The Henry and Cooper reviews are the keys to achieving long-term stability and confidence in the superannuation system, according to the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen.
And the head of the Cooper review into the superannuation system, Jeremy Cooper, has raised the idea that self-managed super funds (SMSFs) may ultimately be the best model for the entire superannuation system.
Speaking at the SMSF Professionals’ Association of Australia (SPAA) 2010 national conference in Melbourne, Bowen said the industry, and consumer confidence, had suffered for too long from regular, piecemeal changes and tinkering with the rules.
Bowen said he accepted the industry’s concerns about stability and certainty.
“And I think the way to get that certainty and stability is the process we are going through,” he said.
“Annual changes to superannuation rules have been the norm now, for more than a decade. Some positive, some negative. This isn’t a recent invention, annual changes to the rules applying to superannuation. And I agree with you that that’s a bad thing.
“The best way to get away from that is the process we [have] underway now: two very comprehensive, significant reviews, which will then – when the Government has considered them and settled the policy parameters – give us a stable platform with which to go forward.
“It will enable me and my successors to say at the Cabinet table whenever changes to superannuation are proposed: ‘Hang on a second, we’ve been thought that, we settled that, we had the Henry review, we had the Cooper review, we don’t need more tinkering’.
“At the moment, superannuation ministers can’t say that, because the system has been built up in an ad hoc way. So we do need to get to a period of stability and it’s certainly my intention that once we’ve settled the policy arising from both Henry and Cooper that we have a much more stale policy environment for several years to come, and we don’t have those annual Budget-night or other changes like that.
“As for retrospectivity, I think you need to have a very, very good case for retrospective legislation. It’s not something we favour as a matter of principle; it’s only done in extreme and unusual circumstances, and that will not change.
Bowen urged all players to consider the superannuation big picture.
“Often when people come to see me in the superannuation sector, it’s about one part of the superannuation sector versus another part,” he said.
“It’s asking me to make a decision which might favour one part of the superannuation sector over another part. While that has its place, and vigorous competition between the various sectors has its place and I don’t have a problem with that. But I think the superannuation sector would do itself a big favour and would make my life, as somebody who is trying to promote superannuation, easier, if we concentrated more on the things that unite us, rather than the things which divide us.
“Concentrate on the things that would be good for superannuation across the board, concentrate on things which would increase the pool of national savings. Rather than focusing on how to divide the pie, concentrate on how to grow the pie.
“I don’t have a problem with people coming to see me and asking for particular policy decisions, but I do always try and steer those discussions, after we’ve done that, onto issues of what is in the best interests of superannuation across the board. And if the industry generally did more of that, I think superannuation would be the winner.”
Cooper told the SPAA conference that the SMSF sector was in basically good shape and there was not a compelling reason to seek fundamental changes to how the sector is structured and regulated.
However, Cooper said the sector had “still got a way to go to improve its overall image, and its pedigree as an optimal retirement savings vehicle.”
“So the path the review’s on is looking at how we can help make SMSFs better for members, looking at removing redundant paperwork and compliance and so on, and things that might help the sector overall.
“Our ultimate vision is a sector where SMSFs can innovate quickly; they can operate efficiently, generally; they are compliant and well-managed. And one of the great attractions of the sector is that it’s largely free of assed-based remuneration, percentage fees and so on. So the sector is well placed to achieve excellent investment returns.”
Cooper said the SMSF sector had some features that in some ways made it the ideal model for the whole sector.
“I sort of promised myself that I wouldn’t say this controversial line, but I’m going to: it may be that the SMSF is the absolute way of the future,” he said.
“I’m looking out a quarter of a century, I’m looking out to the future where, with technology and better financial literacy and more engagement, that the actual model of people taking absolute responsibility for their retirement savings is ultimately the model.
“We’re not anywhere near that yet, but it just may be that the absence of machinery, intermediaries, agency problems, and all those things that you just don’t get in the SMSF sector, it just may be that in fact, ultimately [that is the future].”
Submissions to Phase Three of the Cooper review close on February 19.