Good morning everyone, it’s terrific to join you for the SMSF Association’s Annual Conference - an event that continues to grow in stature as more and more Australians choose to manage their own superannuation.
Since 2006, the number of SMSFs has doubled. With SMSFs now holding $746 billion of Australians’ retirement savings, or over a quarter of total superannuation assets, their importance cannot be overstated.
The Productivity Commission’s report said 15 per cent of members who switched funds in 2017 went to an SMSF, and a growing number of people are establishing SMSFs at a younger age.
The growth and changing shape of the self-managed sector is changing the dynamic of the entire superannuation sector.
It’s driving competition, and we’re seeing some APRA-regulated funds respond by developing products with SMSF-like features when it comes to the range of choice of investments offered.
The Morrison Government is committed to a vibrant SMSF sector as part of our wider plans to build a stronger and more efficient superannuation system.
We’re committed to a SMSF sector that continues to offer individuals choice - one that’s efficient and drives product innovation, and, ultimately, one that delivers the best outcomes for the more than one million Australians who manage their own superannuation.
But before I outline the Government’s priorities, let me say that this event presents a great opportunity to talk about engagement. You can’t get much more engaged than running your own superannuation fund.
I’ve spoken about it on several occasions but one of the inherent challenges we face within our superannuation system is a lack of engagement.
So much of the conversation that government and policymakers have around superannuation is about the disengaged - whether that be default super, opt-in insurance, inactive accounts and the like.
In a compulsory superannuation system such as ours, it is beholden on the Government to ensure that those who are vulnerable, young or simply disengaged are protected and looked after.
And if you follow the Government’s recent reforms you can see that we’re doing just that by chipping away at some the inefficiencies in our system, one by one.
But equally in a compulsory system, it is imperative that we facilitate alternatives that allow individuals to decide exactly where and how their money is invested.
For me, this is the essence of choice. Our system should allow people to be as engaged as they wish – from a member defaulted into a MySuper product, to a member seeking access to a greater range of investment options via choice product, through to a trustee of a SMSF directing their investments and everything in between.
The system should also allow the flexibility for people to move more easily between these stages of choice. What may be suitable for someone as they start out work in their early twenties, may not be suitable as they reach retirement.
And we’re thinking about how to facilitate that movement.
The key here is that people must have the ability to make choices that suit them.
Developments in SMSF sector
Let’s take a step back from that for a moment and have a look at some of the developments in the SMSF sector recently.
You’ll no doubt be aware that, over the last year, there’s been a bit of discussion – sometimes quite heated! – about the account balance required to make a self-managed fund a cost-efficient option.
The Productivity Commission found that SMSFs with balances under half a million dollars delivered lower returns than larger ones, and that these smaller funds had significantly higher costs.
However, putting on my other hat as Australia’s first minister for Fintech, I’m pleased to say that developments in technology have been driving costs down. And will continue to do so.
It’s a virtuous circle that is clearer than in any other sector of the super system: the larger the SMSF sector becomes, the more Fintech firms see a ready market and appetite for their services. Fintech solutions lower administration and costs, the lower the costs of running a SMSF becomes, the more people are attracted to the sector, the bigger the sector gets.
And the Fintechs out there now know that the best solutions are about so much more than just investment reporting which is probably the easiest aspect to automate.
There are developers out there now looking at ways to improve handling of contributions, rollovers to and from other superannuation funds, pension and lump sum benefit payments, tracking of member components, payment of expenses, payment of taxes and reporting to the ATO.
Importantly many solutions now focus equally on the SMSF intermediaries – accountants, administrators, auditors, and lawyers, providing regtech solutions and improving data feeds so removing the need for paper documentary evidence
This is the stuff that drives down costs for trustees. And I know that the SMSF industry has been very supportive of solutions that make life simpler and cheaper for trustees.
Where does the government have a role in this? Our job is to ensure we have a regulatory and investment environment that encourages Fintech to test their ideas, access capital and take their products to market.
That’s exactly what we’re doing with things like the Enhanced Regulatory Sandbox we legislated just last week, where new fintechs can test their business model in a monitored environment for a limited time before going to the expense of getting a licence. Or the Fintech Bridge – a regulatory and investment alignment with the UK that allows for new solutions to access Australian markets and Australian fintechs to access UK customers.
Fintech is already changing the way we do business in all our financial dealings every day - from payment systems to open banking, to the ASX Blockchain technology. SMSFs can be some of the greatest beneficiaries of these exciting developments.
I want to also talk about investment choice because we’re also seeing some really interesting developments in investment options for self-managed super. Once inaccessible for those who want control over their own investments, some industry funds are now offering access to their investment options for SMSFs, providing exposure to asset classes such as private equity, venture capital and infrastructure, which are normally unavailable to funds without significant scale, investment horizon and flow certainty.
This is an interesting development – a blurring of the lines between APRA and non-APRA regulated funds – it allows a person to maintain complete control over their superannuation in the self-managed space, while also accessing the benefits of scale efficiencies and hard-to-access asset classes via a large industry fund’s investment portfolio.
This is a natural progression of a maturing superannuation industry that we should welcome. These new options provide new choices.
And choice is a fundamental tenant of this government’s approach to super.
Choice of fund
Whether it is an industry or retail or a self-managed fund, we’ve always held the belief that every Australian should be able to choose their superannuation fund. It’s the logical corollary to a compulsory super system.
Restricting choice of fund means there are workers who are forced to hold multiple accounts because their employer refuses to allow them to choose their own fund. Even where a newly hired worker is perfectly happy with their existing fund. Perhaps their own self-managed fund.
What’s worse is that there are thousands of workers that are being forced into some of the worst performing default products as a result of restrictions on choice.
