Hello!

Thanks for tuning in again! I trust you were bowled over by the amount of change the industry has undergone over the years and remember, I only listed some of the big ones, there were plenty more.

Now, it’s time to look at the system that’s evolved over the years . As you’re probably aware, with no industry architect in the early days,  how this compulsory system could be run efficiently was never really considered!

The  obvious problems which need to be fixed include…

• The Super Mexican Standoff: To meet their Superannuation Guarantee requirements, generally, employers are required to make contributions to a superannuation fund. However, there is no requirement for employers to provide data in a set format, indeed no requirement to provide any data at all! This was later “fixed” by making it unlawful for a superannuation fund to hold money it cannot allocate to a member. This is known colloquially as a “Mexican Standoff” and is less than efficient – you send whatever junk data you like and we will send back what we can’t sort out.
• Lost Super: The system has generated about 33 million superannuation accounts for around 11.5 million employed Australians. About 5.8 million accounts are considered ‘lost’ and this is worth around $18 billion. Hardly efficient.
• The Super Cost of Transactions: In the Cooper Review, it was noted that it costs $3.5 billion annually to undertake 100 million transactions. So two points here – $3.5 billion is a lot of “leakage” from the system and $35 per transaction is unacceptable.
• The inefficient business model: The Cooper Review looked at this industry from the perspective of looking after members. However, there are many vested interests that will be adversely affected, directly or indirectly, by any change to improve the current problems. Controversially, I would say that many have business models based on the inefficiencies in the system. Inactive accounts provide fees and scale to funds and administrators; large ‘feature rich’ accounts are cross subsidised by small inactive accounts etc.

So here we are with Cooper holding a mirror up to the industry and the Government responding, and largely agreeing, that it’s time for a tune up. It may well be decades before another opportunity comes our way to make this industry great – to clean up the inefficiencies and pass the maximum value of contributions on to benefit members in retirement. All the people with self interests at heart will be there with their ‘one in a million’ reason why this and that will not work. But it is crazy to have so many accounts and for it to be so costly to administer.

And perhaps the Medicare small business superannuation clearing house is a window to how the future may look – all data is electronic, only one data format, only one way to pay and one system to learn. For superannuation funds receiving the data, all data comes looking the same, with much less chance of error. This is just one piece of the puzzle but it does indicate what is possible.

Let me know what problems I’ve missed and how we can fix them. Now is the time to share ideas and start getting some solutions out there.

Signing off for now,

Peter