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Are the winds of change blowing again for superannuation?

January 2010

    

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Are the winds of change blowing again for superannuation?

What is the Cooper Review?

You may have heard the phrase ‘Cooper Review’ on the news or seen it mentioned in the business section of the newspaper … but what does it mean to you and your super?

In May 2009 the Federal Government announced a fresh review of Australia’s superannuation system. The review – chaired by former ASIC Deputy Chairman, Jeremy Cooper - aims to examine the Governance, Structure and Operation of Australia’s superannuation system.

Why is this review necessary?

It has been over 17 years since the introduction of compulsory super… and a lot has changed in that time! The Cooper Review Panel’s task involves determining what changes should be made to the superannuation system to ensure it continues to operate in the best interests of members and provides the best retirement outcomes possible.

Some interesting forecasts:

The super industry’s size could increase from $1.1 trillion in June 2009 to $3.2 trillion in 20253!

Considering that Australia’s population is growing, and the fact that superannuation is compulsory this forecast is not altogether surprising but is our super system equipped to face the challenges of the next 15 years and beyond? Just because nothing appears to be wrong with the current system doesn’t mean it isn’t time to have a look and see if there isn’t a better way…

In a nut shell the Cooper Review aims to roadmap the future of superannuation in Australia.

How is the Cooper review being undertaken?

The review is being conducted in three phases. At the start of each consultation phase an Issues Paper has been released and submissions are called for from stakeholders such as super funds, industry bodies, the legal community, academics, financial institutions and the broader public.

The panel reviews the submissions and then releases staggered preliminary recommendations. These preliminary recommendations will then be fine tuned and merged into a final report to be delivered to the Government by 30 June 2010.

The three phases are as follows1:

Phase One: Governance

Phase one looked at important issues such as Trustee knowledge, performance and duties, outsourcing arrangements, investment options, regulation, Government policy and world’s best practice. The preliminary report for this Phase was released on 14th December 2009. For more information see www.supersystemreview.gov.au

Phase Two: Operation and Efficiency

This phase is currently being considered by the Panel. Topics that are being explored in this phase include how best to remove the complexities that are inherent in the current system so that super operates more efficiently. Also considered in this phase will be issues such as; fees and charges, competition, administrators, technology and default options. The preliminary recommendations from Phase Two are due to be released in March or April 2010.

Phase Three: Structure (including Self Managed Super Funds)

Phase three, is about the way super is provided, including consideration of the sectors of the industry, the funds management model, defined benefit funds, insurance within superannuation and post-retirement issues. Submissions for Phase Three are due by 19 February 2010 with preliminary recommendations to be released in April or May 2010.

What has happened so far?

The phase one preliminary report was released on 14 December 2009. The general theme of the report suggests that super has an important social objective, it is not just a financial product. Super is a compulsory vehicle that aims to provide adequate income for Australians in retirement and as such needs special attention from the Government.

A one size fits all super model or fund may not be appropriate, everyone is different - with different attitudes, and priorities regarding super. The phase one preliminary report suggests that it may be appropriate for super funds to orientate themselves away from product type and turn their focus to member type. For example, members could be categorised into four broad types depending on whether they have made a choice about their superannuation as follows2:

  • Disconnected: members that have lost contact with their super account;
  • Universal: members that have not expressed a choice;
  • Choice: members that are engaged and make active choices about their super ; and
  • Self-managed: those in self-managed superannuation funds.

The type of member category would then shape the super product features offered and also the level of fees payable.

The Review Panel has deliberately not yet proposed firm recommendations to Government because Consultation on Phase Two and Three could influence their initial findings.

What next?

As mentioned earlier in this article, final recommendations are due by 30 June 2010. We will continue to bring you news of the review as it unfolds over the next 6 months – so watch this space!

For copies of the terms of reference for the review and preliminary findings, please go to: www.supersystemreview.gov.au

1 The Scope of the review; a three phased consultation 25 August 2009 www.supersystemreview.com.au
2 Clearer super choices: Matching Governance Solutions, Phase One – Preliminary Report, 14 December 2009 (Cooper Review phase one report) www.supersystemreview.com.au
3 Australian Superannuation Industry in 2025 table. Clearer super choices: Matching Governance Solutions, Phase One – Preliminary Report, 14 December 2009 (Cooper Review phase one report. www.supersystemreview.gov.au)


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