NICK SHERRY:
It's important in our superannuation, compulsory superannuation system, to lower fees and create higher, more solid long-term investment returns, in a compulsory system. These are very important issues that will now be very thoroughly examined, with a view to reducing cost, reducing fees, increasing member's long-term rates of return.
The panel that I've announced today, is to be headed by Jeremy Cooper, who's currently the deputy chair of ASIC - Jeremy is a first class and appropriately skilled person to head this examination of the operation of our superannuation system.
This is the first time that the operation of the system itself, and the complexities involved in it, have been thoroughly examined. Whatever emerges from the panel led by Jeremy, and it has until the middle of next year to report, whatever emerges will obviously take into account market and transitional issues. The panel itself, a deep and experienced group of people, not just in superannuation, but in areas of macro-economics, regulation supervision investment.
So I'll just make those few opening remarks.
Jeremy, do you want to say anything at this stage and then we'll have a few questions.
JEREMY COOPER:
Oh, I'll say a few words. It's a great privilege to have been offered the opportunity to do this. It's also obviously a big responsibility. This is a very important asset that we're going to look at and the Minister's previously talked about this project as renovating the house. And, if I could stay on that image for a while. This project's going to roll up the carpet, have a look under the floorboards, look at the foundations. If there are walls that need to be moved, we'll recommend that as well.
So it's a very broad review. It's going to be a very fair review. Everyone's going to get an opportunity to contribute and it will also be fearless. There won't be any sacred cows that we're not going to be looking at.
So they're just a couple of opening observations and perhaps now we can have some questions.
QUESTION:
Can you expect lower fees will be the result of this review?
NICK SHERRY:
Fees, yeah, I certainly do. I have made the point time and time again publicly, that I think the average fee level, and there will always be a range in our system giving its maturity and size, is too high.
QUESTION:
Excessive?
NICK SHERRY:
Well too high, and we can do better. And one of the jobs of the panel will be, obviously, to look at the international context, how we compare in terms of fees against other systems and they can reach whatever their conclusions are.
But I don't want to give the impression - fees are a symptom, they're a symptom. There's a much deeper set of issues in the way a system operates, where investments occur around conflicts of interest. And I'm a great believer – in looking at causation. So we know the symptoms, what's the cause? And that's the work of the panel to do, as Jeremy says, fearlessly.
QUESTION:
Minister, there's representatives on the board of industry funds, but I can't see anyone from master trusts. Is that an oversight, or a snub, or?
NICK SHERRY:
It's not a representative panel in that sense.
QUESTION:
Don't you think that'll ruffle feathers at the outset?
NICK SHERRY:
If you have a representative panel - I certainly don't. If you have a representative panel, you'd have a panel of 20. But if you look at the background, there - it's a very, very deep and experienced group of people.
QUESTION:
Just on the panel, could you not find any women for the panel?
NICK SHERRY:
I thought you'd make that observation. I went through a list of people and the selection that was made reflected the qualities we needed at this point in time. I should say, as a matter of interest, I announced the appointment of a female to head the Superannuation Complaints Tribunal today, Jocelyn Furlan. So it's always an issue at the forefront of my mind.
QUESTION:
Minister, the terms of reference are very wide ranging. How do you redefine focus on specific topics?
NICK SHERRY:
Oh, that will be up to Jeremy and the panel and all those who make submissions. But you're right, it is wide raging, very deliberately so. You know, the range of issues around the way the system operates, the way it interacts, are very complex. So it's deliberately wide ranging. But as I've stressed, it's not to deal with the input type issues and the tax issues that Ken Henry's dealing with. But in the current climate in particular, when we've seen negative rates of return, that has hurt confidence. So it is time to renovate the house. I'd have a hard look at reducing fees and increasing and maximising the rate of return in the member's best interests.
QUESTION:
Is there a way of staggering the output of the committees to ensure that it's not a huge set of recommendations at the end?
NICK SHERRY:
We've recommended that in the terms of reference. I mean, again, that is the panel's call and Jeremy's call. We've recommended that approach if they believe it's appropriate.
QUESTION:
Minister, how do you avoid - or do the panels, sorry do the inquiries work together, such as the (Bernie) Ripoll Inquiry and the Cooper Inquiry, for example, both inquiries presumably will be looking at adviser commissions, how do you work that out?
NICK SHERRY:
Well there are cross-over issues, but the Parliamentary Committee has a statutory and legal focus of its own, that I don't have any capacity to get involved in. They've got to make their analysis, their views and considerations. I think they're due to report by November, the end of this year. So, to the extent to which that evidence and their conclusions are useful for Jeremy, that's up to the panel to have a look at.
QUESTION:
How long will it take you to respond to the report next year?
NICK SHERRY:
We haven't got the report yet. [Laughs] Ask me this time next year. [Laughs]
QUESTION:
Is there a script for analysing, sort of, post-retirement income within the role of annuities, et cetera?
NICK SHERRY:
That's a role for the Henry Tax Review. There is a set of issues around underlining investment matters, however, that Jeremy and the panel may want to have a look at.
