Super reforms “super” Industry funds

Superannuation fund members can expect bigger payouts on retirement, if planned new curbs on commissions become law, according to industry insiders.

The planned curbs are part of the Federal government’s MySuper reforms, which will soon be debated by Parliament.

Australians have invested more than $1.2 trillion in superannuation.

An exposure draft of the proposed legislation has just been released.

The union based Industry Superannuation Network (ISN) welcomed the proposed changes, saying that – if the bill becomes law it “will bring an end to costly commissions on compulsory superannuation.”

Private funds also welcomed the government’s plan to give the Australian Prudential Regulation Authority power to regulate the industry.

This, too, is part of the proposed reforms.

However the Australian Superannuation Funds Association (ASFA), which represents the private funds, make no specific comment on commissions in its statement.

?The ISN’s Chief Policy Adviser, Matt Linden, said the planned ban on the financial inducements that private super funds once traditionally offered to the financial planners, who bring them new business, would have been “unthinkable” just a few years ago.

But that had changed.

??”Now there is virtually unanimous agreement that financial inducements from product providers to planners must end,” Mr Linden said.
?
“This is a giant step forward for the professionalisation of the industry,” he declared.

“Industry Super Network looks forward to working with the Government on the fine detail of the legislation released today to ensure it achieves all of the intended policy objectives,” Mr Linden added.

ASFA chief executive officer, Pauline Vamos, said her association had supported APRA having a standard making power for the superannuation industry for some time.

“So we are pleased to see the beginning of the consultation period,” Ms Vamos said.
 
“The superannuation system is an important delivery mechanism for both social and economic policy,” she added.

” It is right at this time, with the growth of the sector and its responsibility for delivering in post-retirement, that its regulatory framework has a similar footing to the banking and insurance industries.
 

While standards of governance and disclosure are already high in the superannuation sector, the new prudential standards will both formalise – and document – what fund trustees should be doing.
 
“Current disclosure requirements can make it difficult for trustees to provide simple, open disclosure – it is time to revisit this area,” Ms Vamos said.
 
“We will be carefully reviewing the Discussion Paper in consultation with our members over the coming weeks, looking in detail at what is specifically being proposed,” she added.?

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Property market still weak, but…

House prices throughout Australia fell by 2.4 per cent in the three months to the end of September, but more new houses are being built.

These apparently contradictory trends showed up in the results of two surveys that have just been released.

The National Australia Bank, which conducted one of the surveys, said its Residential Property Index had moved more deeply into negative territory in the September quarter.

However ,the Housing Industry Association said the survey it conducts, with JELD-WEN, had shown that the number of new homes sold had edged up by 1.1 per cent in August, following falls of 8 per cent in July and 8.7 per cent in June.

New home sales fell sharply, after interest rate rises last November.

The NAB said the results of its survey reflect “further moderation” in house prices and rental growth.

“National house prices are expected to continue falling over the next 12 months, dragged down by Victoria and Queensland,” the bank said.

However the bank admitted that its national figures conceals considerable variation among the states.

It said conditions had been identified as being much weaker in Queensland, Victoria, South Australia and the Northern Territory.

However NSW and WA “bucked the national trend and managed to produce small index gains,” the bank said.

Forward expectations have also weakened relative to our last survey with the national index expected to be softer on the back of weaker house price expectations in Victoria and a more subdued outlook for rents in all states, except NSW, it added.

The bank said the pace of national house price decline accelerated to 2.4 per cent in September from 2 per cent June.

Victoria had recorded the biggest fall of 3.8 per cent.

House price declines above the national average were also evident in Queensland (3.2 per cent) and SA/NT (2.9 per cent), with lesser falls seen in NSW (1.1 per cent and WA (0.8 per cent), the bank added.

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Second Sonray chief faces court

The sole director of an investment company that left 3,500 clients in the lurch, when it collapsed, appeared in court today, facing theft related charges involving almost $5.8 million.

