Preservation of superannuation savings for the purpose of providing income in retirement is a cornerstone of a system established more than three decades ago by the Keating Labor government and should not be undermined, the Advice Policy Summit has heard.
UniSuper chief executive Peter Chun told the summit, hosted by Investment Magazine sister publication Professional Planner, that superannuation and Australia’s retirement system is “the envy of the world”.
Chun said a contribution rate eventually rising to 12 per cent is a fair trade-off as a foundation for a good retirement, and the compulsory nature of super is part of why it works.
“It is, or was, a paternal system. So, compulsion is critical, preserving it is critical [and] universal coverage…we are the envy of the world,” Chun said.
“I strongly believe that we need to stick to what was originally conceptualised, which is, this is about smoothing your income over your lifetime. That’s how it works. So then in retirement, you can live a dignified retirement. That is the trade off.”
Despite “short-term noise”, such as the cost-of-living pressures leading to people wanting to withdraw from their superannuation fund prior to retirement, Chun said super should remain the same as the country “shouldn’t let that valve go”.
Brighter Super chief executive Kate Farrar agreed preservation of super is crucial and said she believed there was broad support for that position.
“It has been the thing that has led to the growth in the sector in terms of trillions. Globally, it’s been a really, really important part and it is effectively enshrined in the purpose of super,” Farrar said.
However, Farrar argued there are circumstances that bring the settings with respect to preservation into question as to whether they are still appropriate.
“If you look at, for example, vulnerable members who are in financial hardship, that is a circumstance where preservation is questioned,” Farrar said.
She also suggested the current superannuation contribution rate may not be suitable for younger generations as they face challenges older generations did not.
“Kids now have a different challenge in terms of trying to set themselves up for their future, buying a house, saving for their retirement, than we did. And therefore, I do think there’s a conversation to be had,” Farrar said.
Farrar said she did not want to “erode the concept of preservation” but instead wanted to take changing circumstances into consideration.
“I’d hate to do something that made a difference to its viability over the long term, because it’s the envy of the world. But we also do need to recognise that times have changed,” she said.
Aware Super chief executive Deanne Stewart said the fundamentals of preservation were “the anchors of the system” as it exists today.
Get bigger, get better
Stewart told the summit super funds would be scaling up and it was critical to consider the core aspects of a good fund and to “make sure all of those areas are on fire”.
“The role of the super funds is to really be the best in class at things like liquidity management, things like valuation processes, things like, how do you get the best globally as you get bigger and bigger, these are definitely things we’ve turned our mind to,” Stewart said.
Last October, the International Monetary Fund (IMF) warned super funds that “liquidity mismatches” were a possible risk facing the sector.
The IMF Global Financial Stability Report raised concerns that Australian super funds were regularly allocating 20 per cent of their assets to illiquid investments, resulting in stability risks for the funds.
At the time, industry leaders argued that super funds being able to invest in illiquid assets was an essential element of the system and underpinning long-term returns ffor members.
Stewart said areas such as liquidity needs to be thought through as funds get bigger, along with making sure they are still fit for purpose for retiring Australians.
“That’s why we’ve invested really significantly, from an Aware Super perspective, in technology and automated most of our processes, so that it is as simple as possible to help both our members, but also to help advisers,” Stewart said.
Stewart said good funds were built on a number of pillars, including investment, member service, advice and guidance, and cyber and IT security.
Member satisfaction
Insignia Financial chief executive Scott Hartley, who began a corporate restructuring last July to reinvigorate the business and make it more attractive to key stakeholders, said Insignia has “a lot to do to improve our services to members”.
“We have a lot to do to improve our member satisfaction. We have a lot to do to fix up our backend and our systems,” Hartley said.
He said the industry is currently “underinvested in technology platforms either through their suppliers or directly themselves”.
Hartley said investing in technology would contribute to improved member service, cyber and IT security, and the provision of advice and guidance to members.
“I would add a fifth pillar to [Stewart’s] good list of pillars and that’s governance,” Hartley said.
Insignia Financial has is currently the subject of a bidding war between three private equity firms, each valuing the business at more than $3 billion.
