SUBJECTS: Release of Cooper review into superannuation, superannuation guarantee, asylum seekers, Western Sydney
CHRIS BOWEN:
Good afternoon. Today I'm releasing the Government's Superannuation Review report, the Cooper Review.
We've embarked on a three-stage process to improve the retirement incomes of Australians.
In April, we announced reforms to the Future of Financial Advice, to eradicate conflicts of interest in the superannuation and financial services area and to eradicate commissions which eat away at the retirement incomes of Australians over a long period of time.
In May, we announced reforms to boost the retirement incomes of Australians through boosting the superannuation guarantee from nine per cent to 12 per cent, through giving the contributions tax back to low income earners and allowing people over 50 to make more concessional contributions to their superannuation.
Today we start the third stage of that process to improve the retirement incomes of Australians by releasing this report. This report goes to the simplicity and efficiency of Australia's superannuation system.
Superannuation has served Australia very well over the last 20 years but it needs to be modernised.
Superannuation needs to be dragged into the 21st century.
Superannuation has not taken advantage of technological advances over the last few years. It's too paper-based; there's not enough electronic transactions. It's too complex for people to navigate simply and easily. And the Cooper Review has made a series of recommendations to the Government about how to improve that situation.
The dividend from doing this is very substantial. The recommendations from the Panel to improve the efficiency of the superannuation system are estimated by Treasury to save the industry in the order of $1 billion a year or around 25 per cent of current operating costs. Treasury also estimates that the recommendation for a basic, low cost default fund, MySuper, could generate short run savings of $550 million a year, rising to $1.7 billion a year over the longer term. Now, for an Australian worker on average weekly earnings over a career of 37 years, this benefit would be equal to a reduction in fees of 40 per cent, or equivalent to an increase in their superannuation guarantee of an extra one per cent; an extra one per cent over and above the 12 per cent that we've already signalled for improved efficiency and lower costs.
These recommendations go to giving Australians a better chance at a more comfortable, more dignified retirement by increasing their retirement income through improving the efficiency of the system and reducing fees over their working life.
Now for the process from here. There's been extensive consultation. This is a very substantial report. Jeremy and his team received over 450 submissions, and held more than 200 roundtables or other consultative discussions with the industry and with the broader community. The review released a series of draft recommendations and reports over the last 12 months, and of course over the last 12 months I've been engaged in extensive consultation with the superannuation industry about those recommendations.
The release of the final report today now enables me to enter into more intensive and focused discussions and consultations with the superannuation industry and with the broader community about these recommendations.
The objective is clear: a simpler, more efficient, better streamlined superannuation system for the benefit of all Australians; to boost the retirement incomes of Australians and boost the national savings pool, which is good for individual Australians and very good for the nation. I'll be working methodically through these recommendations in close consultation with the industry, with representatives of consumers to ensure that we get the balance on each and every recommendation correct.
Before I formally hand over to Jeremy to make a few remarks, I'd like to thank him very much for your work over the last 12 months. It's been a very extensive process, and I know industry and the community generally appreciate all the effort that you've put in. I'd also like to thank the Panel for their work: Meg Heffron, Ian Martin, Kevin Casey, Sandy Grant, Greg Evans, Brian Wilson and David Gruen.
It's been a very extensive process involving a lot of consultation, a lot of work and Australia will be the beneficiary of this work for many years to come.
Over to you, Jeremy.
JEREMY COOPER:
A bit of a relief to put this down; it's actually quite heavy.
If I could open by, of course, thanking Minister Bowen for his support during this process.
Now, the review was supposed to be about making super better for members, and I thought I'd take you through nine very quick slides to hit the key issues. And what we have to remember is today our superannuation system sits at about $1.3 trillion in retirement savings. Where we're heading in 2035 is around about $6.1 trillion in nominal dollars. In today's dollars, it's still around about $3 trillion, so in real terms our system triples in size over that 25 year period. Now, as the Minister says, we have a world class system already. It is not broken; this review has not been about that. It's about what are the sort of issues, what are the sort of things we need to do to get to that $6.1 trillion or whatever the number is. Of course, that's a projection, but it's going to be a very, very large number. What are the things we need to do in order to position the system and the members to have a superannuation system of that size?
