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Australian Business Leaders Increasingly Less Confident
Australian business leaders are less optimistic about the country being able to meet the challenge of an ageing population and in particular superannuation according to the results of a survey.
The survey results suggest that less than half of all business leaders were less confident, and that only 44 per cent of chief executives expressed confidence in the Australian government’s policy, with many of those worried that the negative effects may be greater than expected.
The 2010 CEO Survey was conducted by the Financial Services Council and PricewaterhouseCoopers (PWC).
Andrew Wilson of PWC says that by the year 2050, nearly one out of every five Australians would be over 65 and many would have to begin drawing on retirement savings.
“This may have far-reaching implications on the economy as the amount of money flowing out of super funds begins to exceed the amount of money flowing into them,” he said.
According to Mr. Wilson, the beginnings of a draw down on retirement savings may have a marked impact on equity markets and economic growth, as it would signal the start of a trend which would see investors shift their assets from higher risk long term investments, into shorter term more conservative ones.
Many business leaders surveyed said that an increase in the mandatory superannuation guarantee, and a widening of the availability of advice would be the best way to improve the adequacy of retirement savings.
Nearly 95 per cent of those polled felt a lack of confidence in Australia’s approach to infrastructure, saying they worried over the challenge that would exist in funding large scale infrastructure projects.
“It is clear that if Australia continues with its current approach to funding we will fall well short of meeting our infrastructure needs both now and into the future,” Financial Services Council chief executive John Brogden said.
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Australian Superannuation Funds Deliver Dismal Returns
Chris Bowen, Federal Minister for Superannuation says he has a lot of work ahead of him, after the results of a study suggest that the retirement savings of Australians only returned 3 per cent a year for over a decade.
An ABC analysis of official statistics released by the Australian Prudential Regulation Authority (APRA) that go as far back as 1997 suggest that for the 13 year period the superannuation system delivered compound returns of just 3.04 per cent.
When Mr. Bowen was queried over the poor results, he said his government was trying to improve the super system.
“I think there is a lot more to do in super, we need to drive down those fees, which would increase returns.” Mr. Bowen said.
The Cooper Review, a year long formal review of the $1.2 trillion Australian superannuation industry was released in July, which Mr. Bowen says examined the system holistically and proposed reforms that have been contentious.
One recommendation the government is considering is ensuring fees paid are linked to performance.
“The Cooper review does deal with performance fees, it does indicate that they need to be standard across the board to ensure that performance fees are paid when performance is good,” he said.
“That is certainly something we are pursuing.”
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Jeremy Cooper Defends The Controversial Cooper Review
Jeremy Cooper, the former deputy chairman of the Australian Securities and Investment Commission (ASIC) and author of the controversial government review of the Australian superannuation system, has defended his plan for low cost MySuper accounts.
The accounts are intended as a default for people who do not select a retirement fund.
Mr. Cooper who made his comments during a luncheon organized by the Australian Superannuation Funds Association in Melbourne, said that the criticism that his plan was paternalistic could in fact be applied to the entire concept of superannuation.
The criticism was leveled earlier in the week by the Investment and Financial Services Association.
“It’s acutely paternalistic — it’s saying that if we don’t force Australians to defer some of their wages and salary and put them away for a time, they’re simply not going to save, so we’ll force them, and so that’s how we have to see the system,” Mr. Cooper said.
By cutting fees and improving investor returns, it is hoped that the MySuper account will serve as a benchmark for the rest of the industry to follow Mr. Cooper said.
“Because it’s a compulsory system, we think all workers in Australia are entitled to have super that is as good as a MySuper product,”
Mr. Cooper also issued a denial that the rules which determine fees on the MySuper accounts would result in lower investor returns. Mr. Cooper says that the fund trustees would be both obliged to minimize the cost and maximize investment returns.
Chris Bowen, the minister for Superannuation says that the government intends to move quickly to examine the proposals for MySuper and SuperStream, the proposed revamp of superannuation administration, which he terms as being “largely commonsense”.
“I understand the government needs to provide some direction and some certainty around those proposals so the industry can go forward with some sense of confidence, and I hope to be giving an indication of our response . . . over coming weeks.” Mr. Bowen said.
Mr. Bowen says it was unlikely that the government would make any changes to the superannuation preservation age, which is presently set for 60. Mr. Bowen added that the government would not sponsor any specific superannuation products or mandate compulsory income-style investments for retirees.
Speaking after the lunch, Mr Bowen also rejected claims by IFSA that making a low-cost default fund available to workers would lead to increased apathy.
“There are always people who will be disengaged from super and we need to make sure the fees are as low as possible,” he said.
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Financial Planning Associations Rail Against Cooper Review Proposals
Financial planners are fiercely opposing the proposal by the Cooper Review, which would ban commissions on insurance in superannuation, fearing that many clients will not be able to afford a fee which is charged upfront.
The Association of Financial Advisers has levelled the accusation against many of the proposals recommended by the review, which was conducted under the leadership of former Australian Securities & Investments Commission chairman Jeremy Cooper, of threatening the income of thousands of planners, by banning the practice of commission payments on all insurance products that are part of the super, including group risk and personal risk.
