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Sustainability of the super system in a time of disruption

Pauline Vamos is Chief Executive Officer of The Association of Superannuation Funds of Australia (ASFA). This is an extract from her keynote speech at the ASFA Conference on 13 November 2014.


It could be said that the super system is always facing disruption. We know that as the system grows and as average account balances increase, tax concessions also grow, putting pressure on governments to take a look at super as a source of revenue, or as a potential source of tax savings.

We also know that as the demographics of the community shift and their expectations of a ‘comfortable retirement’ continue to grow, the system will be constantly reviewed, scrutinised and changed. While this will no doubt pose its challenges, in my view super is at the core of both the community and the government’s ability to respond to a rapidly changing environment.

Yesterday we heard thoughts on how the industry should ‘step up’; on how the system should be designed in the future; and on how we should respond to our technology-savvy, device-driven members.

These thoughts and messages will continue to be a theme throughout the Conference, as it is our aim to turn your focus to how we can ‘step up’ as an industry, how your organisation can ‘step up’ and how you can ‘step up’ personally. These three tasks have one universal element – they all involve leadership.

In this session, I will focus on how the industry can ‘step up’ and ensure the sustainability of the system in a time of disruption.

A plea to come together

But let’s talk about ‘us’ first. The industry needs to come together, not so much so that various sectors can compromise, but instead to meet with a common mindset - one where, as an industry, we collectively put ourselves in the shoes of our members and those of the broader community.

I’m sure most of you will be thinking that your first priority is always to the members of your fund. It’s true that your primary obligation should be to your members. But in my mind you cannot and will not meet your obligations to the members of your fund unless you also think about how well the system is delivered to the general community via the collective industry.

On some things we must work together for the collective as well as the individual good.

So what do I mean by that? I like to think of the system as a bit like a road network. As industry participants, we are all delivering the same system, albeit through our different respective vehicles.

The system can be viewed as the road on which we drive these vehicles. Without it, the vehicles would have little purpose for existence, so while we are all in a fiercely competitive race, we also have a responsibility to build and maintain the roads, abide by the same road signs and ensure that the community is safe and secure as they navigate its turns.

As a compulsory industry, it is also our collective responsibility to make sure that they get to their desired destination, no matter what vehicle they choose to go in.

While some of the road building and signage is the responsibility of governments and regulators, many of its elements are our responsibility. True leadership means we both recognise and deliver on that responsibility. We are responsible for the brand of industry and for the effectiveness of the system delivery and there are many parts that can only be delivered collectively.

This means we need to make a greater effort to agree on those issues where, in order for us to deliver to our individual members, we must take a collaborative and cooperative approach.

Sometimes we do need to put short term competition aside to focus on enhancing governance, efficiency, transparency and accountability for fund members, and improve the community’s experience with superannuation.

The more we do this, the more our voice will have credibility when we advocate for good policy.

Standards of governance encompass the system as well as individual funds. Governance of the system is a shared responsibility – the brand and reputation of your organisation is closely linked to the brand and reputation of the industry.

We must focus on what governance structures including regulatory structures we need for the future as we move to income streams and the world continues to increase in complexity.

ASFA’s position on fund governance is clear: conflicts of interest that limit a trustee’s ability to meet its fiduciary obligations must be removed and there must be enough flexibility in the appointment process, and board structures, to ensure the right people, with the right skills, experience and knowledge, are guiding the fund towards the best outcomes for its members.

We have conflicts in all sectors. Let’s not be blind to them. Let’s address them.

Focus on transparency and accountability

Transparency and accountability are huge topics. Within these, I believe there are three things we need to focus on:

The first is fee disclosure. I know there are many issues and many legitimate reasons why there have been a number of different interpretations when it comes to the requirement to disclose fees. However, you only need to read through the pages of the FSI interim report to know that fees will continue to be a big issue for super.

The community wants better clarity around what they are paying for, and also to have the ability to compare fees from fund to fund. Therefore we need a plan to fix the issues surrounding fee disclosure, and we need to do this as a matter of urgency, before the media debate over fees overtakes sound policy thinking in this area.

The second is improving the way we measure risk, and communicate risk to fund members. The current version of the Standard Risk Measure has its critics and there are real concerns about using it as a disclosure tool. But consumers and regulators are looking for ways to better understand risk, so let’s adjust the measure so it meets both prudential and consumer needs.

The third area is a new one for us. How do we actually measure and disclose the value of an income stream. If I retire with a lump sum, how do I make the choice as to which income stream is going to suit me best in terms of cost, return, longevity and level of guarantee? We cannot expect the income stream product market to be opened up if we do not tackle this issue. It’s important for the industry to step up and put forward a practical design to Treasury and regulators.


Pauline Vamos is Chief Executive Officer of The Association of Superannuation Funds of Australia (ASFA). This is an extract from her keynote speech at the 2014 ASFA Conference. The full speech is linked here.



November 29, 2014

Given the largish nature of the subject and the audience to which Pauline directed her remarks, the summary does justice to important issues. Given the spectrum of constituents ASFA covers (retail, industry, corporate, exempt public sector, 'opted in' public sector, SAFs - with all their historic and newly confected tensions), praise is due to ASFA for herding the felines for members' benefit.

Three subjects I would have liked to have been touched upon are short-termism, risk management and the approach to constant changes.

Short-termism is toxic to an industry engineered for the long term through accumulation, transition-to-retirement and withdrawal phases. Except in the limiting case of terminal illness, this is counter-productive especially in our DC model where risks are borne by members afflicted by semi-literacy (if that), disengagement and the behavioural propensity to view death and its proxies such as old age as 'what happens to others'. While agreeing with this conceptually, the practice of carping on short term performance (especially in good times, while falling eerily silent when performance tanks needs a debate. The article glorifying short-termism in the Economist of 22 November does not apply to long term wealth creation.

Risk management is receiving significant attention thanks to past mistakes, Stronger Super and the enlightened practices of some funds. Relative to banking and insurance, however, super lags, and can learn a lot in respect of counterparty, country, industry and operational risks. The adolescent attitude in super 'we are different' misses out on others' lessons.

Constant changes evoke mixed responses from the industry. At its core is the behavioural reaction 'any change that benefits us is good, others are tinkering'. Thus SG hikes, removal of RBLs and tax exemption on post 60 benefits pass without opposition, while mooted changes to pension taxation, deferral of proposed SG increases and governance reforms (the record from retail and industry sectors needs improvement) face stringent opposition. Super joins taxation in being agnostic to equity or symmetry. The reality is that super changes will (as Pauline hints) continue. You cannot overshadow the national GDP and be immune from government imperatives.

We have a good system, but far short of where it can be. ASFA can help in enlightened self-interest.


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