In very simple terms, the current day challenges are the back office of superannuation – that is, all the paperwork, getting the money in, getting the money out and so on – it needs a very good clean up, as the Minister said. 'It needs to be dragged into the 21st century'. So that's problem number one.
Second, the Panel thinks we need a product that suits most members better, that's simpler to use, easier to keep track of, easier to compare with other products and is better value for money for the members.
And the third problem we're addressing is that competition in this industry, in the superannuation industry, has not effectively driven prices down far enough or created the efficiencies that we think are quite easily available to it. When we talked about cleaning up the back office, we've called that Superstream as a way of gathering together all the ideas and giving them a name.
But the real message about this is that there are $13.6 billion at the moment of lost superannuation. That's money that people have actually worked for but they're not going to retire on. So we've taken, it's one of our biggest challenges as to clean this up to make sure that people don't get so easily disconnected from their superannuation, and this involves using tax file numbers to be able to match people in the system so that people's superannuation doesn't get lost. It's more use of e-commerce and a thing we call auto-consolidation, which is where you've got more than one account, you'll be automatically asked whether you want to merge those accounts together.
The next thing we need to remind ourselves is that superannuation is compulsory. If you work, you have to have it. And so members should be entitled to expect a product that works for them and not vice versa.
So that's where we came up with our idea of MySuper; no commissions, no contribution fees, more comparability – in other words, being able to compare one MySuper product with another MySuper product more easily than you can at the moment, and insisting that the people who offer these products have got the scale and the governance for optimal outcomes for members. So that's MySuper. As the Minister said, the potential longer term savings for MySuper, we think, when you add them with the benefits of Superstream, add up to $2.7 billion a year. Just in very, very general terms, that would be out of a total cost pool for superannuation of around about in today's terms $12 billion. So you can see that's quite a substantial saving. And a hypothetical 30-year-old who would join a MySuper fund today and work for 37 years, as the Minister said, would end up having $40,000 more to retire on in today's dollars.
The other tools that we're seeking to provide for members is increasing their ability to compare for themselves how their super fund is going against other funds, to compare various products, and to understand the difference, the key issues of return and risk and volatility in superannuation. Our first idea in this area is a thing we call the product dashboard, where members are able to see risk and return probabilities in relation to products, and our second one being a standard template for comparing investment performance. This would break out performance before and after tax and would also highlight the volatility of returns; in other words, how many negative investment returns had a particular fund or product over time.
As the Minister said, we issued a number of preliminary reports in this review – a total of nine – and received over 450 submissions, and had at least 200 consultations and meetings with various stakeholders. And we'd like to thank all of those people, and particularly the members themselves, who wrote in and told us about their particular experiences with superannuation. And lastly, I would like to thank my fellow Panel members. The Minister has named all of them, but you can see them now up on the slide. I'd like to thank them for all their hard work and that's the end of my presentation.
BOWEN:
Over to you, folks.
JOURNALIST:
Can you maybe explain, obviously there's some no frills products out there already, particularly in the industry super fund area. Why do you believe that you need to expand it across all areas and private super funds? Is it because it's too hard, still, for employees to access these no frills products?
COOPER:
It comes back to the compulsion. We're saying that if you're compelled to be in a product – in other words, if the default product that your employer selects for you – that product has to have, we say, criteria where it's quite obvious objectively that that product is working in the interests of the member. If the member then chooses some other product, well, that's fine, but we say the default, where the system is effectively forcing some of your deferred wages into a product like this, it's outsourced to the private sector, so it's a Government idea done by the private sector, we say it ought to live up to certain standards. That's what we call MySuper.
JOURNALIST:
Have employers not been doing enough, you think, to try and offer those options to employees? Have they been making it too hard?
COOPER:
Well, employers are not necessarily investment experts. We're making it a lot easier for them by saying, 'Look, here's a MySuper product, it's going to have to live up to certain criteria.' It'll make it a lot easier for employers to feel comfortable that they have actually selected the right product for their employees.
