2005 was a year of major change for the Australian super industry, one affecting both users and providers.
With a long list of legislative reform ranging from super choice to the abolition of the super surcharge, the pace of change leading into 2006 is set to be no less rapid. But as Richard Gilbert, chief executive officer of the Investment and Financial Services Association (IFSA), says: “Who’s worried about rapid change when it’s positive?”
Philippa Smith, chief executive officer of the Association of Superannuation Funds of Australia (ASFA), believes that much of 2006 will be a year of consolidation.
“Much of the movement we saw in 2005 will continue into at least the first half of 2006,” she said. “As choice is more fully absorbed, many funds will be bedding down changes implemented in technology and communications before looking further towards enhancement.”
For many funds, the key date in 2006 will be the June 30 Australian Prudential Regulation Authority (APRA) licensing deadline. With many funds still yet to attain licences, mergers and further consolidation within the industry seem certain.
Gilbert, however, is unconcerned.
“APRA is certainly signalling more mergers and consolidation before the June 30 deadline comes around,” he said. “And some funds will clearly not make the cut. But I think this will be a better year for both the industry and APRA. The licensing task has been onerous, but at the end of the day the industry has to have confidence in APRA in order to move forward.”
Neil Cochrane, chief executive officer of the large industry fund REST, also sees the worst as being over when it comes to APRA licensing.
“APRA’s licensing requirements have forced greater focus on compliance, and that is a very good thing,” he said. “It’s time now for funds to implement those licences and maintain standards. They can only make us much better funds, giving the members that much more as well.”
But with July just around the corner, concern still exists for those funds unable to attain their licences.
“APRA has indicated that there could be up to 350 licensed funds at the end of the day,” said Smith. “But there will still be a lot remaining. July will give us a good wash up, but it won’t be the end of the story.
“Post-July 2006, there could well be funds that have attempted to conform to licensing requirements but haven’t quite made it,” she continued. “There need to be contingencies in place, and we will be talking to APRA about that in the coming months.”
However, APRA’s licensing requirements is not the only issue from 2005 that will be felt in 2006. Super choice has possibly given the super industry more public focus than ever before. The prime target of that focus? Fund returns.
According to Denis Carroll, director of IXIS Asset Management Australia, the focused attention that returns have been given is definitely a concern.
“People forget that super is for their retirement savings,” he said. “The theory out there is that you’re only as good as your last return, and I certainly don’t feel that such should be the case. It is a reality though.”
For Cochrane, the member and media focus that returns have recently received is nothing new.
“Ultimately, the super industry is about returns,” he said. “My hope is that as people engage more in their super, they will give longer term returns greater significance. Clearly, member education has a role to play here, but it is already having a positive impact.”
For industry bodies the ASFA and IFSA, two of the major victories for the super industry in 2005 were the abolition of the super surcharge and the Government kick-along that the co-contribution scheme received. But is the Australian superannuation industry likely to receive similar favours in 2006?
According to Gilbert, for both economic and welfare reasons, it’s a no-brainer.
“To me, the equation is simple. Last financial year the Government reported a surplus of $11 billion. For the same period, super fund taxes equalled the same figure. That is, the government surplus amount of $11 billion,” he said. “Some of that simply has to be set aside for super savings, and there are good reasons to do that both economically and in terms of welfare.”
Smith will also be looking for a number of Government concessions in 2006.
“There are a number of things ASFA will be looking for in 2006,” she said. “In the shorter term, we will be looking for the removal or rollback of the 15 per cent contributions tax and the expansion of the co-contribution scheme.”
Also on the agenda is removal of the super guarantee threshold and changes to current calculator arrangements.
Cochrane hopes to see increased Government support as well.
“I’d like to see increased opportunities for people to raise their super balances,” he said. “Australians need to be saving much more than they are.
