Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 528

Jeremy Cooper on super becoming too big

This is an edited transcript of Jeremy Cooper's radio interview with Geraldine Doogue on ABC's RN Saturday Extra Programme recorded on 16 September 2023.

Jeremy Cooper is a former ASIC Deputy Chair, former Chairman of Retirement Income at Challenger and chaired the 2010 Federal Government Review into Super.

Geraldine Doogue: The Labor Government has tabled a bill in parliament formally describing the purpose of the superannuation system, building on a definition offered by the Morrison Government. Jeremy Cooper has been deeply involved in the industry's development over many years.

Jeremy, why do we need a newly-defined or fleshed-out definition, given that we had one just a few years back, about which we talked to you for this 30-year-old system of ours?

Cooper: Yes, it does seem like an odd question. Indeed, 30-odd years ago – and I'll call out one specific instance when the legislation creating compulsory super was passed in 1993 - Treasurer John Dawkins tabled a report that was called ‘Security in Retirement: Planning for Tomorrow Today’. When you read that document, it seems obvious that the people involved in writing it that knew exactly what super was for. They’d be somewhat bemused that here we are 30 years later defining a purpose.

It's all about politics. The vast sum of money in super has become more and more contested. I suppose that's modern life, isn't it? Everything's contested, and super is no exception, and so it gets pushed and pulled in all directions. “It should be doing this, it should be doing that, people should be able to access it for housing” and so on. And so, what this purpose does is gives super some sort of direction to point in.

Doogue: What are the words being used?

Cooper: Well, look, the words are worth reading. It's only one sentence.

“The objective of superannuation is to preserve savings to deliver income for a dignified retirement alongside government support, in an equitable and sustainable way.”

It picks up all the key words, and it's nice and sharp. So, as a set of words, I think it's excellent.

Doogue: And is it very different from the Morrison Government one?

Cooper: It is. The Morrison version was missing a lot of those adjectives. So, it was too anodyne. It didn't have any ambition in it, I think, was probably the main criticism. When you look at words like equitable, dignified, sustainable, they are sort of ambitious. Now there are critics who say those words will cause trouble, they'll cause arguments, but I think it's landed in a good place.

Doogue: There are now regular reports of how big super is investing its money. Apparently, it's put a lot into our much-discussed electricity transmission systems. AustralianSuper's $2.5 billion investment in a European data center, Vantage Data Centers, is causing comments. Now, would you say from your observation that priorities are shifting, the bigger the system gets?

Cooper: They are. But if we're talking about the single biggest issue facing us at the moment, it is climate change. And a system like super requires growth to derive profits to then pay back to retirees for the money they sacrificed into super. And growth is largely from economic activity involving the emission of carbon, such as building, agriculture, extraction of coal, steel.

Doogue: So, it's our modern world.

Cooper: It's our modern world. And a system that benefits from that growth and economic activity for our wellbeing, I think carries an obligation to reach the 2030 targets, which in Chris Bowen's language, are “ambitious but achievable”. I think it's going to be very difficult for an economy like Australia's to get there. And I think the super system needs to do a lot more than just outsourcing these issues to some relatively small so-called proxy advisors.

Doogue: Greg Combet’s remarks were interesting. "One of the things in my mind is to be thinking about how we can open up investment opportunities for commensurate risk-adjusted returns for institutional investors, including super funds, to be in the energy transition in a more significant way, to be in the decarbonisation process by taking stakes in companies or being lenders to assist that happening, to co-invest with institutions like the Clean Energy Finance Corporation. But that's something we've not unlocked yet." Now, are you hearing other views like that, Jeremy?

Cooper: Absolutely. We're seeing overseas participants cutting our lunch again in our market. So, a lot of the players doing wind and solar and investing in projects like in Gippsland, they’re Canadians, the Danish. We need to be careful that we participate accordingly.

Doogue: But the question is, are they giving their recipients back in Canada and Denmark full bang for their buck for their investment, for their retirement? I mean, this is the great question. By doing this, do we need some form of co-investment by government capital in order to be sure that we're not selling our retirees short? Are our policies and approach keeping up with the sheer scale of this industry?

Cooper: It wasn't so obvious in the most recent Intergenerational Report. But certainly, in the previous one, the sheer projected scale of the super system was almost terrifying in future dollars in the 2060s. It will be 10 times the size of the existing system and would dwarf the stock exchange and GDP. Now, to date, we've only had positive impacts from such a large amount of money that's not under the government's control. The flows of capital in super, where and when capital is allocated, are not really under any sort of regulatory control. When the GFC happened, the Australian super system repatriated vast amounts of capital that was overseas, and it was then used for everybody's benefit, but certainly for the system's benefit, to recapitalise our banks and major companies and so on. That was an incredibly positive outcome. The danger is that if we're not careful, we're not watching what the negative implications of such free-flowing capital that's very large versus our economy.