JOURNALIST:
Mr Cooper, on the MySuper, is it a product that the funds offer as a basic product called MySuper[inaudible] or is it offered by one fund?
COOPER:
It's certainly not offered by one fund. So this is not a single, national fund by any means. It's more or less what a lot of funds already have, and it's getting into technical superannuation language here, but the default investment option would be most likely, if these proposals are taken up, would be turned into a MySuper product.
JOURNALIST:
Mr Bowen, the benefits of the reform are fairly substantial in dollar terms here. The benefits for individual fund members seem pretty clear. Why do you need further consultation and how long do you think that that consultation would take? When do you think that you would have a full response?
BOWEN:
Sure. Look, I think any report such as this, which is very substantial and the recommendations are quite detailed, should be subject to some further consultation. Having said that, I agree with you that Jeremy and his Panel have undertaken very extensive consultation this far, and that makes the process from here on easier and quicker. I would hope to have an indication of the Government's thinking in response to this report in coming weeks; certainly over the next two months.
JOURNALIST:
Do you think the fund managers can be honest in calling this new type of [inaudible] cheap and nasty?
BOWEN:
Well, look, there's a range of views out there. I accept that any recommendations such as this are always going to be controversial. I think the objective of the Cooper Panel, which is a simple, easy and low cost default option, is a very worthy one. Of course, I'll be working through all the nuances of that recommendation and working through that recommendation to ensure that we achieve that objective in the most efficient way possible.
JOURNALIST:
Minister, the move on Superstream; how do you compel superannuation funds to go down that path of improving their own operations?
BOWEN:
Well, I must say, I think this is one area where there's consensus amongst the superannuation sector, that they agree that things could be done much more efficiently. As it's been put to me, if you walk into the back office of a superannuation fund in Australia, it's like walking into 1982. There's cheques flying about everywhere, there's paper-based systems. But it's not just about superannuation funds. It's about how superannuation funds interact with employers and their members. And superannuation funds need some assistance to modernise their operations because of that interaction.
So I think the superannuation industry will respond very positively to this segment of the report because they know just how much things could be improved, they know how much the interaction with the employers could be improved and they need the Government's assistance in doing so.
JOURNALIST:
Minister, given what you talked about in terms of the reduction in fees to members, what does this actually mean for the fund managers?
BOWEN:
Well, every fund manager will respond in different ways, Gemma, but I think what we'll see is plenty of competition, as there already is in superannuation, and fund managers will need of course to keep their pencils very sharp, and that's as it should be because superannuation is all about the retirement incomes of Australians. I think fund managers contribute a lot of value to Australia's superannuation sector, but we want to see it as efficient as possible.
JOURNALIST:
[inaudible] Does it suffer a bit from disengagement from Australians, I'm particularly thinking more younger Australians?
BOWEN:
I'm happy for Jeremy to add to the answer, but the short answer to that is yes, and we do need to encourage more engagement. It's very difficult. I think the way you encourage more engagement is to make it as simple and easy to navigate as possible.
Jeremy rightly referred to the high number of lost accounts in Australia. We need to make it easier for people to change their superannuation account when they change employers. A lot of people find that difficult at a time when you're going through the stress of changing jobs to then sit down and be filling out forms to move your superannuation account around, etcetera.
So anything we can do to encourage that greater engagement would be a good thing for Australians and for the economy generally. Jeremy?
COOPER:
Yeah, look, engagement's a key theme. We built this product to work for people who aren't at all engaged right through to people who are very engaged and say, 'Well, that's where I want my superannuation.' I think the existing regime assumes that everybody can be engaged; everyone can be knowledgeable about investments. You've got these large disclosure documents and so on. And the Panel's quite clearly, as you read the report, the Panel's making a fairly strong statement that for a large percentage of the population that doesn't work. Now, what the size of that percentage is has been the subject of some discussion. It suits some sectors to say that the number of people who are disengaged is very small, and that everybody wants to get in there and make choices and buy products and so on. We don't really care where the line is because we've put a system on the table that will work for all people.
JOURNALIST:
[inaudible] the missing billions of super, obviously matching tax file numbers can stop that from [inaudible] in the future. There've been lots of campaigns [inaudible] retrospectively?
