RICHARD AEDY:
The government is getting cranky with the superannuation industry, and it made it pretty clear this week. Assistant Treasurer Stephen Jones told the funds that they were on notice, and he joins us now.
Minister, welcome to the show. What are your criticisms of the industry?
STEPHEN JONES:
Look, first I want to say that the superannuation industry has done a great job over the last 30 years in growing Australians’ – that’s now either their first or their second biggest asset – it’s gone from a cottage industry to now $3.4 trillion worth of funds under management. So they’ve done that part of the thing really well. But what they haven’t done well is the member services and member engagement. And that is going to be critical to the future of superannuation because we’ve got 5 million Australians who are either at or approaching retirement, and frankly, their needs from their superannuation funds are going to be greater and greater and they’re not yet being met.
AEDY:
And this is despite the fact that it’s been more than a year now since they’ve been obliged to do better on this.
JONES:
That’s right. We’ve got a retirement income covenant which obliges funds to put in place strategies to assist their members in the pathway to retirement and to ensure they can make that superannuation savings pool convert into a retirement, and most funds are nowhere near where they need to be. We’re looking at what the government can do to ensure that if there’s regulatory obstacles there, we’ll remove them. But that’s not an excuse for funds not to jump more into this space.
AEDY:
What is it that they’re not doing that they need to do? From the point of view of their members, what are their members not getting?
JONES:
I think more information and advice is needed, whether it’s just basic information and more valid advice that’s needed. Now, there have some regulatory [indistinct] there, and we’re working through a process with the funds to remove those obstacles to give them clear guidance and clear arrangements around which they can provide more information and advice, particularly around retirement for their members. If that was the only problem I’d be less concerned. We’d have a job of work to do and we’d be on it. But there’s a bunch of other areas where funds simply aren’t performing, and it’s the bread and butter stuff. It’s, you know, dealing with member inquiries, it’s resolving insurance claims and the like. Complaints are going up and there’s been a clear trajectory there, and funds have just got to get on top of it.
AEDY:
But as I understand it, it’s not as if they’re not putting the effort in; it’s that many of them don’t even have the capability because they haven’t built it. I think that’s what ASIC and APRA found when they looked at this.
JONES:
I think right on both counts. You think about it, the system has almost been designed over 30 years for a very passive relationship between the fund and its members. The employer makes the contribution into the fund and it’s almost like there’s very little engagement with the member; an annual report but very little apart from that until the member reaches retirement. And that’s all got to change because people’s expectations of their superannuation fund will line up with their expectation of any other financial institution that they deal with. If there’s not an app, if there’s not a call centre, if there’s not a way to deal with my issues and have them dealt with quickly and promptly and accurately, then people are going to be very dissatisfied with their organisation. And that is a completely different mindset for superannuation funds.
AEDY:
I think mindset is the key here. It’s – the culture of the industry has been about building wealth, building those funds and they have to now pivot to being able to provide that money to their members.
JONES:
That’s exactly right. And growing people’s retirement savings – somewhere between 7 and 8 per cent a year – that’s not a shabby effort. We’ve got to say job well done there. Keep doing it. We need you to continue to grow the savings pool of this country for retirement purposes. But that’s not the end of the game. And we’ve got 5 million Australians who are either at or approaching retirement. They’re retiring because of the success of superannuation with real money in their superannuation account. So, the average superannuation balance approaching retirement is around about $200,000. My parents couldn’t have imagined retiring with that sort of money when they retired a few decades ago. So, it’s real money. People want to make sure that it works for them, and it goes as far as possible in their retirement. For that, they’ll need options on how to invest it, whether it’s about providing longevity, providing pension-style products to ensure that they’re removing a lot of the risk in how far that income goes, whether it’s ensuring that they’ve got the connections between the government pension system and maybe a partner income and other assets all sorted out. Funds have got to be in a position where they’re assisting their members through what can be a complex process, and they’re not there yet.
AEDY:
Now, you touched on this before when you mentioned regulatory issues might need sorting. The super funds are in some ways saying they’re constrained. You’ll be aware that CBUS Chairman Wayne Swan said that funds cannot advise people as couples, only singles, which does seem kind of crazy, doesn’t it?
JONES:
Yeah, and Wayne’s right on that. And we’re assiduously working through with the industry how we can remove and improve the regulatory settings so they can answer the sensible questions that their members are asking them. So, yeah, it’s right; under the existing arrangements you can’t ask a fund member about anything apart from their interests within the fund. You can’t take into account when you’re providing advice and assistance – a partner income or a partner’s circumstances. And that’s just not in line with how couples make decisions around retirement. They’re considering all these things, and funds have got to be in a position to be able to provide much better information than they can at the moment. If regulation is the hurdle, then we’ve got to deal with that hurdle.
AEDY:
One of the things you said this week, Minister, was that you spent the last year putting the industry on notice and you won’t spend the next year doing exactly the same thing. What will you do to get the compliance that you want?
JONES:
Look, we won’t rule out looking at regulatory levers. I’d rather not, to be honest. I don’t want the government to be in a paternalistic position where we’re saying, “Well, dear fund, can you please pick up the phone and answer those questions,” or “Can you please ensure that inquiries are being dealt with in a reasonable time frame and can you ensure that insurance claims are being dealt with, particularly the really tough ones in somebody’s life, like a death or permanent disability claim.” These things have got to be dealt with sensibly and quickly, and too often they’re not. So we won’t rule out looking at, you know, what regulatory levers are available.
I’ve spent the last year sending a very clear message to funds that the status quo is not good enough. At the same time, I’ve said to them, “We will look at where the regulatory obstacles are to you doing what the government expects and thinks you need to be doing, but that’s not the end of the story. You’ve got to start shifting your mindset, too, away from one where you have a passive relationship with your members to one where you know much more about them and you’re much more responsive to their needs.”
AEDY:
Any sign the industry is actually listening?
JONES:
Look, all – when I speak to the CEOs, when I speak to the chairs of the funds, they all say, “Yeah, you’re right. We understand. Times are changing. We’ve got to move with that change.” They’ll often say, “The problems are with another fund; we’re perfect.” If everyone’s saying that then it can’t be true. So, clear message over the last 12 months: lift your game. We want to see meaningful, material changes. We’ll move the obstacles and we’re in the process of doing that. But, again, if we need to move to looking at regulatory interventions, we’ll do that so the funds are doing what we think their members need and expect of them.
AEDY:
Minister, that’s where we’ll leave it. Thank you very much for joining us today on The Money.
JONES:
Great to be with you.