Russell Andrew Johnson, of Toorak, is the second man to appear in court on charges related to the collapse of Sonray Capital Markets in June last year.

The company was one of the first in Australia to advise clients on sophisticated investment products, known as contracts for difference.

The clients, whose accounts were frozen after the collapse, were told later that they would receive no more than 30 cents back for each dollar they had invested.

In July the company’s Chief Executive, Scott Kenneth Murray, of Albert Park, pleaded guilty to 10 charges of deception, including several related to accounts showing false deposits.

Sonray was one of several finance companies which collapsed in the wake of the global financial crisis.

It owed its clients some $47 million.

Mr Johnson is facing 24 criminal charges.

The Australian Securities and Investments Commission, which prosecuted him, said they include: -

• two charges of conspiracy to commit theft to the value of $5,780,000
• two charges of conspiracy to engage in false accounting
• one charge of conspiracy to obtain financial advantage by deception
• 17 charges of theft to the value of $742,641 and
• two charges of submitting a false document to ASIC.

Mr Johnson faces a maximum of ten years’ imprisonment on each of the state offences if convicted.

He was granted bail on the condition he surrender his passport and not attend any international point of departure.

Other bail conditions included that Mr Johnson not apply for any other passport, advise ASIC of any change to his residential address and that he does not contact any of the prosecution witnesses.

The matter returns to the Melbourne Magistrates Court on 15 December 2011.

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Commercial super funds “overcharging” : Report

A damning new report concludes that the money millions of Australians have put into commercial superannuation funds would have performed better in the bank.

The union based Industry Superannuation Network, which provides superannuation for union members, on not for profit basis, published the report.

So far, the commercial funds have not responded.

The report compares the performance of commercial and not for profit funds over a 14 year period.

Its comparisons are based on data published by a government agency, the Australian Prudential Regulation Authority, APRA.

The report says that on average, members of Australia’s retail super funds – typically owned by major banks and insurance companies – would have achieved better returns by putting their super in the bank, rather than investing with retail funds over the past 14 years.

?Matt Linden, Chief Policy Officer, Industry Super Network, said the research is “unequivocal evidence” that retail superannuation funds are not measuring up to their not-for-profit counterparts.

??”This research shows that the Australian retail superannuation sector is yielding for the most part unacceptably poor returns to its members,” Mr Linden said.

” It is extraordinary that the practices of major retail super funds over a long period of time have reduced the average returns of their members to the point where their super would be better invested in the bank.”

The report says these shortfalls are largely due to the fees and charges that the commercial funds typically deduct from their members’ accounts.

It quoted APRA research which showed that found that retail funds paid 2.6 times the market rate on average to related parties for the services they provide.

Australians currently have some $1.3 trillion invested in superannuation.

But only 20 per cent actually choose the fund which holds their retirement savings.

The report, compiled by the Industry Superannuation Network’s chief economist, Dr Sacha Vidler, concluded that:-

. the aggregate internal rate of return to investors in retail superannuation funds lagged the not-for-profit funds by 2.1 – 3.2% per cent a year

. if retail funds had earned industry fund returns, retail fund member assets would have been $83 billion higher by June 2010

. not-for-profit fund members benefit from economies of scale – both in terms of fund size and average account size – but these benefits are not typically provided to retail fund members??

. outsourcing behaviour differs according to profit orientation with not for profit funds paying market rates to related entities and for profit retail funds paying 2.6 times market rate on average to related parties for services and??

.over the period, asset allocation has been a significant driver of net returns, with an allocation to major unlisted asset classes having a positive effect on average and an allocation to foreign assets and foreign currencies having a powerful negative effect.

Meanwhile, in a separate development, the Corporate Super Specialist Alliance has accused the Federal government of dumbing down super -and encouraging member disengagement – with its plans to simplify super, through its MySuper arrangements.

Alliance president, Douglas Latto, said the government is wilfully ignoring the fact that there are already many viable low cost superannuation plans, that cater for the needs of everyday working Australians.

