And they are off and racing, it’s Sweden in third with Australia closing in, Netherlands are performing strongly overtaking Switzerland into first place, it’s a photo finish and Australia has finished….fourth. Doesn’t sound as good as last year where the Australian system was ranked second on the Melbourne Mercer Global Pension Index…

So what happened?

The updated Global Pension Index was released by Mercer  <insert friendly salute to my “neighbour” Dr David Knox here>  and the Australian Centre for Financial Studies earlier this week and shows that our system has slipped behind the Netherlands (#1 – go cloggies!), Switzerland (#2) and Sweden (#3).  Aren’t Dutch people clever, charming, witty….Anyway, it’s worth noting that Switzerland weren’t included last year, so that means technically we finished only one place down from last year. Why the backwards step? The report suggests that the reason is due to high fees and administration inefficiencies coupled with a few specific issues that need attention, namely the ageing population, longer life expectancies and low average balances.

What’s an ‘A’ rated system and why are there none?

Out of the 14 countries the index assesses, no country’s system scored 80 or more which is what you need to be an A grade apple. Five countries, including Australia, were rated B which represents an index value of 65 to 80.  Our actual score was 72.9. What does 72.9 mean I hear you asking? Good question! It means we are close to being at the top. We have a system with a sound structure and many first class features but some definite areas for improvement – sounds not dissimilar to my performance appraisal ….

What do we need to do to top the class?

In the sub-indices, we scored strongly on sustainability coming in at third overall, but we didn’t do too well on adequacy – seventh! Obviously, increasing the SG to 12% would help here, as would improving retirement balances by lowering administration costs – hello SuperStream! The LIEGC (if you don’t know what this acronym is you aren’t reading all my posts and I know that would never be true) is another important step to improving adequacy and increasing system equity so let’s hope that becomes a reality sooner rather than later

In addition to improving administration efficiency and increasing contributions, the report suggests we could better our rating by:

-          Introducing compulsory part pensions for retirement benefits – no more 100% lump sums.

-          Increasing the participation rate of mature age workers in employment – a no brainer given the size of the ageing population and the ratio of mature age to younger workers.  Also, the mature age workers have a wealth of experience we cannot afford to lose!

-           Increasing the pension age as the population ages – we’ve already started making headway on this and it makes sense….well, for most people anyway.  It’s like age-indexation really, as the average life expectancy grows  - through better health and education policies and systems – so too should the pension age.  This may be a good topic for another blog!

For those having read the report, what stood out for you?

So, where to from here? Well, we’re a sports mad nation and we should go for gold, pushing to further improve our system, I can see it now, in a few years time superannuation could be a Commonwealth Games event with back offices competing for gold, bronze and silver…it’ll be great!

Now where is my multi-coloured jockey outfit..? Look for me on SuperStream! We are on a winner! 

Yours in Super, Hans

Hello fellow super enthusiasts! 

Firstly, thank you for tuning in again even though it has been a long time between posts. As always, the world of superannuation continues to take twists and turns and since the last post, not only do we have a newly elected Prime Minister (after a nail biting contest paralleled only by the AFL grand final) but also a new Minister for Superannuation, Bill Shorten.

The re-election of Labor means Australians should enjoy an increase of the superannuation guarantee from 9 per cent to 12 per cent. Other improvements to superannuation such as better use of the TFN, raising the SG age limit from 70 to 75, improving regulation of the industry and tax concessions for low earners can be expected.

The Low Income Earners Government Contribution – or LIEGC, another super acronym that rolls off the tongue – is a particularly important measure. For those of you who have not got every detail of the proposal etched into your mind, you can view Treasury’s fact sheet here.  So, I can hear you asking why is this measure so important? Well, here are a few reasons:

• As a result of all super contributions being taxed at 15%, low income earners currently receive little or even no concession.  Consider those in the 15% tax bracket…where’s the incentive to save via superannuation?
• Worse still, individuals in the tax free threshold, or with an effective tax rate of less than 15%, are penalised for contributing to super with 15% tax applied to their superannuation guarantee contributions.
• Higher income earners on the other hand, receive solid incentives to save via super, for example, if your marginal tax rate is 30%, getting taxed at 15% within the super system is a pretty good deal!
• This proposed measure has the potential to boost the retirement savings of 3.5 million low income earners by a tidy $830 million*.