That’s why we are committed to the Your Super, Your Choice Bill. We’re committed to removing the law that sanctions such restrictions, to help prevent the proliferation of multiple accounts and because it’s in members’ best interests.
These changes have been on the Government’s agenda for a long time and are particularly important for those in the self-managed sector.
In just my first six months as Assistant Minister, I’ve regularly receive letters and emails from people who have been forced to contribute to a fund due to a restriction in their employment arrangement, rather than the SMSF they have set up for themselves.
Let me tell you about an all-too-common story I hear. A person is semi-retired, and they have a SMSF that has a sizeable nest egg; it’s performing well; the person is engaged with the fund and they’re happy with it.
This person begins working sporadically – for example supervising exams for a university on a part-time basis, or at a well-known retailers whose name starts with K and ends with T.
Their employment agreement did not allow for a choice of fund, so this person is forced to open an accumulation account with their employer’s default fund.
A small amount of super contributions is paid to this new fund, rather than to the member’s actively chosen, actively managed superannuation account.
While the Government’s recent changes to cap fees and ban exit fees will at least prevent these accounts from being eroded to zero, these people are still being forced to open and pay for a super account they don’t want or need.
This is unacceptable. It’s inefficient. It’s ultimately reduces peoples’ savings for retirement.
And this Government is going to fix it.
Let’s be clear. This new law will not remove the ability of workers to collectively bargain over the default super fund covering a workplace.
It doesn’t prevent a default fund being specified in an award. And given the current state of inertia in the system, most workers will probably stay in that default fund.
But for those who are engaged with their super, if they are happy with their existing fund –– they should have the right to direct their employer’s super contributions there.
They should not have to open yet another super account, just because their employer refuses to give them any choice at all as a result of some enterprise agreement.
Measures before Parliament
In addition to the Your Superannuation, Your Choice legislation, we also have several superannuation measures before Parliament that are directly relevant to those here today.
The enticingly named Treasury Laws Amendment (2019 Measures No. 3) Bill is before the Senate delivers some key changes for the self-managed sector.
While the Parliament calls them ‘minor and technical’, I know they have real-world implications for your members.
This Bill includes a change that this Association brought to the Government’s attention - to ensure that an appropriate debit value is given for market-linked pensions that are commuted or rolled over.
The current valuation method produces a debit value of zero in these circumstances, contrary to the policy intent.
There’s another measure also in the Bill before the Senate- which the SMSFA advocated for- ensuring that death benefits that include life insurance proceeds are not subject to tax in the receiving fund when rolled over.
While on the topic of reforms, I confirm that legislating to increase the maximum number of SMSF members from four to six remains government policy.
As this audience knows, this proposed change is significant, because it increases the flexibility of our self-managed superannuation sector It will allow situations such as families with up to four children to be part of a single family superannuation fund.
It remains our policy to enact this change, and we will progress it in line with the Government’s legislative priorities. But first, implementing the recommendations of the Hayne Royal Commission is the Government’s number one priority.
We are also committed to improving the flexibility of the superannuation system for older Australians by assisting them to save for their retirement.
As part of the 2019-20 Budget, we announced that:
- People aged 65 and 66 will be able to make voluntary contributions without meeting the work test;
- People aged 65 and 66 will be able to make up to three years of non-concessional contributions under the bring-forward rule; and
- People aged below 75 will be able to receive contributions from their spouses.
Although the legislation for these changes is yet to be introduced in Parliament, the Government remains committed to passing this legislation ahead of the 1 July start date.
I would also like to assure you this Government remains committed to reducing costs for SMSF members, by reducing red tape.
For example, we will allow fund trustees with interests in both the pension and accumulation phases during an income year to choose their preferred method for calculating exempt current pension income.
Similarly, we have also announced plans to remove the requirement for superannuation funds to obtain an actuarial certificate when calculating exempt current pension income using the proportionate method, where all members of the fund are fully in the retirement phase.
Taken together, these changes will make life easier for superannuation fund trustees, and lower their cost of compliance.
With financial advice coming up later on today’s agenda, let me finish by saying a few words about the Government’s actions to improve the quality of financial advice.
In many ways, SMSFs sit at the nexus of the financial services and the superannuation parts of my ministerial portfolio responsibilities.
Quite simply, you rely on sound financial advice and the Government has been working to improve access to high quality and affordable advice, to eliminate misconduct in the advice industry, and to ensure that Australia has a well-respected and professional industry.
So the Morrison Government is working to professionalise the financial advice industry through new education, training and ethical standards to deliver better quality advice for all Australians.
While at the same time, we recognise the need to balance the impact of these reforms against maintaining the ongoing availability and affordability of advice.
Accordingly, last week the House passed introduced legislation to give existing advisers more time to meet new exam and education requirements. Soon it will go to the Senate where I confidently expect it pass.
Building on these reforms, and in line with the Royal Commission’s recommendation, the Government will also introduce a new disciplinary system for financial advisers which will bring them into line with other professions - such as lawyers, doctors and accountants.
Legislation for the new system is scheduled to be introduced by the end of 2020.
Ultimately, strengthening the financial advice sector will benefit SMSF members, by improving access to high quality and affordable advice that helps you make better financial decisions.
On that note, thank you for the invitation to address today’s conference.
The Government believes SMSFs are an integral part of the superannuation ecosystem and events like this provide a terrific platform to outline our plans and vision for the sector.
I’d like to acknowledge the Association for its willingness to engage with the Government and for its work in advocating on behalf of members.
Our superannuation system is enormously important to the future of working Australians, to the current wellbeing of our retirees, and to our economy - and we’re committed to seeing the SMSF sector playing a pivotal role in that.
Thank you again for the opportunity today.