SUBJECTS: Cooper Panel report into superannuation, SuperStream, 'lost' superannuation, MySuper
SONYA FELDHOFF:
Well, if you're confused by superannuation, join the club. But maybe it's all about to get a little simpler. Major changes are on the way thanks to the Federal Government's response to the Cooper Review. And what's that going to mean for you? Let's find out from Financial Services Minister Chris Bowen. Thanks for your time Minister.
CHRIS BOWEN:
Pleasure Sonya. Good afternoon.
FELDHOFF:
What are the key changes?
BOWEN: The Cooper Review's made a series of recommendations to us, about ten, but if you look at the big two; firstly, they've recommended that we bring the superannuation system into the 21st century. It's very paper-based, you've still got a lot of cheques being written, its not as electronic as it could be, its confusing, its difficult to navigate, and we have a lot of lost accounts. Millions of people have lost at least one superannuation account and they don't have access to that money anymore. So we need to really just clean all that up, make it easier to reunite people with their super, make it easier to do business and try and put downward pressure on those costs, and downward pressure on the fees.
The second recommendation goes to a thing they've called MySuper, which is for, maybe people who are disengaged from their super. You think of a young person, maybe someone in their early 20's, the last thing they think about frankly is how much they're going to have to retire on when they're 65, so they're just not interested, not focused on it. But it's very important, because the decisions that they're making when they're in their early 20's are going to have a huge impact on how much they retire on.
So, that recommendation is to develop a product called MySuper which is a more basic product, low-fees, high obligations on the directors to ensure that they're doing the right thing by the members, and to really provide a default product for people who aren't interested or aren't able to make sophisticated investment decisions.
FELDHOFF:
So will MySuper be the default option?
BOWEN:
Yes, MySuper, if we adopt that recommendation, will be the default. You'd need to be a MySuper-qualified product to be regarded as a default fund.
FELDHOFF:
If you don't use the MySuper fund, if you choose to have something else, are we still going to see a reduction in fees?
BOWEN:
Then it would be up to you to navigate your way through it. If you say 'I don't want that fund, I'm prepared to pay a little bit more in fees for these more sophisticated investment options, or for this slightly different approach', that would be up to you to navigate, but of course the downward pressure on fees would be there for everybody because 'if you don't give me a good rate, I'm going to stick with MySuper'. So I do think you'll see some flow-through there.
FELDHOFF:
Is it across the board or will we need to actively choose to do that, to make those changes to see those benefits?
BOWEN:
If you didn't make any active decisions then you'd be covered by the MySuper option. So, if you just want the fund that's nominated by your employer or that's in your award, you would have the peace of mind of knowing that's a MySuper account.
FELDHOFF:
A lot of people are going to be thinking, what about the nuts and bolts? How much will we be saving in fees and how much of a difference will it make to the endgame, the amount that we get in the end?
BOWEN:
Very substantial, because if you think about your working life, it might take 30 or 35 years, if you think about paying fees every day you're at work through your superannuation account. You don't notice it, you're not actively doing it, but the money is coming out slowly but surely, if you can get even a small reduction in fees, it can make a very big difference to the amount of money you retire on. And if you take these two reforms, it's estimated to reduce fees by about 40 per cent and would increase the retirement income of a young person entering the workforce over their working life of about $40,000 and that's equivalent to another one per cent. So as you know, we're increasing the superannuation guarantee from nine per cent to 12 per cent to boost retirement incomes, if we do this, the Treasury estimates that it's equivalent to an extra one per cent above that just by having a more efficient system.
FELDHOFF:
Now when will this all take affect Minister?
BOWEN:
We've released the report today, I got it last week, it's appropriate now that I sit down with the superannuation industry and talk through all the various options. I'm committed to the objectives but I'm also committed to with working with the industry to analyse each and every one of those recommendations, it will take a while but, having said that, I've already been doing a lot of that because the Cooper Panel has been issuing draft reports along the way, so the industry will not find the things in this report as a surprise. I'd then hope to give a formal Government response in the not-too-distant future, certainly over the next couple of months, to provide certainty to people and to the industry about where the Government is going with this.
FELDHOFF:
Should we know by the end of the year where you're headed on this one?
BOWEN:
Yes. We're two-thirds of the way through the biggest reforms to superannuation since 1992 and we need to bed this down, and to do so reasonably quickly and then superannuation would have really been modernised, bought into the 21st century and will provide people with a much more dignified and comfortable retirement.
FELDHOFF:
Minister, thanks for your time.
BOWEN:
Nice to talk to you Sonya, appreciate it.
FELDHOFF:
Financial Services Minister Chris Bowen.