Sounds good! However, the question is when and how these reforms will take place, particularly with measures such as SuperStream also in the pipelines.

Importantly, we as an industry can already implement the LIEGC measure with minimal fuss.  The low income earners contribution could operate similarly to the existing Government co-contribution scheme where:

• Individuals file a tax return →
• The ATO connects the dots using contribution data already provided by funds →
• Funds apply the data file and monies supplied by the ATO to the corresponding account.

 Sounds familiar doesn’t it?

Maximising efficient systems and processes that are already in place to their full potential is crucial, particularly when we are looking at implementing major industry and system reform, which we know is like renovating a house….sounds great but it is not easy or cheap.   

So now it’s over to you! How would you advise our new Minister for Superannuation and Assistant Treasurer, Bill Shorten regarding funding and prioritisation of all these much needed changes, especially as the number of Australians at retirement age is expected to grow to 8.1million over the next 40 years?

*Source – Australian Government, Stronger Fairer Simpler A tax plan for our future, 2010

Hi Fellow Super Enthusiasts!

Firstly, my apologies for the delay in posting.  At Superpartners, we’ve been so caught up with the end of financial year and everything happening in the superannuation industry that we unfortunately missed our posting deadline. (okay, a beautiful family holiday in Bali did not help here…).  But we’re back on track with lots to talk about!

It was great to hear from you! Thanks for your BIG ideas and great suggestions for topics.  Keep sending them through either via email or via this blog.

The next few blogs will feature a series of discussions about the recommendations in the Final Report from the Cooper Panel as well as the Government’s recent response to the Cooper Review’s  MySuper and SuperStream proposals.  If you haven’t already read all 490 pages of the consolidated report, you can find it here. It’s great bedtime reading!

Or, for those of you with a life, I can highly recommend the 60 page overview.

Now, let’s move on to our first topic…

Hans has a dream about super… and he would like to share it with you

I share a dream with many of you… that one day we can use a member’s Tax File Number to match super records so that super can be paid into the right account quickly, every time!  Imagine a world with no more unallocated contributions, no more lost members and no more wasted time on chasing employers for missing information.  This will improve the member experience, lower total administration costs and therefore increase members’ retirement benefit!  Everyone is a winner.  So what do we need to do to make this happen?

In our submission to the Cooper Panel, Superpartners recommended that the “silver bullet” for efficient administration of superannuation accounts is the ability for funds and administrators to use the members’ Tax File Number (TFN) as a primary identifier.  This means that we can link contributions and rollovers with member accounts.  The Cooper Panel agrees.  In Chapter 9 of the final report that was released to the public on 5 July 2010, the Cooper Panel recommended that the TFN be used for linking contributions and rollovers to member accounts.  Further, the Panel has taken up our recommendation for funds and administrators to use the TFN to seek (electronic) confirmation from the Australian Tax Office (ATO) that the TFN quoted is correct each time a new member joins the fund.  This will improve the quality of member data, reduce potential fraud and ensure we do not end up with lost members.

Why can’t we do it today?

Existing privacy legislation limits the use of TFN for record matching purposes.  This is for good reasons.  It is important to protect members’ confidential data and therefore penalties for breaching the privacy laws are significant.  However, it needs to be questioned whether the legislation is too restrictive in facilitating a better outcome for…members!  Particularly, employers are already required by law to pass on a member’s TFN to a super fund (unless a member opts out) and funds (and their administrators) already have systems and processes in place to ensure compliance with privacy legislation.  Extending the use of TFN as primary identifier should therefore not necessarily be a complex and expensive exercise.

So, what needs to be done to make this happen?

Well, to make this a reality we will need to see a change in legislation as well as a clear set of protocols as to how funds and administrators could use the TFN as primary identifier.  The Cooper Review reported that: “The Privacy Commissioner is not opposed to promoting efficiency in the superannuation system through limited and clearly articulated use of the TFN, provided such a proposal is measured  and accompanied by strict privacy safeguards to protect personal information and choice; and is based on the likelihood of strong individual benefit.”