QUESTION:
What are those Jeremy? Would you like to explain please?
JEREMY COOPER:
Oh, well, one of them would be tax. In fact, while the Henry Review obviously is going to be looking at tax, we're looking, for example, at the fact that fund return reporting at the moment is done on a pre-tax basis and many funds that are in pension phase, where there's no tax payable, don't seem to be managing the investment to that fund, with regard to that tax outcome.
QUESTION:
Mr Cooper, why did you leave ASIC and will you return after you've finished this inquiry?
JEREMY COOPER:
Well, answering those questions in turn, I left ASIC because my five year term was coming up and the Minister offered me this very interesting role and it looked like the right thing to do. There's no formal return path to ASIC, so I will cease to be deputy chairman to do this role and then we'll just have to see what happens.
QUESTION:
Going back to the review, do you have any understanding about what an appropriate size of the super fund should be in terms to get the most efficient outcome for members?
JEREMY COOPER:
That will be something we'll look at certainly.
QUESTION:
Do you have any ideas about...
JEREMY COOPER:
Well it depends. You see there are super funds and super funds aren't there? I mean, this review looks at self-managed super funds, it looks at public offer funds and all the rest of it. All of these things we call superannuation. Certainly looking at - breaking that down, looking at how big does a self-managed super fund have to be before it becomes viable. That's certainly something we'll be looking at.
QUESTION:
Will you look at the future fund at all?
NICK SHERRY:
No.
JEREMY COOPER:
No.
QUESTION:
The scope doesn't specifically speak of adequacy and the nine per cent as being enough, or not enough. Is that part of the inquiry?
NICK SHERRY:
That's the Henry Tax Review. I mean to the extent that lower fees, and then in turn, higher returns impacts on it, because it certainly does and obviously looking at the level of fees that can be attained on average in the system and lowering them, indirectly very strongly influences long-term return to members. But it's an indirect impact. It's a significant impact.
I just might make the observation in the context of the future fund question, the future fund is a separate legal entity, although I did observe in picking up their report the other day, that I'd have to rate them as one of the most efficient low fee investors in the country. They're running at about just over 0.1 per cent, one-tenth of one per cent, in terms of their investment management cost. I can't think of many funds operating better and that should truly be an inspiration to everyone in the superannuation system and get them perhaps thinking in the context of this examination about what can be achieved.
QUESTION:
Minister, there was some parts of the industry hoping, prior to you being elected to government, that the nine per cent may increase. It's now become very obvious that it certainly won't in this current term of the Rudd Government. If the Rudd Government was to be returned, is the nine per cent possibly up for grabs to be increased?
NICK SHERRY:
Well we gave a commitment we wouldn't be increasing the nine per cent employer SG. We gave that very categorically. I don't see that changing in the near future, I really don't. The Henry Tax Review reached its conclusions on that matter and there would clearly be a significant budget cost, so I don't see that changing. So we'll be focusing on the other issues that are of priority in the current climate.
QUESTION:
Who will replace Mr Cooper at ASIC?
NICK SHERRY:
Oh, there's got to be a process; advertising, interview, et cetera. That's all done at arm's length from government, so I - look, I think that will probably take a month or two at least. But that hasn't even begun yet.
QUESTION:
Minister, are you still - or is this going to effect the plans to have default funds, to make industry funds the default funds?
NICK SHERRY:
You mean the system in industrial awards, where there are default funds nominated?
QUESTION:
Yes.
NICK SHERRY:
Oh, that will certainly be an area for the panel to look at.
QUESTION:
So that won't be implemented until the panel [indistinct]
NICK SHERRY:
Correct. I wrote to the Industrial Commission suggesting they should look at the criteria for default funds, because there are, regrettably, as there are in each sector of industry, some poorer performing long-term funds that are default funds. So this is an issue for the panel to look at.
QUESTION:
Is lost super and the clearing house a part of that inquiry also?
NICK SHERRY:
No, we've got a separate process which we've almost concluded on that.
QUESTION:
Which will mean what?
NICK SHERRY:
We will be announcing the proposals, I hope in the next month or two for the lost super accounts. That was an election commitment and we've had a consultation, received back submissions on how, and the technical issues, et cetera, and the clearing house. That was an election commitment and that's going ahead. I'll make that very clear. And we're going to put out the way in which that will be done, so it's a separate issue being dealt with.
QUESTION:
Minister, what evidence or what advice has been given to you on how much short-selling there's been in the market since the ban was lifted?
NICK SHERRY:
Well I have every confidence in ASIC and the view they came to, that it was time to lift the temporary ban in financial stocks. Look they certainly provide data, information, on what is happening. Beyond that, I don't make commentary about market - short-term, medium-term market movements. But I just express a general confidence in ASIC's decision.
QUESTION:
Has there been a notable rise or?
NICK SHERRY:
Well they published the data and people can reach their own conclusions about short-selling in particular areas. I don't get into detailed comments about markets.