Thank you for that introduction, it’s terrific to join you today in Sydney alongside a star studded line up of speakers, and an audience that brings together the movers and shakers of Australia’s financial services industry.
Let me first congratulate The Australian Financial Review on its 70‑year anniversary.
It’s a major milestone, certainly, but also a testament to the AFR’s role as the newspaper of record on Australia’s economic and financial progress.
The AFR has reported on quite an extraordinary period of time in Australia’s history.
Since the 50s and 60s, Australia’s financial services have evolved from a relatively closed, inward looking market ‑ dominated by traditional banks and life offices ‑ to what is now a far more open and dynamic system that is truly globally competitive.
And with this evolution in mind, today I’d like to speak about the Coalition Government’s contributions to that progress, and touch on some of the critical shifts in our financial services sector. In particular, I want to emphasise the importance of innovation, choice and personal responsibility as we secure our economic recovery after the ravages of COVID‑19 and launch Australia into the future.
Let me begin with one of my very favourite subjects, because superannuation is unquestionably a part of Australia’s financial services sector that has seen quite extraordinary change and progress under this Government.
Today, 16 million Australians collectively own $3.3 trillion dollars in superannuation. That’s just under twice the size of the ASX and over 150 per cent of Australia’s GDP.
That pool of retirement savings has nearly doubled since the Coalition came into government eight years ago.
The system is now mature. One dollar in ten of everything we earn is now saved for retirement, and Australians will increasingly retire with higher balances. The 2021 Intergenerational Report projects the median superannuation balance at retirement will increase from around $125,000 dollars today to $460,000 dollars in 40 years time.
That’s why the Morrison Government’s focus this term has been about improving efficiency, transparency and choice.
Each policy on its own has been incremental, but combined they have been transformative. And here, my message to Australians is clear, if you want a safer retirement, more accountable super funds, lower fees and a transparent super system that supports individual choice and agency ‑ only a Coalition Government can deliver that.
Arc of superannuation reforms
For too long, many in our super industry have thrived in an environment of opacity and disengagement. A foundation of compulsion led to complacency and inertia among both trustees and management teams when it came to tackling problems that ‑ lets face it ‑ we all knew were there.
And, frustratingly, the best and brightest in the game have been let down by those who have dragged their feet.
Duplicate accounts proliferated, low balance accounts were eroded by unnecessary insurance and high fees and persistently underperforming funds were able to hide behind the skirts of good performers, and rarely thought about giving the game away of their own accord.
Today, our superannuation landscape is vastly different compared to just a few years ago.
Superannuation really has been an area of extraordinary ‑ some may say brave ‑ reform by this Government.
Indeed a recent Grattan Institute report said that transformative superannuation reform has been a signal achievement of the Coalition and commended the Government’s Your Future, Your Super package as the latest in a long line of reforms aimed at reining in Australia’s woefully high superannuation costs.
Grattan’s report also highlighted the seemingly limitless objections to any and all changes in super, and noted that, in an area as contested as superannuation ‑ or as they call it, a partisan shibboleth ‑ having a solid evidence base has helped reduce friction, making reform more likely.
Josh and I can’t take credit for all of these reforms, our Coalition predecessors have played their part.
Indeed one crucial step in the Coalition’s arc of reform was then Treasurer Scott Morrison’s initiation of the Productivity Commission’s report into efficiency and competition in super back in 2017.
That report endowed us with the evidence base needed to garner support from the cross bench and pass reforms when vested interests meant bipartisan support would sadly never be an option.
And while it’s been no easy feat, our record speaks for itself:
- Today, there are 4 and a half million fewer super accounts compared to in 2016
- Zero exit fees and capped fees on small balances meant that, in one year alone, Australians saved a total of $408 million dollars in fees
- Young people are no longer having their nascent balances eroded away by premiums for insurance they don’t need or want
- The ATO has helped $5.4 billion dollars of lost and inactive super find its way home to 4 million active accounts
- 690,000 employees received just under a billion dollars in unpaid superannuation as a result of our one‑off super guarantee amnesty
- For the first time in 30 years, choice is now embedded into the super system, and 800,000 Australians are no longer compelled to save for their retirement in a fund chosen by a backroom handshake between their employer and a union.
- We’re cutting red tape for self‑managed super funds and reducing the burden for Australians who want to take their financial destiny into their own hands.
- And, at a time of unprecedented fear and financial uncertainty, just over 3 million Australians accessed 38 billion dollars to pay down their bills, pay down their mortgages, pay off the credit cards, keep paying the school fees and the car loan, and give them peace of mind in turbulent times.
Every single one of these measures was contested, but their necessity was irrefutable.