COOPER:
Look, it could do. If you work out very quickly what that is, it's about $1000 for every single person in the system. That's a big amount of money.
JOURNALIST:
So they could find that lost super?
COOPER:
They could. Unfortunately, a lot of the data is so bad that the matching won't benefit. But at least we've identified that problem and we'll sort it out for the future.
BOWEN:
We might go to Hugh, he hasn't had a question yet, and then David.
JOURNALIST:
A question really for both of you. Most people would find their super funds would be currently somewhere south of where they were a couple of years ago. In the course of this process, what judgements were you able to make about how well fund managers right across the board performed over that period, and what sense of certainty can you get that the changes you're going to put in place are actually going to get better performance for people when we're riding a tricky road?
BOWEN:
I might just say, this report is about efficiency and simplicity. Of course, pension funds around the world have had a difficult time over the last couple of years. Superannuation is a share market linked investment, generally a market linked investment, so when you have the sort of returns on international capital markets as we've had over the last few years, that's going to impact on Australia's superannuation, just as it has impacted on every pension system around the world that's market linked. But over the course of a career, of course we're all much better for superannuation because the returns over the last 20 years, for example, are generally four per cent higher than inflation when you average it out across the board. So I don't think this review actually goes to the nub of the question that you're posing, Hugh, because it's not about performance returns, it's about efficiency and simplicity.
JOURNALIST:
I'm just wondering whether people feel they've got benefit, those who were paying an extra premium to get higher level advice, if you like, whether there's any particular evidence that they got value for money from it?
BOWEN:
Jeremy?
COOPER:
This is another juicy topic. I think the Panel's view is that there's not a strong correlation between paying high fees, all other things being equal. So if you're in the same asset class, paying higher fees doesn't correlate strongly with getting higher returns in the long run. But to step back to your broader question, we very much left it to the trustees and fund managers to make decisions about what they ought to invest in, about their asset allocation. So this is not a review that interferes with that process. What we are doing is making that process more transparent and accountable. So we're going to be forcing trustees to be more open about what they're doing; what it's costing in particular. And as you see in Chapter Two of the report, we've got some interesting ideas about the governance of the people who are minding your money.
BOWEN:
David?
JOURNALIST:
A question for both of you about MySuper. If MySuper has no commissions and no or low fees, there's not much incentive for the [inaudible] to promote to employers their offering to staff. In fact, all the incentive would be for them to offer other fund choices to the employer. To what extent do you think that there need to be changes to address that, and Minister Bowen, would you therefore be conscious of that in responding to the report?
BOWEN:
Jeremy?
COOPER:
Okay. The key answer to that question is that only a MySuper fund, only a fund that meets the MySuper criteria, would be able to be offered to employees as a default fund. So there's an instantaneous market, if you like.
JOURNALIST:
Mr Bowen, just a quick question on asylum seekers. How do you think the tougher stance that the Government is claiming to take may be seen in your electorate?
BOWEN:
Well, I represent Western Sydney, and the thing about my electorate of Western Sydney, of Prospect, soon to be renamed McMahon, is that we have a high proportion of refugees in our community. A high number of my constituents are refugees, or certainly many have relatives who are in refugee camps around the world. So my community certainly acknowledges the importance of refugees, the important contribution that they've made to Australia and would continue to make to Australia. Likewise, there's a lot of concern in my community about those high number of people waiting in camps, and for every person who arrives on a boat there's one less person we take from a camp. So these are not simple matters, these are nuanced matters, and we'll be dealing with them in a nuanced and methodical manner.
JOURNALIST:
Is it something that gets brought up to you in your local electorate as the Member for Prospect?
BOWEN:
Certainly, of course it's an important issue, as it is around the country. It's certainly an important issue in my electorate, and I regularly engage with my constituents about it.
JOURNALIST:
Are you expecting now the caucus to be canvassed widely for their views on this issue?
BOWEN:
Well, we'll go through the normal process and as has been widely reported, some discussion about this within the Government, and we'll go through the normal process.
