The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Nick Sherry

Nick Sherry

Minister for Superannuation and Corporate Law

3 December 2007 - 8 June 2009

Transcript of 31/03/2008

Interview with Fran Kelly

Radio National, Breakfast Program

Monday, 31 March 2008
8.05 am

SUBJECTS: Superannuation Returns and Related Issues

FRAN KELLY:

Be warned.  Some time after 1 July, your superannuation statement will arrive in your letterbox, and it will reveal the worst annual return since the share market crash of 1987.

And already this financial year, typical super fund balances are down about six per cent.  That's the dire warning from Senator Nick Sherry.  He's the Minister for Superannuation and Corporate Law, and he joins us now from Sydney.  Minister, welcome to Breakfast.

NICK SHERRY:

Good morning, Fran.

FRAN KELLY:

Minister, what are you hearing from the super funds; how bad is it looking?

NICK SHERRY:

Well, I think there's two fundamental issues here.  Firstly, the impact of the US sub-prime meltdown, as it's known, which has obviously hit share markets worldwide, including Australia.  The knock-on consequence of that is that superannuation fund returns, because the bulk of moneys are invested in the share equities market, will be lower in this financial year than they have been in the last four or five financial years.

FRAN KELLY:

And how much lower?  What are the funds telling you?

NICK SHERRY:

Well,, in the past four to five years, I think what has to be remembered is that funds have had rates of return, generally, between 10 to 15 per cent positive.  So we've had the strongest five year rates of return in the p... than we've seen over the last 20 years.

FRAN KELLY:

In other words, people have been doing very well, thank you, from their super funds.

NICK SHERRY:

Well, in the last five years, rates of return have been exceptional.  And, therefore, given the impact of US sub-prime on the Australian share equities market, we're obviously not going to see rates of return of 10 to 15 per cent.  They will be likely - well, they're likely to be in almost every case below the 10 to 15 per cent that people have seen each year for the last five years.

FRAN KELLY:

It's the sort of news that might panic people when they see it in their letter boxes or even hear about this, and people might start, you know, thinking about changing funds.  Are you worried, or is the industry worried, about the prospect of a run on super funds if individual funds post in numbers that are significantly worse than others?

NICK SHERRY:

Well, I think the important thing to remember about super is it's the long term rate of return that is the most important for people's retirement incomes.

FRAN KELLY:

Of course, some people might be getting close to retirement, so the long term is not so relevant.

NICK SHERRY:

Well, when we talk about long term rate of return, we're talking about 30 to 35 years up to retirement, and then we're talking usually 20 years in retirement.

FRAN KELLY:

Mmm.

NICK SHERRY:

So we're talking about a long, long time in the system.  So what it - what is important for individuals to focus on when they receive their fund statements is not just to look at the yearly rate of return, but the five to seven year rate of return which, in most cases, is included in the fund.  And the fact remains that the long term rate of return in Australia's system over the last 20 years since we ... since we've had compulsion has been an average of four to five per cent positive, and that's the important thing.  That's what forecasts of retirement incomes are based on.  So it's that long term rate of return that is important.

Overall, the system is healthy and it is well regulated.  However, I've been talking to APRA in terms of the investment structures liquidity of funds to make sure that they're being vigilant, and they are being vigilant.  They are doing stress testing of funds...

FRAN KELLY:

Mmm hmm.

NICK SHERRY:

... to ensure that they have adequate liquidity.  And the second issue relates to the other regulator, ASIC, as to how the rate of return by each fund is reported.  And that we do - that individuals are sure ... are informed properly that it's not just the yearly rate of return, it's that five, seven year longer term rate of return.

FRAN KELLY:

Minister, in a recent speech, you said you hoped the Budget might contain some measures to address the equity gap within super.  What measures would you like to see in there?

NICK SHERRY:

Well, I didn't say the Budget should address.  What I said was that, in terms of adequacy in superannuation, some people do have a shortfall, particularly those who are older and closer to retirement who haven't been in the compulsory system for most of their working life.  And medium term additional savings measures should be examined to help address the issue of adequacy.  But I didn't make any specific suggestions or comments in the context of the Budget.

FRAN KELLY:

Okay.  We, hope to see something in the Budget?

NICK SHERRY:

Well, I don't comment on issues relating to the Budget.

FRAN KELLY:

Okay.

NICK SHERRY:

So medium term, the issue of adequacy and those who don't have adequate retirement incomes is something that needs to be examined.

FRAN KELLY:

All right.

NICK SHERRY:

But I think that's over the next two to three years.

FRAN KELLY:

Minister, just briefly, as Minister for Corporate Law, how concerned are you about the collapse of the Melbourne broker, Opes Prime?  Retirement nest eggs of up to 1200 people have been put at risk.

NICK SHERRY:

Well, I always am concerned about the impact on any particular retail investor who's hurt by the collapse of a particular entity.  And in terms of the flow-on impact, it's not clear yet what proportion of their investments are in a superannuation entity.  It's - so there are some investigations being conducted by ASIC into Opes Prime and I don't want to comment on particular cases at this point in time.  The investigation's only just under way.  And until that investigation is completed, I just don't think it  would be appropriate to comment in any detail beyond that.

FRAN KELLY:

Nick Sherry, thank you very much for joining us on Breakfast.

NICK SHERRY:

Thank you, Fran.

FRAN KELLY:

Nick Sherry is the Minister for Superannuation and Corporate Law.