The Gillard Labor Government agrees!

On Sunday 1 August, Julia Gillard and Chris Bowen announced the introduction of “MySuper” as well as the Government’s first step to improve the administration of the superannuation system…..you guessed correctly, better use of Tax File Numbers!  “From 1 July 2011, an individual’s TFN will be the primary identifier of member accounts, subject to strict conditions to ensure privacy and security of information.”

So…..dreams do come true!  (although there is quite a bit of work to be done to get there of course…).  Let’s keep our fingers crossed (and continue to lobby!) for a positive outcome for all.

Your thoughts and ideas…

So how is this going to work in practice?  How can we avoid making a sensible policy work without making it too complex to administer?   What will the role of the ATO be and how will we deal with incomplete/incorrect data?   Will employers be able to provide the same information that the ATO has on its database?  What about exception management?   Does anyone have any experience as to how this is done overseas?

I really would like to hear from you if you have any thoughts or ideas on how best we could use the TFN to streamline super administration.  Send me an email or leave a comment below.

Who knows?  It looks that our dream might come true sooner than you think…  What will we dream of next?

Yours in Super

Hans

Hi and welcome to our first ever Blog on superannuation administration!

A blog on superannuation administration…. why I hear you say?  That is, if you are still reading.  Most new people I meet at (school) BBQs, (school) trivia nights and what seems like a never ending run of (school) fundraising functions, seem to run off for another drink or some more food when they hear the word super, let alone followed by administration.

Now is the time…..

Yet, there has never been a more important time in the recent history of superannuation administration than now with many reviews into Australia’s superannuation system having been completed (Harmer, Henry and Ripoll spring to mind) or about to be completed (the all important Cooper review).  Armed with a large, diverse and far reaching set of recommendations, the government will soon be ready to embark on the implementation and execution phase.

The super industry has taken the reviews very seriously and it was great to see the number of terrific submissions made, and in particular in respect of the Cooper Review.  If anything, the Cooper Review has already achieved a level of collaboration that we have not always seen before.  We have seen joint submissions between different interests groups and even competitors! That is great for super and, in particular, great for members when this leads to greater efficiencies and reduced costs.

But, the debates are far from over.  The Cooper Panel reported that by making our system more efficient, we could strip between $700M and $1B of costs from the super system, every year!  Wouldn’t that be great?  So, how are we going to make this a reality?  When it comes to implementation and execution, we need more debate about the benefits and costs, as well as who is going to pay.

Super admin….everyone’s concern

Super administration is by and large segment agnostic, meaning that most issues or concerns in super administration will generally apply to all segments, industry super, retail SMSF etc and affect all members, eg: how contributions are paid by employers to superannuation funds.  Currently, a third of the total administration cost goes towards managing contributions.  As this is everyone’s problem, we have to work together on finding better ways to make super more efficient. This is where you come in…

Your help…please

So, what would I like from you?  Thanks for asking!  I would like your thoughts, ideas and comments on how we can make an already great superannuation system  – yes our retirement income system is considered one of the best in the world – an even better one.  This is a forum for everyone who has an interest in anything super admin. This could include topics like: what best practice is (either here or overseas) how we can improve efficiency (electronic data and money transfers) and topical issues like Lost Super Account,  Intra Fund advice, longevity risk etc but also your wish list (TFN as unique primary ID would be high on my list).  When we say super admin this obviously includes important areas like insurance and investment administration (eg unit pricing or crediting rates).

Your valuable contribution can either be a suggestion for a topic you want to see discussed or a post (or two) on the topics that have been raised by others.  As this is the first one, you can send your topics (with a brief explanation and your solution…if you have one of course) directly to me via email or via this blog.

My Commitment…

I will be sending a new blog every fortnight with a new topic selected by you.  Super is my passion and I know that I am not the only one out there (or am I…?).  I am excited and am looking forward to engaging discussions and debates with you, online or offline.

Thanks for participating,

Yours in super

Hans