(03) 9020 2905PORTFOLIO POINT: Jeremy Cooper claims he can make or save super members and employers about $12 billion in 10 years with just two sensible changes.
“Razor gang” is a largely political term, usually reserved for that arm of an incoming government that’s purpose is to thin out the lazy build up of a public service through the latter stages of incumbency.
But it could also be an apt term to use to describe Jeremy Cooper’s Super System Review.
Compulsory super has entered what could be described as “a state of incumbency”. It’s been around for the better part of two decades. It’s not going anywhere and it knows it. (However, for the most part, Australia’s super system is still a world beater in its current form.)
But the industry and the system, as a whole, have got a bit lazy. There are some serious inefficiencies that are costing members billions and lining the pockets of some corporations that simply don’t deserve the money. (Yeah, yeah, and advisers too, I know, but we’re not the particular targets this week.)
Cooper this week quietly released “Superstream”, the preliminary findings of stage two of his review. And while not really finger pointing at the greedy, he’s unearthed billions of dollars of wastage – wastage of time and money that could be better used building the retirement benefits of super members themselves, or by savings to the businesses paying the super for their employees.
Superstream is “a report to bring the back office of super into the 21st century”. It is designed to attack the status quo that sees some members and employers being unable to access cheap electronic contribution methods because funds or platforms are dragging the chain, where members’ funds are allowed to be lost into the ether (or worse, eligible rollover funds) and where members trying to consolidate multiple super funds give up the fight because funds/platforms are legally allowed to make life difficult for members.
For a start, Cooper reckons that businesses can save $1 billion a year by simplifying the contributions process by providing a system that would allow employers to be able to contribute money to their employees’ accounts electronically via an industry standard platform.
The review says the wheel doesn’t need to be reinvented. Something already in existence could be adapted. That could be something like Bpay, or a version of “Standard Business Reporting”, which is a system being developed by the Australian Taxation Office to help business with their reporting requirements for numerous government departments. SuperStream looked and commented on several other systems.
The Rudd Government gave health insurer Medicare the mandate to develop a national super clearing house for employers with fewer than 20 employees. It is in the early stages of developing that system now.
Cooper’s advice was blunt: “The panel notes that the architecture of the Medicare Australia clearing house is still under development and encourages those engaged in the process to have regard to the SuperStream proposals in its design.”
Some of what Cooper is on about can be fixed by technology, some of it can be fixed by government departments stepping in, and some will have to be sorted out by legislation.
One nice one is an extension of the principle of dollar-cost averaging by forcing employers to contribute over shorter periods. Cooper quotes a report from Rice Warner that if businesses were forced to pay monthly instead of quarterly, the extra time of employees’ money in the market would add $2.2 billion to member balances over a 10-year period.
As we’ve discussed before, Cooper’s review is three-pronged. The preliminary report into stage one came out in December last year. The really interesting bit for Eureka Report readers will come in about the middle of this year, when he lays down his recommendations for self-managed super funds in stage three.
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It was a big week for some of the nation’s big-mouthed ex-Treasurers. We might not normally care, but for the fact that these two are also the de-facto “saints” of Australia’s world-leading superannuation system.
Firstly, there was Peter Costello trashing current Liberal leader and former mate Tony Abbott’s plans to make the nation’s largest companies fund an extended maternity leave system for all workers. Costello – the last one to leave an indelible mark on superannuation in Australia – called Abbott’s plan a “race to the bottom”.
There’s not a direct relationship with super … unless Tony decides to include in those payments for (largely) women on parental leave a 9% super contribution.
There’s no doubt that one of the reasons that women end up with far smaller average super balances than men is because they take longer times off to raise children. So, if you’re going to go with that potentially unpopular maternity system paid for by business, Tony could do worse than to give some thought to adding a little bit extra to his plan and pay an extra 9% into the parent’s super.
But we here at Eureka Report want to single out for praise the one-time “world’s greatest treasurer” and former Prime Minister Paul Keating for his contribution to the super debate last week. On ABC radio, Keating let loose at the Rudd Government’s decision to halve the contributions caps. This is the decision that was made in last year’s budget to reduce the concessional contributions caps from $100,000 and $50,000 to $50,000 and $25,000.
It was a “dreadful decision” that sent the wrong message, Keating said.
“So, if you’re a punter out there you say, ‘Look, the Government’s given me the message: Don’t bother saving any more. We’ll just rely on the pension … They (the Rudd Government) should reverse it, quickly. You know, shocking decision in my opinion. Short-sighted. Bad.”
No argument from Eureka Report, Paul.
Bruce Brammall is director of Castellan Financial Consulting and author of Debt Man Walking.