ASIC’s ill-timed announcement

There will be bitter laughter, throughout Australia today, as people read that the authorities want the nation’s superannuation funds to provide their members with “snapshots” of their likely payouts, on retirement.

The Australian Securities and Investments Commission, which has advanced this proposal, could not have chosen a worse time to do so.

That’s because the nation’s superannuation funds have just suffered their biggest collective loss, ever.

The Superannuation research group SuperRatings, says the median super fund lost 6.4 per cent in the year to the end of June.

Losses of that size were, perhaps, inevitable, with both share prices and profits falling.

That, of course, is not the whole picture.

The latest loss had been preceded by four strong years of double digit returns.

And younger workers, in particular, will probably see their funds recover well, in future.

SuperRatings managing director, Jeff Bresnahan, says balanced funds have negative returns about once every six years.

But he conceded that the latest results will be a blow for people who plan to retire soon.

And he said the real problem, at present, is the extreme volatility of the market.

None of that, though, detracts from the merit of the snapshots ASIC is proposing.

It admits that there are problems with the idea, but says they can be solved.

And its proposal is very much in line with the Federal government’s own thinking.

Like to know more? Try www.asic.gov.au

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Correct change? It’s time to check

Change

By R.U. Reddy

The Australian Stock Exchange may soon have some real competition.

The Australian Securities and Investment Commission has already received an undisclosed number of market licence applications, from agencies which have proposed alternative trading systems.

These proposals would involve trading in ASX listed securities, in direct competition with the exchange.

The Federal government is taking a sanguine attitude.

The Superannuation and Corporate Law Minister, Nick Sherry, says this kind of competition is “well established” in other advanced countries.

He says, too, that he has already received advice on the matter from ASIC.

“I….together with my colleagues, am considering it carefully,” he said.

That comment, made in a speech in Adelaide this week, is as frank as politicians ever get, when big changes are to be made.

Be ready.

That wasn’t the only useful hint Senator Sherry gave in that speech.

Not by a long way.

He said, too, that there is also “a large unmet need for low cost, simple superannuation advice.

“And the Federal government is determined to remedy that,” he added.

Cancel my last observation.

Goverments can be very direct, in what they say.

At times.

These times, admittedly, are rare.

But it pays to sit up and take notice, when they do occur.

So what else did Sherry have to say?

That’s a good question.

Quite a lot, actually.

Sherry, of course, is one of the movers and shakers, in the government’s financial ranks.

Like the recently retired Liberal Senator, John Watson, a fellow Tasmanian, Sherry has had a great deal to do with setting up Australia’s new superannuation system.

And as Watson, himself, noted that is now envied in many other countries.

Sherry, who was addressing a symposium, organised the the International Centre for Financial Services, declared again that the new Rudd government is working hard, to reduce “the regulatory burden on business.”

Some of the older participants, at that meeting, might well have shuddered at that.

Sherry’s words were remarkably similar to those of John Howard, who promised, before the 1996 elections, to cut red tape for small business in half.

That was back in the bad old days, when small business owners had to submit just one tax return, each year.

After the Howard government’s reforms, many now have to submit five tax returns a year.

Four quarterly BAS statements, plus an annual one, to keep the Tax Office happy.

Sherry recalled that he had released a discussion paper,, early in June, on possible ways of reforming financial services, credit legislation and credit reform.

He said the government’s aim, in doing that, is to improve, simplify and standardise the laws covering these areas. which are basic to the financial life of the nation.

“Regulation of many financial services is currently duplicated, patchy, confusing, difficult to change – and in some areas completely non-existent,” Sherry said.

“Not only that, but it also imposes unnecessary red tape on business.

“Clearly, that is not good enough,” he said.

The States agreed earlier this month that the Federal government will assume responsibility for all credit legislation.

“The scope of this legislation will be comprehensive,” Sherry said.

He said the Federal government is working on the details now.

And it would submit its plan to the premiers in October.

