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.
The government says it will begin implementing the change from July 1st 2013, which will incrementally increase the guarantee by a quarter of a percentage point over a decade.
Last year Treasury Secretary Ken Henry in his industry report suggested that the current 9 per cent contribution to the mandatory superfund was adequate, and the government’s decision to lift the rate is in direct contradiction to that finding.
The deferred nature of the change, coupled with reductions in corporate tax rates is likely to generate much support from employers, who will no longer have the same complains about affordability.
The super fund industry has also expressed its relief that that government has also decided not to implement another Henry Report recommendation, and chosen not to finance increased assistance to lower income earners, by contributions from higher income earners.
Treasurer Wayne Swan said that the government’s decision on Saturday is an attempt to lift the bottom half up, rather than redistributing and rearranging the benefits from the top half down.
The effects of the changes mean that people earning up to $37,000 will have their contribution returning to the universally applicable rate of 15 per cent of tax paid, as the government contributes $500 to their mandatory super.
The other portion of the public that will benefit from the changes are those over 50 years of age, who wish to catch up on their superfund balances, due to the fact that they began work well before the compulsory super fund scheme began in 1992.
The Australian government has also finally accepted that a mistake was made during last year’s budget, when it announced reductions in the concessional cap for super contributions for those over 50 from $50,000 a year to $25,000 a year from July 2012 — the same limit that now applies to those under 50.
The higher limit lead to a variety of complaints that the government was in effect penalizing those who were headed for retirement but not wealthy and as a result were trying to put away as much as they could, after being unable to contribute much, earlier.
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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.
The industry says any such measure would result in people being discouraged to save more for their retirement and would effectively act as a subsidy by the less well off for the wealthy, who tend to have longer life spans.
The Henry review of taxation, which recently released its interim report, which suggests that the government should run a mandatory scheme, which would allow Australians to pool part of their super, and would enable them to receive annual payments after retirement, which would be determined by the government.
The Henry review argues that such a scheme would mitigate against longevity risk, the risk that retired investors run out of fund in their retirement account before they die. The proposal would in effect prevent people from spending their savings to quickly.
John Brogden chief executive of the super fund industry association IFSA, quickly slammed the proposal, saying the scheme would suffer from too much complexity, it would be expensive to run, and could have a number of negative unintended consequences.
Mr. Brogden says that a uniformly priced annuity scheme operated exclusively by the government would reward people who lived longer and punish those with shorter lifespans.
“According to the Australian Bureau of Statistics, manual labourers do not live as long as office workers. So when the blue-collar and white-collar workers all put their lump sums in together, the blue-collar worker lump sum will spend its time subsidising the white-collar retiree once that blue-collar person dies.” Mr. Brogden said.
He went on to add that a mandatory government annuity program would seriously affect the level of confidence Australians had in their super, and discourage them from saving any more than the mandatory 9 per cent of their income.
“Such an annuity scheme will strongly discourage voluntary contributions into superannuation due to the harsh restrictions imposed on how those savings can be accessed in retirement,” Mr Brogden said. And he believes the temptation for the government to spend the money and then tax to get it back is high.
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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.
According to the results of a national survey, far fewer Australians have trust in their super fund today compared with the previous year, after they performed fairly poorly during the crisis.
Despite the increased suspicion, the majority of Australians (58 per cent) expressed optimism over the prospects for a recovery in the Australian economy, following the recent strong performance of the stock market.
The survey conducted by human resource consulting firm Mercer, which runs the Superannuation Sentiment Index suggests that confidence in the superannuation industry has fallen to a new low of 37 out of 100. A score of zero suggests extremely negative sentiment, whilst a score of 100 means extremely positive.
Last year the index registered a rating of 42.
“Despite a more positive outlook for the future, the experience of the last two years has not been forgotten by Australians, many of whom are still dealing with the impact of the global financial crisis on their personal finances and superannuation balances,” said Mercer partner Heather Dawson.
Mercer polled more than 1000 Australians across the country engaged in full time employment during December. The survey results suggest that many have lost faith in their super, with only 41 per cent of respondents expressing trust in their fund, compared with 44 per cent who expressed positive sentiment in June 2009 and 52 per cent at the end of 2008.