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Tax:A government admission

Australia needs a better tax system to cope with a rapidly changing world.

And the Federal Treasurer, Wayne Swan, says that’s exactly what he wants from next month’s Tax Forum.

He says the Forum, to be held on October 4 and 5, will be “an important opportunity to talk about further ways the tax system can work better for businesses.”

Mr Swan says, too, that, he will be looking, particularly, to help those “outside the fast lane of the mining boom.”

He says the government has already implemented some 32 reforms, recommended by the Henry Review, which studied Australia’s existing tax systems.

The first recommendation, in the Henry report, had been to impose a resource rent tax.

“Well, we’ve got that legislation coming into Parliament in a month or two’s time,” Mr Swan told a television interviewer.

“And that’s a very important piece of tax reform, because it gives us the capacity to give a tax cut to many businesses that are doing really tough…” he added.

However the Treasurer warned:”…tax reform has to be paid for.”

“We’ve got to have a debate and a discussion about where all the loopholes are in the system, for example.”

Mr Swan said what he is most interested in is tax reform that is not only fair, but which also “provides the incentive to drive wealth creation in our economy.”

“New investment can is a way struggling businesses can pay for a new lease on life,” Mr Swan said.

“That’s why the government is introducing, from July 1 next year, an instant write off of any asset worth up to $6,500 – and the first $5,000 for cars vans and utes – for small business,” he added.

Mr Swan admitted that the present tax system sometimes discourages “sensible risk taking.”

That is because investors sometimes don’t receive full value for their tax deductions.

Back in July, the government released a paper, outlining what it expects to be discussed at the forum.

The government has placed the paper on the internet.

So what does it say about small business and long suffering PAYE taxpayers?

On small business, the paper says:”Complexity imposes a significant cost on Australia’s 2.4 million small businesses.

Mr Swan also said:”Our small business package provides practical benefits to help reduce complexity and improve cash flow.

“?The Government will introduce an instant write-off for small business assets costing up to $5,000.

“Many small business purchases will be able to be written off in the year of purchase.

“This will also help cash flow.

“Most other assets will be able to be depreciated in a single pool, at a rate of 30 per cent, cutting down on complex tax calculations.

Small business companies will also benefit from an earlier start to the cut in the company tax rate.

And on individuals the paper admits:”Tax time can be complicated and, as a result, seven in ten Australians pay a professional to do their tax return.

“From 2012-13, the Government will provide taxpayers with the choice of a $500 standard deduction to replace deductions for their work-related expenses and the cost of managing their tax affairs.

“This will increase to $1000 from 2013-14, potentially benefiting 6.4 million Australians.
We will also improve incentives for Australians to save for their future.

“From 1 July 2013, Australians will be entitled to a tax discount equal to 50 per cent on up to $1000 of interest income, including interest earned on deposits, bonds, debentures and annuity products.

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Yes, but remember:Swan

Wayne Swan admits that the world is facing “downside” risks, but says people should remember that the International Monetary Fund is still predicting global growth of about 4 per cent.

The Treasurer was speaking to reporters in Washington, where he has been attending IMF and G20 meetings.

These meeting followed two days of catastrophic falls on world share markets, followed by one day of weak recovery.

This has led to talk of a double dip recession in major world markets.

But Mr Swan called for realism.

” Well, I think the IMF has outlined its view of global growth,” he said.

“And it says that risk is on the downside.

“But they are still talking about global growth of the order of 4 per cent,” he added. 

Mr Swan noted talk of the global economy being on the brink of further dire trouble, but cautioned:” I think it is far too early to be making those sorts of dire predictions.” 

The Treasurer also reminded the reporters that leaders are not waiting for further high level talks, scheduled for November, before taking action to prevent a collapse.

A reporter had asked him if the world could afford to wait till then.

Mr Swan said European and other leaders are already acting.

” Well, I don’t think it’s the case that people are not working now on putting in place concrete and practical solutions,” he said.