Other points to emerge from the Sherry speech include:-

• Simplified disclosure documents are now a step closer to reality
• The government is “making headway” on mutual recognition of securities with the US
• It also as asked the Treasury and ASIC to jointly review the activities of credit agencies in Australia
• Treasury is reviewing appropriate disclosure requirements for equity derivatives
• The government’s superannuation clearing house, Superannuation Choice, should be operating by July 1 next year.

In short, this was a wide-ranging speech.

www.treasurer.gov.au -and follow the prompts  for more.

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Sherry calls for super projections

Superannuation fund members in Britain can now get projections that give them an estimate of their ultimate payout, on retirement.

The Federal minister for superannuation and corporate law, Nick Sherry, mentioned that in a speech he gave to a symposium in Adelaide, organised by the International Centre for Financial Services.

“I was interested to learn that, after projections were issued in the UK, there was a significant increase in awareness among fund members of the need to increase their contributions,” Senator Sherry said.

Sherry, one of the architects of Australia’s current superannuation system, said one of its “significant shortcomings” is that “very few members have any idea about the ultimate size of their nest egg.”

“That is why I would like to see universal access to projections developed as an integral part of the superannuation system..

“This would give fund members an indicative estimate, in current dollar values, of their superannuation and age pension benefits, at different ages, in a simple, standard format.

“It would also help them to better understand how the superannuation system works over the long term, that is through the ‘magic” of compound interest,” Sherry said.
Of course when markets are down, as they are at present, some funds might well think it is a good thing that their members don’t know exactly how much they would get, if they left the workforce now.

There might well be many more complaints if members did know.

But that’s the short term perspective.

And, as Sherry himself noted, superannuation is generally a 35 year investment.

So it is always important to see it that way.

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The Burnie pub test

Can the public be protected, if red tape is cut?

The Federal government certainly thinks so.

Two ministers made that clear, when they released the government’s plans for short simple financial disclosure

statements.

The release was timed to co-incide with the introduction of the first home saver accounts, that Labor promised

before last year’s Federal election.

The Federal Superannuation Minister, Nick Sherry, a Tasmanian, said the new disclosure documents, setting out

depositors’ rights, must pass what he called “the Burnie pub test.

That is, they must be written simply enough to be understood by an ordinary person in a pub.

Senator Sherry made the announcement with the Federal Finance minister, Lindsay Tanner.

They said the reforms would lead to short, readable four-page Product Disclosure Statements.

“The Rudd Government committed to simplifying disclosure documents as a priority, and now we’re delivering on that

commitment whilst better informing consumers and cutting red tape,” Senator Sherry said.

He said these documents had often run to 50 or even 100 pages in the past.

And he said some had been about “as readable as Latin.”

“This is unacceptable,” Senator Sherry said.

He said the new statements would be clear and simple.

They will “improve Australians’ access to cost effective financial advice.” Sherry added.

He said the new disclosure documents will make it much easier for people who are interested in using First Home

Saver Accounts to understand and compare the products on offer.

“Key product information is provided over the equivalent of four A4 pages in concise, plain English and can be read

and understood in just a few minutes,” he said.

He noted that some finance industry professionals had said this could not be done, in just four pages couldn’t be

done.

“But the Financial Services Working Group has delivered an outstanding document and demonstrated that it is possible

to have short, simple disclosure that covers the important things that consumers need to know before investing in a

financial product,” he added.

He said the government would closely watch developments with these new statements.

And it would apply the lessons learnt with them to other financial products.

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Share prospects still clouded

Share traders will not have a clear lead, when Australia’s markets open today.

Wall Street certainly looked better, before American traders took off for their holiday on July 4.

The Dow Jones had risen by 73.03 points, to 11,288.51, before trading closed early, for that break.

But European traders are still nervous.

The DJ STOXX 50 index closed 36.10 points down, before the European weekend, at 2,837.58.

Significantly, too, world oil prices remain close to their recent peaks.

Oil futures eased by just $US1.11 a barrel to $US144.18.

And high oil prices are still unsettling share trading everywhere.