This track record proved the Government’s commitment to a truly member centric system and paved the way for announcing the removal of the discriminatory $450 threshold and passage of the Your Future, Your Super package. The most significant reforms to superannuation in 30 years, stapling super accounts to members to eliminate the root cause of wasteful multiple accounts, introducing a clear bright line test for underperformers, and providing consumers with a Government website for an apples‑to‑apples comparison of super fund performance they can trust when choosing a fund.
Once again, in the case of Your Future, Your Super, the evidence was clear. The Financial Services Inquiry in 2014, the Productivity Commission in 2018, and the banking royal commission in 2019 all made the case for change.
Together, Treasury estimates these reforms will deliver benefits to members of $17.9 billion dollars over the next decade alone. Efficiency, transparency and choice.
But our work isn’t done.
To date, most of the conversation in both policy terms ‑ and certainly in the business suites of super funds ‑ has been focused on the accumulation phase.
But as our population ages, the Government’s and the industry’s focus must shift to the unfinished business of the de‑accumulation phase.
Retirement Income Covenant
The Retirement Income Covenant is the Government’s approach to addressing the under‑development of the retirement phase of superannuation identified by the Retirement Income Review.
Under the Covenant, super funds will be required to develop a retirement strategy for their members and provide guidance to help them make the most of their accumulated savings through the availability of better retirement income products that provide higher incomes, more flexibility and effectively manage risks.
And while trustees are best placed to develop these strategies, the Morrison Government will never compel Australians to use them. While we want to see innovation and competition in the market for retirement income products, choice based on individual circumstances and informed consent are equally as important.
Innovation in financial services has always been a competitive strength in Australia. As funds are becoming more alike, and membership bases are becoming more diverse, technology will assist funds to have bespoke products within that heterogeneous membership.
For trustees not turning your mind to this, or actively burying your head in the sand, you are going to be left behind.
The Morrison Government’s commitment to better outcomes for retirees today and tomorrow isn’t just a concept ‑ it’s a reality. Already our improvements will add tens of billions of dollars to Australians’ retirement savings ‑ providing Australians with choice, holding funds to account, improving efficiency, lifting engagement, and ensuring the compulsory savings of Australians are working hard for their futures today, and when they’re ready to access them in their retirement.
Trustee fee charging
Before I move on from superannuation, I want to touch on a topic I’ve been closely watching. Recently, a number of super funds applied to the Courts seeking permission to charge members a new fee to build a trustee financial contingency reserve.
And let’s not kid ourselves as to what this really is; taking member’s money out of their retirement savings to set up a pool of funds ‑ owned by the trustee ‑ to ensure they can pay for penalties due to their own misconduct.
As you’ve just heard me say, so many of the Government reforms are about lowering fees and protecting retirement savings. So the application of a whole new category of fee charged to members, I feel, is a retrograde step.
So I will be watching these developments very closely. If it appears that trustees are confusing their own interests ‑ saving their own skins ‑ with the best financial interests of members whose money is unlikely to be imperilled by a change of trustee, I would expect regulators to take action. And the Parliament might too.
And if trustees think otherwise, perhaps it’s a question that should be put to members at their Annual Members Meeting? I’m not sure how many members would vote to give away some of their hard earned retirement savings to bail out a trustee for wrongdoing. Particularly when trustees and those organisations that stand behind them have their own resources which they could alternatively draw on rather than milking their members.
Compensation Scheme of Last Resort
In another part of financial services the Government has recently introduced legislation to establish an industry‑funded, forward‑looking compensation scheme of last resort (or CSLR), as part of its response to the Financial Services Royal Commission.
The Government’s approach to CSLR is about maintaining the founding principles of risk and reward in our market by upholding personal responsibility, fostering innovation and progress while also ensuring investors are protected in the necessary circumstances.
And this balance is crucial. Pulling out the wrong jenga block can have disastrous impacts ‑ and the Government is determined to keep our economic tower standing strong.
The CSLR is a targeted scheme that largely addresses personal advice failures, in line with the findings of both the Ramsay Review and Commissioner Hayne.
If AFCA makes a determination in your favour, but the organisation who advised you has since shut up shop, that’s where the compensation scheme of last resort kicks in.
It sounds simple, but let me make clear what the compensation scheme of last resort is not.
The compensation scheme of last resort is not an insurance scheme designed to pay compensation to any consumer who has lost money in an investment. It is only intended to cover unpaid compensation awarded because of misconduct relating to a targeted range of financial products and services.
The CSLR will also not cover managed investment schemes or other high risk financial products.
Two points need to be made here:
First, the exclusion of MIS is not letting banks off the hook. We’ve made sure banks pay towards the cost of establishment of the CSLR, and I’m yet to see an example of a bank who has failed to pay a AFCA determination.
