Despite a strong year for the Australian super industry in 2005, there were bound to be a few issues that flowed into 2006 as a result of so many industry changes. These are the sleeper issues that may not have garnered concern yet, but are set to do so.
So what are the sleeper issues for 2006?
1. Super returns
Will the industry benefit from another year of double-digit returns, or will members have to be content with returns in the high single digits?
2. Government policy
Will the Government cut taxes applying to super and extend the highly successful co-contribution regime?
3. Trustee licensing
Will the Australian Prudential Regulation Authority provide an appropriate transition regime for those funds that fail to make the deadline?
4. Choice of fund
Will we finally see some impact from choice of fund, even if it’s only based on peoples’ insurance choices?
The first sleeper issue for 2006 is super returns and the asset allocations behind them.
Late last year, Frontier Investment Consulting chief executive officer Fiona Trafford Walker indicated a concern in the industry for where returns would come from if domestic equities dropped off. More pertinent still is how the industry will react if overall returns drop off after such a long dream run.
“Is the market borrowing from today to pay for tomorrow?” she asked.
And it is a fair question.
The second sleeper issue for 2006 is insurance.
REST chief executive officer Neil Cochrane stated that he had seen growing concern among government and related bodies over insurance.
“The danger they and fund members are so worried about is that switching funds will prejudice a member’s previous insurance arrangements,” he said.
Association of Superannuation Funds of Australia (ASFA) chief executive officer Philippa Smith agrees that the concern out there is warranted.
“People don’t want to be missing out the insurance they currently have,” she said. “It might be a case where we have to examine the fallout in the insurance arena. There may be a need to minimise or fill the gaps that are emerging.”
The third and final sleeper on the radar for 2006 is the draft Anti-Money Laundering and Counter-Terrorism Financing Exposure legislation.
According to Smith, it will be important for the large super industry bodies to ensure that its legislative requirements and impact are well understood.
“ASFA will be talking to the Government to ensure the differences in superannuation and other financial services products are understood,” she said.
