SUBJECTS: Cooper Panel report into superannuation, MySuper, SuperStream.
LEON DELANEY:
Also today, the Cooper Review into superannuation has delivered its final report. The Federal Minister for Financial Services, Chris Bowen, good morning.
CHRIS BOWEN:
Good morning Leon.
DELANEY:
How are you today?
BOWEN:
I'm doing fine, how are you doing?
DELANEY:
Very well. We've been making a habit of this lately.
BOWEN:
We have. People will start to talk.
DELANEY:
[Laughs] Well as long as they say only good things, that's all that matters ey? We've been awaiting the outcome of the Cooper Review, it's prompted a bit of controversy actually, but the bottom line is that, according to most reports, ordinary everyday workers will be better off, possibly to the tune of $40,000 in their superannuation. How did we achieve that?
BOWEN:
This is all about making the superannuation system a lot more efficient and, frankly, dragging it into the 21st century. If you have even a small reduction in fees over somebody's working life, it could be 40 years; a small reduction each year can make a big difference to the retirement incomes of working Australians. So, there's a few recommendations here, but when you take them all in total, the Treasury's done a lot of work and they've worked out it could reduce fees by about 40 per cent, and that would mean for somebody with average weekly earnings, about an extra $40,000 in their retirement income when they come to retire, so that makes a big difference to the way that Australians will live in retirement.
DELANEY:
And of course, every penny makes a difference, doesn't it?
BOWEN:
It does.
DELANEY:
How do we achieve those savings? Is it simply by reducing the fees that are paid along the way, or are there other reforms as well?
BOWEN:
There's two big ones. Firstly, as I say, is modernising the superannuation system. It hasn't kept pace with technological advances. We have a lot of cheques wandering around the superannuation system, it's very paper-based, it's very inefficient. So we've been looking at ways of making it much more efficient, getting it more electronic, and really reducing those costs. And also as part of that, and this is a very important point, putting people back in touch with their lost super. There is so much lost superannuation out there, its people just frankly losing money, because they change jobs, and they get a new superannuation fund, but they've still got the old one and they don't roll it over, and they might move house, and then the old superannuation loses contact with them because they haven't let them know, and there's just literally billions and billions of dollars lying out there that's lost; so using a lot of that technology to put people back in contact with their super.
And the second part of it Leon, is called MySuper, and that's a very low-cost, basic default fund. So, if you are not engaged with your super; you might be and I'm sure you can think of people you know and in your family, who might be say, in their early 20's, working hard, saving, either saving up for a holiday or saving for a good time or saving for a young family, but not thinking about their superannuation because it's 40 years away. But for those people, giving them a low-cost fund, so they can basically put it in that fund and they know that their interests are being looked after even though their not engaged in their super and investment choices and checking out the cost and the fees and making sure that they're getting a good deal, providing those sorts of people with some peace of mind.
DELANEY:
This is where the Investment and Financial Services Association has come up with some criticism though, as reported in the Sydney Morning Herald. The CEO John Brogden says 'it dumbs it down and basically entrenches people's disinterest in their superannuation. It's the sort of radical proposal which often comes up in these sorts of reports that goes too far'.
BOWEN:
There are plenty of people in the superannuation industry who liked this …
DELANEY:
There seems to be a clear line of demarcation between the profit-making superannuation funds and the not-for-profit sector.
BOWEN:
Yeah, the not-for-profit sector has quite warmly welcomed these reforms. I should say everybody in the superannuation sector welcomed the first tranche of reforms I was talking about though: efficiency, putting downward pressure on fees by making it more modern, everybody agrees with that.
The Financial Services Council, John Brogden's group, do oppose MySuper, I've spoken to them about it and I will continue to talk to them about it, and continue to talk to them about ways to make it work. I understand their point of view, but I need to obviously develop a policy that is in the best interests of superannuation investors across the board.
DELANEY:
Well, representing the profit-making sector, are they simply defending their franchise, seeking to preserve their profits?
BOWEN:
They have a point of view, they have a different point of view to others in the superannuation industry, I'm not going to go into what makes up that point of view. I've got a good relationship with them; we've worked very constructively on a whole range of reforms. There's been a lot of reforms in superannuation, as you know Leon, over the last 12 months: financial advice, increasing the superannuation guarantee; we've worked well on those reforms and we'll work well on this one as well.
They have strong views, we'll work them through, but at the end of the day, we'll make a decision on what we see is the national interest.
DELANEY:
Some of the papers have reported this as the Government picking a fight with the super sector, and even making the comparison with the recent debate with the mining industry, is there any similarity?
BOWEN:
No, I don't think so. This is about making our superannuation system more modern and efficient. There's going to be a little bit of controversy along the way, but we'll sit down and we'll work the issues through, just as we did with financial advice.
In April we brought in very substantial changes to the regulation of financial advice in Australia, in relation to superannuation and other products. It could have been very messy, but we sat down with the industry and worked it through and in the end we got a package which really professionalises the financial advice industry, that's been supported by the Financial Planners Association and the Investment and Financial Services Association.
So, when you sit down and work these issues through, I think the superannuation industry has responded positively to that consultation and I think they will in this case as well.
DELANEY:
Terrific, thanks very much for your time today.
BOWEN:
Good on you Leon.
DELANEY:
Thanks for that.