Second, any finance textbook will tell you, higher returns are compensation for higher risk. Governments tinker with that fundamental principle at our peril.
Why are these decisions so important? Because the cost of a broad based scheme would also inevitably be borne by other investors ‑ mum and dad investors and retirees.
Everybody who makes sensible, cautious, informed investment decisions would end up having their returns clipped to underwrite people who punt their savings on emu farms, or tulips or other too‑good‑to‑be‑true high‑return high‑risk investments.
Now, if you want to punt a portion of your savings on something speculative ‑ knock yourself out. No government should stand in your way. But you should be prepared to wear it when it goes wrong. And no government should pick up the tab with taxpayers money nor force industry ‑ and thereby ultimately other savers ‑ to underwrite any and every investment that consumers choose to make.
That’s why the only fair way to implement a compensation scheme of last resort is to make it limited and targeted.
Now Labor is calling for the expansion of the CSLR.
In my mind, a push to broaden the scheme to de‑risk any and all investments is irresponsible and demonstrates that Labor cannot be trusted with the stewardship of Australia’s financial services sector or the economy.
Neither is a paternalist, Labor, ‘government‑knows‑best’ regime that prevents any consumer harm by dramatically limiting the range of products in which retail investors can access. To do so is a slap in the face to equality of opportunity.
In Australia, we have a market lead financial services sector.
We have a stringent and explicit disclosure based regime.
We have strong penalties for financial misconduct.
We have a substantial industry of financial advisers that, with the move to professionalisation, consumers can now trust to provide high quality advice.
We have an innovative, egalitarian and competitive investment market where ordinary Australians can invest alongside millionaires to build wealth.
And we have strong social welfare safety nets to catch you if you fall.
...but we’ll never stop you climbing the mountain.
We must allow people to make their own decisions. And their own mistakes.
Moreover, expanding the CSLR to provide compensation for any and every bad investment would essentially give a Government backed guarantee to every Ponzi scheme ‑ paid for by suppressing the returns of all other Australian investors. It would be a green light to fraudsters and charlatans. Come in spinner.
And finally, we don’t need to look far to see where the wrong decision could take us. The UK equivalent scheme shelled out £243 million in compensation in 2013. By last year it had more than doubled to £564 million. Next year, under ten years since the scheme began, the levy is forecast to be over £1 billion a year.
So to those in industry who believe that expanding the scheme will make it less expensive, I say: be careful what you wish for.
We can learn from the UK experience. Calibrate a compensation scheme incorrectly and there will be far more losers than winners.
But there are some areas of financial services where we can’t learn from past experiences, and we have to forge our own trail. The Morrison Government wants our economy to flourish and continue to match pace with our global counterparts. Embracing innovation, and encouraging personal responsibility through engagement and informed consent will drive our economy forward, cementing Australia as a frontrunner for innovation and economic progress.
Decentralised Finance or DeFi is an emerging and rapidly evolving area of financial technology that presents huge opportunities.
A recent Senate Committee report said an extraordinary 17% of Australians are investing in cryptocurrency – this is an asset class that has captured hearts and minds, but beyond that ‑ whatever you might personally think ‑ it’s a technology that’s not going away any time soon.
With that in mind, I commend industry for embracing innovation and developments in this space, particularly around blockchain.
Just recently we’ve seen Commonwealth Bank move to allow its customers to hold and use bitcoin and other cryptocurrencies via its 6.5 million‑user banking app. This will make CBA the first Australian bank – and one of just a handful of banks worldwide – to offer customers this sort of access.
So as an industry, and as a Government, we need to acknowledge this is not a fad. We should tread cautiously, but not fearfully. My perspective?
Don’t be the person who thought the iPhone would never take off because people would prefer to have their music and telephone on separate devices.
Don’t be the person who was still doing their financial models by hand in 2001, rather than using Excel.
Don’t be the person in 1995 who said the internet was just a place for geeks and criminals and would never become mainstream.
And don’t be the person who argued that email was a passing fad.
If the last 20 or 30 years have taught us anything, it’s that all innovation begins as disruption and ends as a household name.
De‑centralised finance underpinned by blockchain technology will present incredible opportunities ‑ Australia mustn’t be left behind by fear of the unknown.
On that note, let me finish by thanking the AFR for hosting today’s super and wealth summit.
From a policy perspective, our future will be defined by innovation, uptake of technology and ensuring individuals have agency to participate in all sectors of our economy.
We want a financial services sector that thrives off consumer engagement and empowerment to deliver better products and better results ‑ in turn supercharging our economic recovery as we continue to bounce back from the ravages of the pandemic.
And I look forward to updating you on further progress.