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Bring on the Council of Superannuation Custodians

Governments of all political persuasions have a problem; trustee confidence in the superannuation system is declining. There is no shortage of anecdotal evidence to support this, just read the ‘Letters to the Editor’ columns in any newspaper or listen to talk-back radio. But it’s not just anecdotal evidence, as two recent surveys quantify this lack of confidence in the system.

The first survey was the SPAA-Vanguard report released late last year. The actuarial firm Rice Warner was engaged to undertake a 69-question survey to identify the financial needs of SMSF trustees and review their general concerns about retirement. A key finding that emerged from the 384 trustees who responded was quite revealing.

They said legislative change was the ‘biggest risk’ to retiring comfortably retirement, with 83% listing it as ‘their biggest concern’. What people want from government is certainty about the rules governing their retirement savings, and this survey clearly indicates they believe they are not getting it. Quite the contrary. What government is doing with the rules of the game is more likely to keep them awake at night than their investment portfolios.

It was the same outcome for the survey SPAA released in conjunction with Russell Investments. Intimate with Self Managed Superannuation – the third benchmark study into Australia’s rapidly growing SMSF sector – was conducted by the independent research firm CoreData which surveyed 1,555 Australian consumers of whom 437 were SMSF trustees.

In terms of confidence in the system, the outcome largely mirrored the earlier report. It was waning, although SMSF trustees were less pessimistic than APRA fund members. Constant government change to the superannuation system was identified as a key reason behind this lack of confidence.

Surveys support the anecdotes

The findings of these surveys have resonated through the SMSF industry. The anecdotal is now hard evidence. It’s in this context that the announcement on 5 April 2013 by the Minister for Financial Services and Superannuation, Bill Shorten, in which he promised to set up a Council of Superannuation Custodians, has to be seen.

It’s worth quoting Shorten in full:

“The Government will establish a Council of Superannuation Custodians to ensure that any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.

“The Charter will be developed against the principles of certainty, adequacy, fairness and sustainability. The Charter will clearly outline the core objects, values and principles of the Australian superannuation system.

“The Council will be charged with assessing future policy against the Charter and providing a report to be tabled in Parliament.”

There’s no shortage of motherhood in those fours sentences. Some observers greeted the concept of such a Council with a degree of cynicism. But across the industry – whether it was SMSF, retail, industry or public sectors – there was broad agreement on the concept of such a council.

It appeared to indicate that the Government had finally recognised that all the media speculation surrounding possible changes to the tax treatment of superannuation in the weeks preceding the 5 April statement had taken its toll on the system and it was time to take some of the political heat out of the debate. A proposal to set up a Council was a sound starting place.

It’s been the industry’s contention for some time that the continual changes to superannuation and, more importantly, the tax regime around it, were undermining our universal system. It seemed from our vantage point that the original goal of superannuation that both sides of politics signed up to – giving the people the opportunity to be self-sufficient in retirement – was being lost in a debate about the equity, or otherwise, of the tax concessions.

Equally worrying was the increasing tendency by government to see superannuation as a revenue measure to meet other spending commitments – a honey pot that keeps growing exponentially.

Start discussing how the Council will operate

Since the Minister’s statement, and the immediate media flurry, discussion about the Council has largely dried up. In my opinion, that’s a pity, because there are some critical questions to be asked about how this Council will work. Would it reduce the political point-scoring and elevate the policy debate? Would it give people more confidence in the system?

The Minister was short on details, but it seems a step in the right direction to have a principles-based charter. Any future changes to the superannuation system would then have to be assessed against them. Reporting to Parliament seems another positive. I suspect Shorten believes it would strengthen the Council’s arm and, at the very least, should make it harder for the government of the day to blithely ignore its deliberations.

Who would sit on the Council would be critical. The Government blurb said ‘eminent representatives from the community, industry and regulators’. Hard to argue with that stated aim, although it must be said all governments do find it difficult to keep politics out of appointments. But it is possible. The Reserve Bank board is a good example of where the members’ political sympathies seem largely irrelevant.

It’s impossible to remove superannuation from the political debate. Nor should it be. In a parliamentary democracy such as ours, a public policy as important as superannuation should be vigorously debated. No one, including the Minister, believes the system can be totally politically neutered.

Rather, a Council working properly would have the capacity to debate issues, to offer alternative thinking to that coming out of the federal bureaucracy in much the same way as the Productivity Commission does now on important economic issues. By doing this it could lay the groundwork for more constructive public debate.

At the very least it would give trustees, the cornerstone of our system, greater faith that the principles underpinning the system are adhering to ‘certainty, adequacy, fairness and sustainability’. That has to be an improvement on what we have now.

 

Graeme Colley is the Director, Technical & Professional Standards at SPAA, the SMSF Professionals’ Association of Australia. He lectures at the University of Western Sydney in the Masters of Commerce course and at the University of NSW as an adjunct lecturer.

 


 

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