The political lessons from the 2009 ASFA Conference are just being digested. ASFA invited both the Government Minster for Financial Services, Superannuation and Corporate Law, the Honourable Chris Bowen, MP, and the Shadow Minister, the Honourable Chris Pearce, MP, to speak at different sessions. Here is a summary of what they said.
The Shadow Minister focussed on adequacy with a soft compulsion for member contributions to be set at 3%, longevity risks, and the “flawed default fund process”. He also questioned the value and purpose of all the recent government reviews into the industry and advocated abolishing them in favour of the rebuilding of confidence in the current system and the retention of the current level of tax-rates on contributions and earnings. There was no mention of the raising of the now reduced contributions caps.
Minister Bowen on the other hand looked at the efficiency of the current system and noting its importance to the country as superannuation grows in the next 25 years. In relation to the 3 current reviews, Cooper (governance and efficiency), Henry (tax) and Ripoll (parliamentary enquiry), these he said would be seen “as an opportunity for bringing greater certainty to superannuation policy”.
Many people would argue that these reviews simply bring in another period of instability, uncertainty and certainly another round of changes. The Minister argues the reviews are the best way to get policy stability. The key guiding principles in the Government’s response according to the Minister will be:
- simplicity;
- efficiency;
- equity; and
- adequacy.
One of his arguments for increased simplicity is the Government’s choice of Medicare as the free clearing house mechanism for small business. One would have thought that possibly the ATO was better structured and experienced via the Super Guarantee payment mechanisms. I suppose you can get your Medicare rebate at the same time as making your super contribution, so that appears efficient, … just take a ticket!
In respect to adequacy, it appears the Minister would not be drawn into whether 9% was the absolute maximum, but rather implied that it was the Government’s objective to make superannuation more attractive to low to middle income earners. It appears that the eventual raising of the contributions caps is not on the Government’s agenda which will make it difficult for people such as small business to self-fund for their retirement.
According to Jeremy Cooper, Chair of the Super System Review, 2010 will bring scale, focus on maximising long term returns and alignment with member interests. If one of these factors are missing then this could make a fund more exposed to fundamental governance issues.
Mr Cooper appeared to take aim at the funds management industry and reignited debate into the payment of investment fees on a pre-tax versus after tax basis and attacked the percentage based asset fees of fund managers which will be controversial and resisted by the fund managers. Interestingly, he advocated more direct investments by super funds in businesses or assets that generate substantial cash returns and free cash flow. Therefore funds should become more active in the governance of underlying investments. Whilst the sole purpose test is robust enough to deal with this matter. Now may be the time to amend it to broaden its application in light of the respective size, market weight and commercial activities that large funds partake in.
So apart from the upturn in investment markets and world economies, superannuation in 2010 could possibly be a lively affair. It will be a case of watch this space, especially if Mr Cooper gets his way.
Mark Abramovich
Partner, Superannuation