or play a more pro-active role as benevolent paternal fiduciaries?
Clarity on the role of superannuation would help prevent the industry becoming “a political football and a solution for lots of different things when you don’t have a clear objective,” said Steven Travis, investment manager at Aware Super which has 1.3 million members and around $150 billion in assets under management.
“But…the concept of an objective for superannuation has been around for a long time, and it feels like we’ve not gone anywhere,” Travis said.
There have been some moves already to provide greater clarity, with the retirement income covenant taking effect in July encouraging the industry to broaden its focus beyond accumulation towards good retirement outcomes for members.
David Bell, executive director at the Conexus Institute, said the covenant does encourage funds to act more like “paternal fiduciaries” by seeking information about members and providing broader retirement outcomes. However the annual performance test introduced under the previous government directs funds to act narrowly as service providers and let a benchmark alone define success.
“Policy consistent is absent at the moment,” Bell said, adding that personally he leaned towards the idea of funds taking on a broader role. “There’s got to be some institution in Australia that provides that all-encompassing service I think to the 250,000 retirees every year…and I think super funds are best placed to do that,” he said.
Phil Stockwell, chief executive officer at Active Super, said funds were already formulating strategies in line with the incoming covenant, and “you will see a lot of positive developments and a lot of change” towards “whole of life thinking and really thinking about that member journey right through”.
But Peter Chun, chief executive officer at UniSuper, said he hoped Stephen Jones, the new minister for financial services, would enshrine the core purpose of superannuation, which would go hand-in-hand with the retirement income covenant in clarifying the purpose of superannuation and making success more measurable.
After 30 years of compulsory superannuation, funds are still framing their purpose in a way that is “not conducive to people understanding retirement,” Chun said, and there needs to be a major change in how funds communicate to their members.
“We’re still anchored on the account balance,” Chun said. “We still talk about annuities. We still talk about de-accumulation. We still talk about longevity. So I think we need to re-frame what we’re dealing with and it’s actually talking in our members’ language and helping them understand about spending, helping them understand about what their needs are.”
Clarity on advice
With Treasury’s Quality of Advice Review underway that seeks to ensure Australians have access to high quality, affordable and accessible financial advice, participants agreed it is critical for super funds to be able to provide financial literacy services to their members, helping to link superannuation balances to the bigger picture of financial wellbeing into retirement.
Panel chair Fiona Reynolds, chief executive officer at Conexus Financial, said “it’s pretty difficult to think that we…invent a fantastic superannuation system but then we’re not allowed to provide the tools to people to be able to help them save.”
Bell said good advice had a strong role to play in building confidence in the concepts of preservation, re-investing and compound interest which underpin the whole model of superannuation. Fraudsters like Melissa Caddick – who wasn’t a registered financial planner – take away confidence in financial planning at a time it is most needed, he said.
“Every time something goes wrong, it takes away confidence in financial planners who now meet [high] qualification standards, their ongoing professional requirements are more substantial than all of ours on screen, I’d argue.”
A person’s retirement balance alone is not a clear indicator of their retirement outcomes, said Bell. When someone retires with unpaid mortgage debt, their “balance is a bit of a facade”, he said, and superannuation cannot be seen as “a standalone pillar that doesn’t interact with anything else”.
Bell said he hoped for more clarity and consistency on the “baseline” or “default” approach funds should take in providing advice and guidance to their members in retirement. “I don’t think if you survey five funds, you’d get common answers there and I think until you have that common answer, we’re going to struggle to know what’s the pathway forward there.”
He noted Michelle Levy, who is chairing the review, had said she is open-minded to vertically integrated advice models, which had been one of the “concerns hanging over superannuation”.
Chun said the “affordable” and “accessible” parts of the advice equation were still missing, and said minister Jones “understands the issues” around this: “That advice is not just for those with high balances but that for super funds there can be some clarity on the role the super fund can play, particularly that whole grey area around general advice and personal advice, and even some clarity on calculators and…digital tools.”
Aware Super’s Travis said there was a strong role for good advice during the transition retirees undergo from accumulation to de-accumulation, and there needed to be innovation in advice to deal with the scale and cost of making advice affordable to all members. Calculators and robo-advice tools “are part of the solution” but these tools alone aren’t the answer, he said, and the broader solution should involve bringing together multiple mediums of advice.
Stability in legislation
Participants broadly felt a Labor government would provide a reprieve to the waves of new legislation hitting superannuation in recent years.