The study also found that 61 per cent of workers were concerned that they would be less financially comfortable in retirement compared with their current lifestyles.
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Super Fund Reform Two Decades Too Late Says Industry
Kevin Rudd’s government says it full intends to follow through with controversial new regulations for the superannuation industry despite vehement opposition from the sector.
Jeremy Cooper who heads the government inquiry into the superannuation industry, also known as the Super System Review, told industry participants that whilst the government did not seek to cause unnecessary disruption or costs, the current system needed to be “recalibrated” since it resulted in far too many investors being disengaged with their investments.
Last year Mr. Cooper unveiled new proposals which would classify super fund members based on their level of involvement with the management of their super.
This would mean that members, who were not actively involved and failed to make investment choices, would have their money placed in a universal category, which is a low cost fund that has a single diversified investment strategy.
The industry responded to the proposal by making a joint submission which said that the new regulations are too drastic and would result in increased complexity and higher costs.
During an annual industry conference held in Sydney on Monday, many industry participants ratcheted up the rhetoric, suggesting that the proposals were two decades too late, with many in the industry arguing that it would have been better to introduce such measures at the same time as when the compulsory super was first launched.
Mr. Cooper, former chairman of the Australian Securities & Investment Commission (ASIC) responded by saying that despite some sectors of the super fund industry finding the universal model quite challenging, the issue of rising costs had to be addressed.
Mr. Cooper said that the right of all Australian’s to choose their own investment fund had the inadvertent effect of driving management fees upwards, as managers spent more money marketing their various bells and whistles.
Mr. Cooper says that the proposals also sought to reduce costs and save the industry roughly $1 billion a year through the streamlining of back office functions, with a drive to make the industry paperless, and all transactions electronic.
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Super Fund Industry Opposed To Rudd Changes
Retail and industry superannuation funds have joined forces in a bid to lobby the government against implementing new regulations for the $1.2 trillion industry, arguing that such changes would only result in higher costs and increased complexity.
In its submission to the government review, the industry lobby rubbished new proposals which would classify super fund members based on the level of involvement with the management of the fund.
Last year, Jeremy Cooper, the man charged with conducting the review proposed the new changes, which would see superfund members who did not actively make choices about their super, have their fund choice automatically placed in a universal category, which would have a low cost structure and a single diversified investment strategy.
Four different industry groups joined together in an unprecedented move, to voice their concern at the proposed changes, saying they would be detrimental to the interest of most members and were unnecessary.
The groups say that having the set up separate structures would result in a larger administrative burden, which would mean higher costs and lower investment returns for members.
“In an attempt to shift the cost of administration on those who use it most, and protect those who use it least, the panel has proposed a rough model which will, perversely, result in the opposite effect,” the associations said.
The Investment and Financial Services Association chief executive, John Brogden says that whilst the industry was not philosophically opposed to change it did want to “stop change that will actually make things worse”.
“I understand what (Mr Cooper) is trying to achieve but ironically the model he is recommending will deliver greater complication and higher costs to members of super funds,” he said.
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ANZ Rumoured To Be In Negotiations For Acquisition Of Asset Manager
According to a newspaper report in The Age, Australian banking major ANZ is said to be in talks to acquire fund manager IOOF Holdings. The negotiations are believed to be at a preliminary stage.
The report, which quoted unnamed sources says that negotiations are ongoing, and it is uncertain whether a deal will eventually be reached.
IOOF is one of the few remaining independent fund managers in the financial advisory and superannuation industry. The acquisition negotiations come at a time when there is large scale consolidation taking place within the wealth management industry.
If a deal is eventually reached, then it will follow AXA Asia Pacific Holdings agreement to be acquired by National Australia Bank in a transaction costing NAB $4.6 billion
IOOF and ANZ both declined to comment.
“We don’t comment on market speculation,” an ANZ spokesman said yesterday.
As part of its negotiation with IOOF, ANZ is believed to have agreed to remain outside the takeover battle that has erupted over APH’s Australian wealth management business, which for the original bidder AMP, really amounts to an existential one.
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ASFA Calls For Government To Legislate Increased Superannuation Contributions For Australians
The Super Fund industry lobby, known as the Association of Superannuation Funds of Australia (ASFA) is pressing the Federal Government to raise Australian workers superannuation guarantees to 12 per cent before the new budget is announced in May.