Doogue: What do you mean?

Cooper: Well, at the moment, our annual GDP is about $2.5 trillion and the super system's at $3.5 trillion in round terms. Switzerland, Canada, the Netherlands and us are in that elite league where we have pension systems that are big in relation to our economies. There are very few big countries in this position.

Norway is a really good example of where they have a sovereign wealth fund and rather than giving the oil wealth away to companies and so on, they kept it for Norway and put it into a vast fund to when the oil ran out, they'd have all the wealth. What they said though was not one Kroner of that was allowed to be invested in Norway because of that relationship between the huge pot of money and a much smaller economy. But we're approaching a world where we have this awesome amount of capital, and half of it is already invested overseas for that very reason.

Doogue: And what about the way we govern it? You've also been talking about that, just whether we're structurally ready within government for this type of challenge. Treasury governs super policy, doesn't it?

Cooper: It does. And that's relatively unusual around the world. So, in China, in the US, it's the Department of Labor. In the UK, it's the Department of Workplace and Pensions. It's unusual to have such a large pension system in policy terms within Treasury where it's not even a second-order issue, it’s more like a ninth-order issue. And I'm not being critical of Treasury, but there are millions of other jobs that rank ahead of looking after the super system. And this might be a reason why we keep having all these ad hoc reviews. If you look over the last decade, we've had significant reviews done outside Treasury, into the system.

Doogue: So, what do you think ought to be happening? Because what you are describing is coming, it's this giant thing on the horizon. And anybody who wants to be powerful or influential in the future in Australia will need some involvement with the super industry, because it's just going to be this giant pot of money.

Cooper: It seems to be the case. It would be very expensive and tedious to reengineer it, and with all of the other priorities, probably doesn't rate highly enough. I've always thought that the super industry ought to have a more formal relationship with the Reserve Bank. And I don't want to get too technical here, but much like the way that the banks themselves can access emergency capital from the Reserve Bank by holding bonds to trade with the Bank, the super system could have a similar relationship, and that would be one piece of engineering that I would push strongly forward.

 

This is an edited transcript of Jeremy Cooper's radio interview with Geraldine Doogue on ABC's RN Saturday Extra Program recorded on 16 September 2023.

Jeremy Cooper is a former ASIC Deputy Chair, former Chairman of Retirement Income at Challenger and chaired the 2010 Federal Government Review into Super.

 

10 Comments
john church
October 01, 2023

perhaps the funds should look after their members rather renting houses to them at market rates or more .The best means for retirement is home ownership something that is shown to be the best start for retirement .Where are they looking after their members rather unseen

Will Wallis
October 01, 2023

This paper raises a few issues that need further consideration.
1. Super Funds currently control $3.4 billion. This is a large amount of money and there will be increasing pressure (from the government and pressure groups) to invest it in the latest fad or issue. A lot of contributor's money can be lost on affordable housing, climate change, supporting NDIS, finding education etc etc. Somehow the contributors need to be able to constrain fashionable but money losing investments.
2. The ASX has a current value of $2.3 trillion. So Super funds can easily buy 51 % of all profitable companies? Is that where we want to go, or should there be a limit?
3. The largest two Super Funds at the moment hold about 9 % and 7 % of the total. Perhaps we should put a limit of 10 % maximum on any Super Fund to ensure there remains some competition between Funds, and avoid a small group of Trustees being able to dictate to many companies.
4. I would feel more comfortable if governments (State and Commonwealth) went back to issuing bonds that could be purchased (or ignored) by Super Funds, rather than having Super Funds become developers.

James
September 30, 2023

" When you look at words like equitable, dignified, sustainable, they are sort of ambitious. "

Funny, when I look at those words in the context of the whole statement:

"The objective of superannuation is to preserve savings to deliver income for a dignified retirement alongside government support, in an equitable and sustainable way.”

they seem purposefully ambiguous, unsettling, open to overreach and meddling and scare the crap out of me!

Randall K
September 29, 2023

Yet again, the politics is having difficulty in directing/controlling the investing direction for private wealth which is what super really is. Yes climate change is our biggest national and global challenge. But that does not necessarily translate into placing our individual/collective savings into emerging industries which may not deliver an economic benefit for retirees. Most potential retiree timescales for economic returns, at least in their early retirement years, are shorter than that which could come from high risk energy change endeavors.