“Average mums and dads in Australia, they are going to struggle with this whole idea of being charged another fee,” AFA national president Jim Taggart said yesterday.
The Financial Planning Association lent its support to the AFA argument, suggesting that many in Australia either cannot afford or will not want to pay an upfront fee, which may amount to thousands of dollars due to the length of time and effort required to establish a policy.
Mark Rantall chief executive of the FPA says the proposal runs the real risk of lower income earners not being able to afford to buy insurance.
“They would love to do it, but they have a business to run at the end of the day,” he said.
Among its 174 recommendations, the Cooper review has called for the banning of commissions on all MySuper products and on any insurance offered as part of packages.
Despite the loud chorus against the proposal, some sections of the superannuation have come out in support of a ban on commissions for insurance sales.
Sacha Vidler the chief economist at Industry SuperNetwork, a group that represents industry super funds warned that should the government fail to adopt the proposal, that there is a risk that insurance commissions could be loaded up.
“If the government bans the commissions on the super product but doesn’t ban the commissions on the life (insurance) product, one option for the providers of those products is to load up the commissions on to the life insurance,” he said.
Westpac To Start Making Super Contributions For Female Staff On Unpaid Maternity
As many as 200 employees of Australian banking major Westpac could stand to benefit from a plan which proposes to pay super on unpaid parental leave to the lenders permanent staff.
The first such measure to be adopted by an Australian bank would affect all group companies of Westpac, which include St. George, Westpac Bank and BT Wrap and would see the group pay as many as 39 weeks in employee superannuation contributions in addition to existing parental leave entitlements almost immediately.
The initiative is the first of its kind to be adopted by an Australian private sector company, and is thought to worth approximately $72,000 in extra retirement cash to an employee who earns $55,000 annually and has had two periods of parental leave starting at the age of 28.
Gail Kelly chief executive of Westpac says the proposal was inspired in part by her own unpaid leave.
“When the idea was first put to me, there was no question that because I’d had children, and periods of unpaid leave throughout my career, I recognised how so very important it was,” Mrs Kelly told The Australian yesterday.
The Association of Superannuation Funds of Australia estimates that the average woman holds as little as $45,000 in super account by the time she reaches retirement, compared with $130,000 for the average male.
Sex Discrimination Commissioner Elizabeth Broderick yesterday congratulated Westpac on “such an important initiative”.
“For the businesses that have the capacity to pay, I think there is no question this should become the accepted scheme,” she said.
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Global Financial Market Instability Hits Australian Super Fund Returns
Volatile global financial markets that plunged in the aftermath of the European sovereign default crisis have consumed the highly anticipated bounce in super fund returns.
The drop in financial markets is likely to result in investment earnings falling below double digits for the financial year, ending at about 9.6 per cent.
The recent volatility has seen Australian super funds lose as much as 50 per cent of their valuations which provided the federal government with the impetus to ease rules on capital draw downs from pension funds.
As recently as two months ago, analysts were confidently predicting investment returns as high as 15 per cent. However in the last couple of months valuations have been hammered by renewed fears of the recovery in the global economy, which has produced a string of negative equity market returns in Australia.
The poor performance this year has resulted in lower rolling cumulative returns, with the median five year return now estimated to be 3.7 per cent, according to research firm SuperRatings.
Since the compulsory super was established in 1992, the median balanced fund has returned 6.8 per cent a year, illustrating the fact that a well diversified portfolio does indeed protect investors from catastrophic loss.
Balanced funds have both met and exceeded their long term objectives of outrunning the Consumer Price Index by an annual 3 per cent SuperRatings data shows.
Chant West, another research firm estimates that the median returns for investment funds who hold between 61 to 80 per cent of their portfolio in growth assets is exactly 10 per cent.
Superannuation industry figures look better when taken over the past seven years, but the record has been remarkably volatile.
After a shaky start to the decade, when many Australians fell behind compared to the returns of cash investments in the aftermath of the collapse of the tech bubble, Australians enjoyed a four year period of uninterrupted gains in their super, after which the onset of the first global financial crisis took hold.
Growth funds especially were hit in the financial years 2008 and 2009, posting negative returns of more than 6 per cent and 12 per cent respectively.
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Majority Of Australians Say They Support Superannuation Increase
A majority of Australians say they are in favour of the government’s decision to implement proposals that would increase the national superannuation rate, whilst more than half of all Australians say they are willing to sacrifice their wages to fund the measure.
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Super Fund Industry Likely To Be Happy With Government Changes
The superfund industry has expressed its pleasure at the government’s decision to increase the super guarantee to 12 per cent, but says it is disappointed at the length of time it will take to implement the change.
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Super Fund Industry Rails Against New Government Proposals- AGAIN
Once again, the superannuation sector is resisting government proposals that would change the industry, and is strongly dissenting against any move towards a compulsory government annuity scheme, in which retired investors can hand either all or part of their superannuation and receive an annual income.
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Australians Losing Faith In Super Funds
The level of confidence Australians have in the superannuation industry has fallen to its lowest level, with many worrying that they will not have enough retirement income following the global financial crisis, which reaped havoc on super fund balances.
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