“Whatever the findings or recommendations from the Henry Review, it is ASFA’s position that SG [superannuation guarantee] should be raised to 12 per cent this year. It is vital that the government ends speculation about possible changes to taxation that may impact superannuation. At the same time, we believe the government needs to act promptly to address adequacy in retirement issues,” ASFA chief executive Pauline Vamos said.
ASFA has recommended that:
1) Mandatory contributions should be increased by another three per cent of salary, increasing the level of contribution to 12 per cent of total salary.
2) Mandatory contributions for the self employed should be slowly introduced over time, beginning with just one per cent of taxable income this year and eventually peaking at nine per cent of taxable income by 2018-19
3) The reduction or abolition of the $450 monthly earnings threshold.
4) Low income earners should receive more equitable tax treatment for their current superannuation co-contribution.
The ASFA chief said its proposals to strengthen the position of superannuation as the key retirement savings vehicle for Australian workers had obtained significant support amongst stakeholders, including consumer groups, fund managers and trade unions.
“The federal government must demonstrate its commitment to enhancing retirement incomes for Australian workers by finalising the inquiries and reviews it has in place, raising the level of SG and extending compulsory superannuation to a greater proportion of the workforce,” Ms Vamos said.
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Super Funds May Be Forced To Consolidate In 2010
The superannuation (Super) fund industry is set to face increasing pressure to consolidate in 2010 as a direct result of the impact that was felt by the financial crisis that hit the industry hard during the last half of 2008 and much of 2009.
According to a report in The Age, smaller retail funds may have to take refuge in larger umbrella funds such as Master Trusts, whilst small to mid -sized industry funds may end up merging with one another.
The Age quoted Jeff Bresnahan, Managing Director of independent advisory firm SuperRatings as saying that the new membership rate was declining as workers have elected to continue paying contributions to their existing funds when switching jobs.
“That is going to put more pressure on funds that have not been run as a business,” Mr. Bresnahan said.
Mr. Bresnahan said that the decline in Assets Under Management (AUM) would mean that investment funds face higher costs, and that the increase in costs would force consolidation upon the funds which experienced a decline in AUM.
Last month, according to SuperRatings, superannuation growth funds were well on their way to posting double digit returns of as much as 12 per cent for the calendar year of 2009, largely due to the recovery in global equity prices.
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Cooper Review Calls For Tighter Regulation Of Super Fund Stock Lending
Australia’s super fund industry will be allowed to continue the controversial practice of stock lending, but may end up being more tightly regulated in order to curtail any elevated risks that they may face as a result of the practice.
A government review of the super fund industry, the results of which were released on Monday, made some recommendations towards the regulation of the industry, including managers disclosing their fund’s stock lending policy, and the fees paid to the fund for engaging in stock lending.
“Disclosure should also be made about who retains voting power over the securities,” the report said.
Stock lending is a practice conducted by investors globally, where those investors lend the stock of companies they own to other investors looking to short the stock, and in return the original owners receive a fee paid by the borrower of the stock.
The stock lending business is estimated to be worth $20 billion in Australia alone, and at the height of the equities boom during the middle of the decade the Australian Securities Lending Association estimates that the value of equities lent touched between $70-$80 billion.
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Super Funds Record First Decline in Eight Months
October was the first month of negative returns for superannuation (super) funds, after seven consecutive months of gains, which is the first suggestion that the recovery in the pension fund industry may be faltering.
Independent research firm Chant West released new data on Tuesday showing that the median fund showed a negative return of 1.2 per cent during October, following seven straight months of gains, after equities and listed property trusts saw their valuations decline.
Chant West chief Warren Chant however says that October was most likely an aberration, and the recovery story for the super fund industry would continue.
“Despite the slight drop in October, the median fund has now risen by 17.4 per cent (in returns) since the end of February, when share markets around the world started rallying. Going into November, markets have picked up momentum again, so at this stage it looks as though October was just a brief ‘time out.” Mr. Chant told The Australian.
The median growth fund, which most Australian’s are invested in according to Chant West have gained 8.9 per cent during the financial year.