As for the latest definition, the words dignified, equitable and sustainable are contestable. And so I expect the political battles will go on simply because they are part of the power game and desire for control.
I have some empathy with the comments by David Williams here on a need to educate citizens on the need to harvest savings for longer lives post retirement (whatever that is). It is clear that older Australians have to make more of an economic contribution to aged care for instance.

June
September 29, 2023

So let's give our working Australians something to strive towards, using the guidelines given to them. Then when they have done their utmost, within the rules and so that they do not have to be a "burden" on the welfare system in old age, let's see how we can claw their savings back! Let's have more "regulation", appropriate what we consider excess and give them back a little, so they just have a "dignified" old age. I bet Industry Super Funds won't want to see a reduction in FUM, which in turn affects their bottom line!

David Williams
September 28, 2023

Putting these comments with Kaye Fallick’s in this bulletin yet again highlights the importance of a National Longevity Strategy. The Intergenerational Report is a totally inadequate response to the full impact of increasing longevity. Decisions made within the big silos of Treasury, Social Services, Employment, Health and Aged Care are not harmonized effectively. As a result, we don’t balance incentives and equity in seeking the best outcomes for individuals and the community. Worst of all, we invest little in educating the ‘older’ community to maintain their productive capabilities where they can, so we can afford to support those unable to share the opportunities the growing longevity bonus provides.

Disgruntled
September 28, 2023

The tabled purpose of Superannuation screams of
coming legislation that will limit lump sum payments and make Superannuation Pensions or Annuities compulsory.

Preserve savings to provide income.....

Dan
September 29, 2023

More left wing, power hungry politicians stealing our money to prop up their mistakes. These two communists didn’t attempt to create a thinly veiled Trojan horse!

Geoff R
October 02, 2023

Yes I expect you are right about "coming legislation that will limit lump sum payments and make Superannuation Pensions or Annuities compulsory." And in some ways it is fair enough up to the TBC (currently $1.9m). But that proportion of your "excess Super" over the TBC should never be restricted. (Of course they will never ask me...). The logic to limiting withdrawing money below the TBC is to stop people withdrawing it all, spending it and then putting their hand out for the government pension. The sad truth is that some people never save. The only reason they have accumulated wealth in their super is that it was compulsory and they couldn't access it to spend. (Well, apart from access during Covid). Given the chance to access it having satisfied a condition of release - currently there is nothing stopping them blowing the lot.

Disgruntled
October 03, 2023

I also think they will raise the preservation age too. Preservation Age for most now is 60 but Pension Age is 67, gives everyone time to access and spend all their Super and go on the Pension. True, not all would but the ability is certainly there.

More than a few Genx at my work are planning to access Super at 60 to pay their mortgages off of help the kids buy a property.

I agree amounts over TBC maybe fair game, or taking it one step further the $3M TSB if it comes into play.

Even allowing Lump Sum withdrawals but limited to say 10% of balance in any one year.

 

Leave a Comment:

RELATED ARTICLES

Are you better off in a large superannuation fund?

Paul Keating's long-term plans for super and imputation

Ralston responds on super balances of older Australians

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Latest Updates

Retirement

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Shares

On the virtue of owning wonderful businesses like CBA

The US market has pummelled Australia's over the past 16 years and for good reason: it has some incredible businesses. Australia does too, but if you want to enjoy US-type returns, you need to know where to look.

Investment strategies

Why bank hybrids are being priced at a premium

As long as the banks have no desire to pay up for term deposit funding - which looks likely for a while yet - investors will continue to pay a premium for the higher yielding, but riskier hybrid instrument.

Investment strategies

The Magnificent Seven's dominance poses ever-growing risks

The rise of the Magnificent Seven and their large weighting in US indices has led to debate about concentration risk in markets. Whatever your view, the crowding into these stocks poses several challenges for global investors.

Strategy

Wealth is more than a number

Money can bolster our joy in real ways. However, if we relentlessly chase wealth at the expense of other facets of well-being, history and science both teach us that it will lead to a hollowing out of life.

The copper bull market may have years to run

The copper market is barrelling towards a significant deficit and price surge over the next few decades that investors should not discount when looking at the potential for artificial intelligence and renewable energy.

Property

Global REITs are on sale

Global REITs have been out of favour for some time. While office remains a concern, the rest of the sector is in good shape and offers compelling value, with many REITs trading below underlying asset replacement costs.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.