Gemma Kyle, chief risk officer at Rest Super, said she expected to see “a little bit more stability” after “quite a tumultuous few years” in super. Greater policy certainty would help the superannuation industry play an important role in infrastructure investment, as well as in hitting net zero carbon targets.
“I think to have that stability and to be able to reinforce the important role superannuation plays in long-term investments, I think that will be a good thing,” Kyle said.
However she did hope to see changes to certain aspects of the annual performance test legislated by the previous government. The performance test “assumes a steady-state economy, not an economy that’s in high uncertainty,” and will make it harder for funds to navigate the difficult market conditions ahead, she said. The government has since announced it will conduct a review of the performance test.
Chun said he expected there to be “fine tuning” of the performance test, rather than any major change, reiterating some of his concerns including that it penalised conservative ‘choice’ options aimed at capital preservation, along with some options committed to environmental sustainability – options that are less “benchmark aware” than default options.
Conexus Institute’s Bell echoed concerns about the impact of the test when markets are falling. Fund managers seek highly diversified portfolios to manage risk in an environment of heightened uncertainty where there is not yet clarity on how to manage that scenario, he said.
“But the way that performance test works at the moment, you’re actually penalised for really looking for quite diverse opportunities, and that just sounds like a really distorted outcome,” Bell said.
If superannuation is to play a role in facilitating major projects in climate change, social housing and other parts of the ESG platform, “then if your starting point for thinking about investment is the tracking error it brings to the table, it’s just not the healthiest starting point”, he said.
The test hits up against the question of how much funds should participate in national infrastructure building, he said. Having highlighted Australia’s high levels of debt in opposition and looking ahead at major projects to be funded, “it wouldn’t surprise me if [the current government] see that [the performance test] is a bottleneck for superannuation capital to be allowed to facilitate some of those investments,” he said.
The role of group insurance
Insurance in superannuation featured heavily in the discussions. Reynolds shared her view that most people would not have insurance if it was not in their superannuation, pointing to funds like Cbus Super that made it possible for people in high risk industries to have affordable insurance in the first place.
Michael Mulholland, chief distribution officer at Metlife, said few people care about insurance until something goes wrong, in some cases serious illness. Then, it becomes one of the most important things in a person’s life.
“People that become permanently disabled never work again,” Mulholland said. “They could be in their 40s, 50s, 60s, and that’s the only money they’re going to get until they die.”
Working in insurance, Mulholland said there is a shortage of people giving out life insurance advice. There should be thousands more professionally trained advisers, he said, and group insurance in superannuation has a big role to play.
“In Asia, [the insurance advice industry] is dominated by part-time women and yet our industry is 50-plus gray-haired men, and virtually no women whatsoever that are in this space,” he said.
Greater focus on diversity and ESG
A more diverse parliament, with more independents and with 10 women in a cabinet of 23, will bring a range of different issues into focus according to UniSuper’s Chun. While much of the election process focused on big economic issues like unemployment, inflation, jobs and growth, Chun said ESG matters would be more pronounced.
Bell agreed that the government would be held to account by a greater number of independents and greens, which would push them to make challenging decisions despite a difficult environment.
“Can you imagine the current situation right now with cost of living [pressures], that would have been the perfect opportunity for the previous government to hold back on any sort of substantial steps towards energy transition.”
Active Super’s Stockwell said he hoped to see progress on closing the gender gap on superannuation balances, and a superannuation guarantee on parental leave would be “a practical move that could make a real difference”.
Conexus Financial’s Reynolds said government policy was the only way to solve the issue of gender imbalances in retirement outcomes. “We’re not going to completely solve the issue that women are in and out of the workforce,” she said. “In terms of retirement income, it’s only by things like paying super on parental leave, or having some sort of top-up payment for women when they’re outside of the workforce for long periods, that will be able to help them grow their balances.”
Reynolds noted Tanya Plibersek had said it would not be in this term of government that super and parental leave would be changed, but it would be looked at in the future, which was “disappointing”.
“I’m so glad to see the [$450 super guarantee threshold] removed…but that took like 20 years of fighting for, and I hope that it doesn’t take 20-plus years of fighting to get paid parental leave to include superannuation,” Reynolds said.
Active Super’s Stockwell said the lessons for politicians after the election are similar to the lessons for those running super funds: that it is important to listen to your constituency.
“Whilst these issues have been around for a long time and the voice has been getting louder, maybe the listening and the responses to those hasn’t been as proactive as it needs to be,” he said. “As a leader of an organisation and with a wide membership base, like we have, I think that’s always a good reminder.”
