Bill Shorten puts MySuper reforms on the backburner

The Assistant Treasurer and Minister for Financial Services, Bill Shorten, has outlined some of the Government's policy agenda, including a commitment to MySuper but, as Mike Taylor reports, the proposed implementation timetable places the initiatives well beyond the next election.

Irrespective of whether the Gillard minority Labor Government manages to last a full three-year term in office, it has already signalled that some of the most challenging aspects of its policy agenda for the financial services industry will be third term issues.

This much became clear in statements to the Parliament and elsewhere by the Assistant Treasurer and Minister for Financial Services, Bill Shorten, and responses from the Opposition spokesman on Financial Services, Senator Mathias Cormann.

In what represented one of his first ministerial forays into definitive policy timetabling, Shorten announced last week that one of the more controversial centrepiece recommendations of the Cooper Review, MySuper, would be implemented from 1 July, 2013.

In doing so, Shorten went a step further than his predecessor, Chris Bowen, by actually committing the Government to the universal default superannuation concept, notwithstanding ongoing disagreement on both sides of the financial services divide — the major financial services institutions and the industry funds.

Notwithstanding the sales pitch for MySuper mounted by its primary author, the chairman of the Cooper Review, Jeremy Cooper, significant concern has been expressed by both retail institutional spokesmen and industry fund operatives about how well it will actually work and how much it will actually save.

Leading superannuation industry analyst and principal of Chant West, Warren Chant, has seriously questioned whether MySuper will actually deliver the savings the Cooper Review panel envisaged.

Chant said that while the MySuper concept had a certain superficial appeal, it failed to recognise that there was a difference between price and value.

“In super, as with most things in life, you get what you pay for,” he said. “Sometimes it is better to pay a little more if that means the product performs better and lasts longer — and that’s what you want from super.”

Chant claimed the Cooper Review recommendations had treated superannuation as a homogenous product where the only differentiating factor was price — but that was not the reality.

“There are qualitative differences between funds. The better quality funds, in terms of investment performance, tend to have higher investment fees because of how they invest and what they invest in,” he said.

“But there is strong evidence that those higher investment fees pay off because they produce better returns,” Chant said. “In other words, the additional return is greater than the additional fee incurred to achieve it.”

He claimed the forecast cost savings from MySuper were hugely optimistic, and were likely to be eclipsed by the reduction in benefits resulting from reduced returns.

Chant copped plenty of criticism for his outspoken views on MySuper, but has proved to be not alone in his concerns about what Shorten has now enshrined as Government policy, albeit a policy that will not see legislative reality until the next election.

In similar vein to Chant, the chief operations officer at industry fund Health Super, Carol McKelson-Timmins, has expressed concern that the minimalist approach embedded in the MySuper philosophy will also add to Australia’s underinsurance problem.

Speaking on a panel at an Australian Institute of Superannuation Trustees symposium, McKelson-Timmins said she was “philosophically, greatly opposed” to MySuper’s acceptance of the current inadequate insurance cover of super fund members.

“When MySuper came out I can’t tell you how appalled I was to see the giving in to mediocrity, the mediocrity that says it’s okay to let these people not have enough cover; to let them go into a situation where if they have an accident, their loved ones won't have enough left,” she said.

Health Super has a huge preponderance of women, many divorced, many in their mid 50s and carrying burdens, and the number of them who are underinsured is appalling, despite the super fund’s best efforts, McKelson-Timmins said.

Allowing funds to cross subsidise will help them with the ongoing education of their members about insurance needs, and there are very practical things super funds can do to help customers assess their own worth and get insurance, she said.

Making clients realise their own underinsurance was part of furthering financial literacy, she said.

It seems likely, then, that both Chant and McKelson-Timmins would have been decidedly underwhelmed by Shorten’s announcement that the investment returns and value for money aspects of MySuper would be monitored by the Australian Prudential Regulation Authority — a regulator already struggling to deliver time-relevant comparative data on superannuation fund investment performance.

While the Federal Opposition has, as yet, not staked a firm claim to a viable financial services policy agenda, its spokesman, Senator Cormann, has at least signalled that the Coalition will be challenging those elements of the Government’s policy likely to impact on labour costs or unduly benefit the trade union movement and industry funds.

In particular, Cormann has made union-backed default fund arrangements an issue together with the independence of trustees and directors sitting on superannuation fund boards.

In what appears to be a reference to positions held by some senior figures in the industry superannuation funds, Cormann last week accused Shorten of having “shied away from outlining necessary reforms to improve corporate governance of superannuation funds and to ensure competition in the default fund market”.

“Where are the reforms, for example, to ensure mandatory disclosure of conflicts of interest, to require independent directors on superannuation fund boards, disclosure of director remuneration and directors of super funds to sit on a single fund and not hold multi-directorships?” the Opposition spokesman asked.

“Why is the Minister not prepared to do what needs to be done to ensure competition among default super funds under modern awards delivers the best possible value to superannuants?”