Australia’s superannuation system has served Australian workers well for three decades, but it is woefully unprepared to meet its obligations to members under the retirement income covenant and to help them transition from accumulation to decumulation, according to former ASIC commissioner Danielle Press.
In her first interview since leaving the corporate regulator late last year, Press tells Investment Magazine that “one of the one of the things that is very obvious is that the industry is not prepared for this coming down the pipeline, despite the fact that we have known for decades that this is going to happen”.
“I don’t think we’re prepared for it as an industry,” Press says. “I think the joint report from ASIC and APRA showed that.”
She says addressing their obligations is about funds “getting their act together [and] it’s also about doing the work and really recognising that if we thought accumulation was hard, decumulation is even harder”.
Press, a former CEO of Equipsuper and senior executive at UBS Asset Management before her appointment to ASIC in 2018, adds that some funds are better equipped to meet the challenges than others, noting that “the governance structures don’t help in places”.
“This is a generalisation – I don’t think it applies to every organisation or every board – but I do think that there is there is a big difference between the really high-functioning, well-functioning funds and boards, and some of the others.”
Competition quandary
Press says that variations in quality and performance of management and boards isn’t unique to super, but the sector has some unique characteristics that have not always fostered intense competition and have led to a lack of urgency around issues such as member services and retirement.
“The performance of the banks outside of the Big Four varies dramatically [and] insurance is the same – outside some of the key insurers, it varies dramatically,” Press says.
“The challenge with super is that because it’s a compulsory product and because so many people just default in and do what they do, the competitive edge is not as sharp.
“I don’t believe there’s no competition in super, I think there’s plenty of competition in super. But the compulsory nature of it, and the default nature of it, does change the way consumers are acting and using [it], and you can get away with stuff that you might not get away with in a more commercial choice operation.”
Press says increasing pressure on funds to lift member services, including retirement income solutions, has been driven in part by the development of a strong working relationship between ASIC as the super sector’s conduct regulator and APRA as the sector’s prudential regulator – an achievement she notes as one of her proudest at ASIC.
“We got some law change through which was really important,” Press says.
“Making running a superannuation actually a licensing issue, so that you fall under the Corporations Act as well as the ASIC Act as well as the SIS Act, is pretty critical for, I think, setting the institution up to be able to ensure that good conduct occurs across the system.”
But pressure has come from other sources as well, including “some of the light that was shone through the royal commission”.
“I don’t think I could say it was all about what we did at ASIC, but I think it played a really important role,” she says.“It’s part of the story and part of the narrative as to why now we’re starting to say, well actually, the consumer matters here. And it’s not just about the investment outcome, it’s there’s a whole lot of other things within this space that are important.
“I do think the work that ASIC did in in that the consumer part – the servicing, the insurance piece – that work was critically important, I think, to now get us to where we are.
“The first piece of work we did on the retirement space is also really important, that joint work that we did with APRA around, hang on, there is a law here, there is a covenant here, what the heck are you actually doing? And are you prepared?”
Personalisation push
Press says super fund executives need to think deeply about what personalisation of member services looks like for their particular fund and how it can be delivered, including the role played by advice.
That demands “doing some really deep and hard thinking about…how does it dovetail into what are quite complex personal advice laws”, she says.
While the government continues to roll out its response to the Quality of Advice Review (QAR) and the attendant implications for super funds, Press says “I’ve argued before and I’ll continue to argue that there is a lot that super funds can do under the current guidance, under general advice guidance, that they’re simply not doing”.
“It needs deep thinking, and it needs people dedicated and allocated, which of course, is costly,” she says.
Press says the regulator acknowledges that super fund executives are walking a tightrope, but they’re smart people and their organisations do have the resources to develop good solutions.
“There’s this this horrible pressure, and fund CEOs are under a huge amount of pressure to balance out the various different legislation and the various different implications of that,” she says.
“You need to keep performance high, you need to service your clients, but you need to keep your fees low. This is all very difficult stuff to navigate. But these are big businesses. And if they’re not big businesses, they need to probably need to become them, or they need to look back and say, well, hang on, no, we’re a small business, and we can deliver this because this is how we’re going to do it.”
Press says how advice services are developed and implemented by super funds is “really so critically important”, but there are no simple solutions, and if there’s one piece of business she’d like to have wrapped up before leaving ASIC, it’s this.
“It is so important for the country that we get the advice space right,” she says.
“I don’t have any silver bullets. If I had, I would have given them to [Financial Services] Minister [Stephen] Jones when he first started, and I would have given them to [former] treasurer [Josh] Frydenberg as well. I don’t have a silver bullet for this.
“But I think that it does need sensible thinking. It needs people that have strong industry knowledge and background [on] the policy side; and also industry needs to step up and really help make sure that it’s implemented well.”
Press says any legislation governing advice delivered by super funds “needs to be sector-neutral”.
“It’s not about an industry or a retail fund, it’s about actually getting the right advice,” she says.
This means consideration must also be given to the delivery of advice to self-managed super fund (SMSF) members and trustees, and to SMSFs’ retirement income obligations. SMSFs account for about one-third of the super system’s total assets.
Self-managed sideshow
“A third of the system is regulated by the tax office, but it’s almost forgotten when we talk about the QAR process,” Press says. “But at the end of the day, those people are getting advice, sometimes good, sometimes not. So, it’s a third of the system that we’re not thinking about when we’re building up this QAR and we’re building up retirement income covenants.
“They haven’t done this, but if they ever went to saying superannuation funds must offer a certain type of product, well, how does that play into self-managed fund?”
Press says that just because SMSFs are highly personalised to their members’ needs shouldn’t mean they’re excluded from broader regulatory requirements. Excluding them “tips the playing field”.
“At the end of the day, if you’ve got a self-managed super fund and you screw it up, the taxpayer is the ultimate put,” she says.
“The ultimate put is still your pension. So, there’s this part of the system that we don’t even talk about.”
From one perspective the regulation of SMSFs is a lower-order issue because if the trustees of an SMSF get something terribly wrong the only people they harm are themselves, and there’s never more than six of them anyway. But Press argues the regulation of SMSFs should concern the broader industry.
“When we go back, and we cast our mind back a long way to Trio, which blew up and affected predominantly self-managed super funds, who paid the levy for that?” Press says.
“All of the regulated funds paid the levy for that.
“There is this slightly cavalier approach to self-managed funds, and I don’t know what the answer is. Again, it’s not it’s not easy, because I think for some people self-managed funds make perfect sense, but for many they don’t. And for many, that actual process of putting them into a self-managed super fund is the harm that it creates.”