” You’ve seen the decisions which have been taken by the Europeans and they are being put in place as we speak,” he added.

“And we’ve heard reports on the implementation of those reforms through the meetings today.

” What also we’ve done through the G20 and through the IMF is to reaffirm that multilateral institutions will do everything they can working with the Europeans to make sure that their response is as effective as possible,” Mr Swan said.

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Your new saving – and spending – habits

We are not spending as much on clothes or furniture as we once did, but we are spending more in restaurants and splashing out on overseas holidays, education and tax agents.

The Reserve Bank, which has been watching your spending and saving very closely, along with that of other Australians, believes that these are just the kind of changes that occur as incomes rise.

That is spending less on goods and more on services.

But Philip Lowe, the bank’s Assistant Governor, also says there is a lot more to it than that.

He gave several reasons, for example, why Australians have been saving more, recently, than they did back in the 1980s.

These include:-

* Fear of losing jobs, in these troubled times

* Trying to rebuild wealth, after big losses in share trading and

* Saving more, to buy ever more expensive houses.

That last point helps to explain why 15 to 29 year olds are now the nation’s biggest savers.

“Higher housing prices have required higher deposits and this requires more savings,” Mr Lowe said.

He noted that people who are now “a lot more worried” about losing their jobs have become big savers, too.

“Here, the evidence is consistent with the idea that when people become more uncertain they save more to build up larger buffers against the possibility that something goes wrong later on,” Mr Lowe said.

” It is also consistent with earlier work at the Reserve Bank showing that households that are particularly uncertain about the future tend to spend less of any increase in income than do households that are more confident,” he added.

Mr Lowe admitted that the Reserve Bank has been “drilling down” into official data, like the Household Expenditure Survey produced by the Bureau of Statistics, to get a better understanding of current spending and savings trends.

Mr Lowe said “relatively weak” growth in spending on goods “has led to very subdued trading conditions in many parts of the retail sector.”

But spending on services – like pay TV and the internet – had “increased significantly,” Mr Lowe said.

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An extra $40,000? Super

Like an extra $40,000 in your superannuation payout, when you retire?

The Federal government says a 30 year old worker, on average weekly earnings, can now look forward to that benefit, on retirement.

A senior minister, Bill Shorten, says that will be achieved through the government’s Stronger Super reforms.

Mr Shorten, who is Assistant Treasurer and Minister for Financial Services and Superannuation said this would be broadly equivalent to a 1 percentage point increase in contributions.

He said the key elements of the reforms are:-

• Creating MySuper, a new simple, low cost default superannuation product from 1 July 2013

• Providing the relevant authorities – APRA, ASIC and the ATO – with the tools they need to improve their oversight of superannuation and

• Improving the administration and management of super accounts through SuperStream reforms, which would make the processing of everyday transactions easier, cheaper and faster for members and employers.

“Once fully implemented, these reforms could reduce the fees paid by members by up to 40 per cent,” Mr Shorten said.

Private superannuation funds welcomed the announcement.

Pauline Vamos, the Chief Executive of the Association of Superannuation Funds of Australia, said the reforms will help funds to respond better to the changing needs of both employers and employees.

“These are long awaited reforms which touch upon all aspects of the superannuation industry,” Ms Vamos said.

“The advent of MySuper and increased ‘back of house’ efficiencies’ through SuperStream will deliver better retirement outcomes for most Australians,” she added.

The proposed reforms follow detailed studies, much consultation, and official inquiries.

Australia’s superannuation industry has developed in a haphazard fashion.

The problems that have arisen, as a result, include expensive trailing commissions – and many lost superannuation accounts – that are simply left behind when people change jobs.

Small employers, too, have reported difficulties meeting their obligations to manage the superannuation accounts of their employees.

All of these issues – and many more – will be tackled in the proposed reforms.

Mr Shorten is promising, too, that there will be further detailed consultations, with interested parties, before the proposed legislation is sent to Parliament, to become law.

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