JOURNALIST:
Minister, the Government's just obviously had quite a bruising battle with the mining industry over tax reform. Are you prepared to have a battle with the super industry over something as contentious as the MySuper [inaudible]? Will your experience with the mining tax change the process [inaudible]?
BOWEN:
Well, I've been working with the superannuation industry now intensively for 12 months as the Superannuation Minister. It's been a busy 12 months. We've embarked on some very substantial reforms: the Future of Financial Advice, the improvements to superannuation and now this. I'd point to the Future of Financial Advice reforms; again, very controversial, but we engaged in a lot of consultation and we've had the Future of Financial Advice reforms supported by people like the Investment and Financial Services Association, the Financial Planning Association and the industry funds.
So I think if you sit down and work constructively with people, work through their issues and attempt to achieve those objectives, you can get a good outcome, and that's certainly what I'll be doing here. I'm not interested in a battle with the superannuation industry for the sake of it. What I am interested in is a good outcome and working constructively with the superannuation industry to achieve it, and given the relationship I've had with the superannuation industry over the last 12 months, I'm sure they'll respond constructively to that.
JOURNALIST:
Minister, last week you announced the extension of the compulsory withdrawal of [inaudible] super accounts every year because of the ongoing uncertainty. Are you concerned about that, that there remains a bit of volatility within share markets locally and overseas?
BOWEN:
Well, there's certainly a lot of volatility in the share market, particularly overseas and you don't need me to point the reasons for that out to you, they are very much focused on Europe, and that was a factor in our deliberations, to say that the share market remains volatile and may remain volatile for some time. So we thought it was appropriate to extend that onwards, and I think that was the right decision.
JOURNALIST:
Is it still uncertain times for pending retirees and retirees?
BOWEN:
Well, certainly the volatility in the world share market could continue, when you look at some of the things coming out of Greece and Europe more generally. But of course share markets are always going to be volatile to some degree, I don't think that can be overstated, but there is an ongoing period where share market returns have not yet returned to their pre-GFC levels, and that was the basis for our decision.
JOURNALIST:
[inaudible]
BOWEN:
Well, any improvements to the way employers interact with superannuation funds would need to be phased in over some period of time. And I think if it's more efficient for the employee, more efficient for the superannuation fund, it's also very likely to be a lot more efficient for the employer. I don't think employers benefit from sitting around writing cheques to multiple superannuation funds when there could be a much more efficient way of doing it. And I note that for example, Greg Evans from the Australian Chamber of Commerce and Industry was a member of Jeremy's Panel. That was done very deliberately to make sure those employers had a voice as part of this process.
JOURNALIST:
[inaudible] equivalent of a one per cent extra boost to your savings over time. Could that in any way be replacing part of the compulsory 12 per cent?
BOWEN:
No.
JOURNALIST:
[inaudible]
BOWEN:
No. The 12 per cent is important. The extra equivalent, which Treasury estimates to be another one per cent, is important as well, but we certainly wouldn't be walking away from that 12 per cent. It's very important for the retirement incomes of Australians. I think we underlined our commitment to it last week by confirming the nine to 12 per cent move as being Government policy.
JOURNALIST:
Minister, with the election [inaudible] and your response expected within two months [inaudible]?
BOWEN:
Well, we'll need to see what the timing of the election is. That's a matter for the Prime Minister. We continue to govern in the meantime and that means that I'll be working through the normal processes, consulting, and I'll be making further announcements about the Government's position. How that intersects with an election campaign is just something we'll have to wait and see.
JOURNALIST:
[inaudible]
BOWEN:
Our nine to 12 move? Absolutely. We're very proud of it. It's very important. It's very important for individuals' retirement incomes and we'll be making that point very clear that to go from nine to 12 requires the return of the Gillard Labor Government because the Opposition is clearly opposed to it.
We might just have one or two more questions.
JOURNALIST:
Would it be fair to voters for them to know when they go in to cast their votes how much of this would be your second term agenda because they want to know are you acting on it or are you not?
BOWEN:
Well, David, I think I've made very clear the Government supports the objectives of this report and I'll be having more to say about the detailed implementation of the report over coming weeks and months.
Last question. Anybody else? No? We're all done. Thank you very much.