Analysts are also warning that America’s already  substantial trade deficit is likely to widen even further.

They said higher oil prices have probably made that inevitable.

Meanwhile  three important indicators that are to be released this week will give Australians a better idea of how the nation’s economy is travelling.

Overeseas arrivals and departures figures for May, which the Statistician will release today, will throw light on the performance of the tourist industry.

Housing finance figures, due out Wednesday, will also be a key indicator.

They, too, will be for May.

The most important indicator scheduled for this week, though, will be the June labour force figures.

These will be published on Thursday.

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Super:better criteria ahead

Thousands  of  Australians will be  bitterly disappointed with the performance of their superannuation funds this year.

That is understandable.  With the market down, the performance of many has been weak.  And that’s putting it mildly.

So what should you do about it?

One thing that should be kept in mind is that superannuation is essentially a long term investment.  So it should be judged that way.

And, fortunately, that will soon be easier.

The Federal Superannuation minister, Nick Sherry, has welcomed two steps the Australian Securities and Investment Commission has taken, in that direction.

Senator Sherry noted that ASIC issued a best practice guide, last week.  It’s called Superannuation:helping investors look at longer term returns.

“In it, super funds are encouraged to work towards providing personalised historical fund returns over five and 10 year periods, with annual statements,” Sherry said.

“ASIC has also produced a short consumer guide detailing why long term performance of a super fund is important,” Sherry added.

“I would encourage super funds to provide their members with the periodic statement,” he said.

Like to know more?  Go to www.asic.gov.au.

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Market fluctuations:the collateral damage

Current fluctuations in the world’s share market could leave you much poorer in retirement.

The Federal government is worried about that.

It is not alone.

Australia’s once booming superannuation industry is, too.

The superannuation funds, of course, are big investors. And when the share market is performing badly, as it is now, they get hurt, too. Their returns fall. So their performance is weaker.

And fund members start to lose faith in them.

But there are three points all Australians should remember.

The first is that superannuation is still the nation’s second most tax favoured investment after the private home.

The second is that super is, essentially, a long term investment, particularly if you are young.

Thirdly, it is quite realistic to base your retirement income strategy on the belief that there will be good years, as well as bad, for investment.

That is if the past is a reliable guide. And it is the only one we have.

Other investments, certainly, may appear to be more attractive, now.

Investment in oil production is certainly among them.

But that is not practical for everyone.

Besides, the circumstances, which affect particular investments, change constantly.

Over the months ahead, you can expect to see more information, designed to persuade you not only to view superannuation as a long term proposition, but to stay with it, as well.

Some of it will probably come from your superannuation fund.

It will be worth careful assessment.

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Overhaul of Australia’s credit legislation launched

Rogue mortgage brokers – and reckless bankers – in the United States precipitated the global economic crisis.

So it’s hardly surprising that the newly elected Rudd government wants to see strong legislation, governing mortgage brokers in Australia.

And not just mortgage brokers, either, but property spruikers, but credit companies, margin lenders, trustee companies and operators issuing debentures and promissory notes.

It is aiming for nothing less than fundamental reform of Australia’s financial services and credit legislation.

The superannuation and corporate law minister, Nick Sherry, who is conducting this overhaul, is blunt in his assessment of the need for action.

“The current regulation in thse areas is either duplicated, patchy, confusion, very hard to change or even non-existent,” he said.

In one word, a mess.

“As a result, some consumers receive poor or inadequate advice, while opportunistic product promoters use gaps in existing legislation to take advantage of vulnerable investors.”

So what is he doing about all this?

Senator Sherry yesterday issued a green paper, outlining the government’s plans.

That’s a traditional step governments take, when they plan big changes.

It’s an invitation to both finance professionals and the general public to put their views to the government – and to tell the government of both good and bad experiences they might have had with financial advisers.

The Green Paper can be found byh going to  www.treasury.gov.au and following the links on its front page to reviews and inquiries .

The government will review the submissions it receives.

It will then put its plans to State premiers in October.

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