Government leaves its superannuation options open

Chris Bowen has sent a clear message that the Government will be cherry-picking the recommendations of the Henry Tax Review to ensure electoral palatability.

For those prepared to analyse his words, the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, earlier this month sent a clear message that the Government will be cherry-picking the recommendations of the Henry Tax Review to ensure electoral palatability.

The minister, very sensibly, has signalled that the Rudd Labor Government will be leaving its options open with respect to turning the ultimate recommendations of the Henry Tax Review and the Cooper Review to its electoral advantage.

Thus, anyone who believes that the Government will adhere to the analysis of the interim report of the Henry Review — that the existing 9 per cent superannuation guarantee is sufficient for an adequate retirement — should think again.

Equally, those who believe the Government will not further alter the tax regime to increase the attractiveness of superannuation as an investment destination should also be prepared to think again.

Bowen used an address in Melbourne to make clear that the level of the superannuation guarantee and, indeed, the use of soft compulsion were not dead issues.

Further, he signalled the real possibility of further tax concessions for low and middle-income earners.

Bowen also used his Melbourne address to traverse the issues being pursued by the Cooper Review but, in doing so, he travelled little new ground and simply reiterated the obvious point that the cost structures of virtually all tiers of the superannuation industry were under scrutiny.

It was hardly surprising that the daily media chose to focus on the manner in which fund managers were likely to be affected by Bowen’s references to the Cooper Review. But it is already clear that Jeremy Cooper and his inquiry members will be digging deep and that superannuation funds themselves, not least the industry funds, will find the validity of their structures and methodologies being questioned.

The broad terms of reference for the Cooper Review involve increasing efficiencies, reducing costs and fees, and lifting long-term rates of return for superannuation funds. Anyone working within the sector would understand that, given the level of outsourcing that occurs, funds management costs represent only a part of the overall equation.

While many superannuation fund executives are quick to point the finger at the cost of financial planners and managed funds, many superannuation fund members would be astonished to learn how much those fund executives are being paid, how many of their functions are actually outsourced, and therefore how few staff the executives administer.

Is the chief executive of a superannuation fund, which has less than $2 billion in funds under management, directly employs fewer than 20 people and outsources investment management, administration and asset consulting, really worth a salary of over $400,000 a year?