‘Paternalistic’ and ‘poor public policy’ are terms used by several industry groups to charactarise the Cooper Review recommendations, released this week.
While the financial services industry has welcomed elements of MySuper, the Review’s proposed low cost default superannuation fund, it has concerns over whether it will deliver its intended outcome.
The area that appears to have the greatest support across the board is the back-office SuperStream proposals, which are intended to create a more efficient superannuation sector by using tax file numbers to aggregate insurance accounts and more electronic and online technology to supersede less efficient paper-based systems.
General criticism has also emerged, with industry groups believing the Cooper Review has focused too much on driving cost reductions and efficiencies rather than encouraging members to contribute more to their superannuation accounts, over and above the proposed Superannuation Guarantee increase from 9% to 12%, to be funded by employers and taxation structures.
IFSA
While welcoming the Cooper Review recommendations as providing “… a far-reaching, comprehensive blueprint for strengthening superannuation governance, safety and efficiency,” IFSA CEO, John Brogden warned against what he described as “…the paternalistic nature of the review’s MySuper proposal.”
MySuper… will entrench disengagement and disinterest
“… whilst the final report contains largely positive recommendations, the MySuper proposal is overly paternalistic and will entrench disengagement and disinterest,” said Mr Brogden, who added that MySuper is likely to increase, rather than reduce costs.
IFSA contends that low cost, consumer friendly superannuation options already exist, prompting Mr Brogden to comment, “Not only is MySuper redundant, it is poor public policy.”
However, Mr Brogden applauded the Review’s SuperStream proposals: “If implemented, SuperStream will reduce costs and inefficiencies by moving paper based systems online, creating standard contribution and rollover forms and more frequent contributions.”
“Significantly, the use of Tax File Numbers to allow people to consolidate their super accounts is a massive step forward for consumers,” said Mr Brogden.
AFA
The Association of Financial Advisers (AFA) says recommendations from the Cooper Review ‘… have not been properly thought through and are yet another example of poor public policy.’
AFA CEO, Richard Klipin said that while some of the recommendations have the potential to improve Australia’s superannuation system, others are overly-paternalistic and are likely to further exacerbate Australia’s underinsurance problem.
Mr Klipin said that MySuper assumes people are disinterested in their superannuation and always will be. “But worse than that, the recommendation presumes that someone else, in this case the Government, knows what is best for them. This is not only untrue, it is patronising and paternalistic.”
MySuper… fails to address the underlying problem – which is poor retirement savings
Mr Klipin added that while MySuper may address the issue of poor member engagement, he said it fails to address the underlying problem – which is poor retirement savings. Mr Klipin says the AFA is concerned that MySuper:
- Limits consumer choice
- Dumbs down superannuation
- Encourages a one-size-fits-all mentality
“A cookie cutter approach to superannuation will never fix Australia’s poor levels of retirement savings,” he said.
Meanwhile, AFA President, Jim Taggart, criticised the Review proposal to ban risk commissions from the superannuation sector, saying this move would actually make insurance in super less affordable, rather than more affordable:
“It’s a fact of life that in the current environment, commissions subsidize the cost of providing advice on insurance to clients.”
“Take them out of the equation and consumers will have to pay the real time cost for that advice which will put it out of the reach of the people who need it most,” said Dr Taggart.
Dr Taggart contends the Cooper Review Panel is more concerned about pricing than about the real insurance needs of consumers.
FPA
The Financial Planning Association (FPA) sees the Cooper Review recommendations as ‘a lost opportunity’.
Rather than focussing on cost savings, the FPA’s new CEO, Mark Rantall, said the real issue is increasing Australian’s contribution to superannuation: “While increases in Super Guarantee (SG) contributions will help, advice and education will make the difference.”
The FPA said the Report focuses on reducing costs and portrays advice from intermediaries as something to be discouraged in both MySuper and in the Choice environment: “We acknowledge that unnecessary costs should be eliminated and efficiency increased… [but] Advice is still the best way to better Superannuation outcomes,” said Mr Rantall.
While welcoming initiatives in the SMSF space and in elements of the MySuper proposals, Mr Rantall said it was far too narrow, in that it:
- Limits choice
- Reduces competition
- Disconnects employers from their employees
- Reduces member engagement with their superannuation
“The main proposals for MySuper appear to be put forward as a solution to a Superannuation system that currently works for the thousands of employers and hundreds of thousands of employees that elect to have control over their superannuation within the safety of current default arrangements,” said Mr Rantall, adding:
“What Australians need is to get advice about maximising their superannuation, increasing contributions and the most appropriate insurance cover.”
