Ian Silk, the head of the country’s largest superannuation fund, AustralianSuper, said the rise of the mega fund stemming from merger activity is positive for the industry as long as they are able to leverage scale and provide benefits to members.
Speaking at the ASFA national conference in Melbourne, the chief executive indicated that a tie up between QSuper and Sunsuper to become a $180 billion fund would likely go ahead.
“The Queensland Inc. merger… we will see whether it plays out, it looks as though it will, so it will create a very, very big fund,” he said.
QSuper and Sunsuper confirmed last week that they were in early stage merger talks, which if successful would topple AustralianSuper to be the country’s biggest fund. The potential tie up is said to be just one of a number of deals that will be announced in the next six to 12 months.
Silk said while industry consolidation was meant to drive the poor performing funds into the arms of the top performers so the members ended up in better institutions, there was little evidence that it had occurred.
“We haven’t seen much of that,” he said. “It’s easy to say consolidation is happening, and at an industry structural level that’s right, but if you come back to what’s in the best interests of members, people in poorly-performing funds by and large remain in those funds.”
The AustralianSuper chief said the industry had relied on the regulator to step in to address the issues so they “shouldn’t complain when the regulator came in with a big stick”.
Silk spoke on a number of topics at the conference ranging from advice and the government’s retirement income review, to the loss of trust in institutions following the royal commission into misconduct.
He said an emerging issue for his fund was the degree to which industry funds who use independent financial advisers will be held responsible for the quality of their advice. He said the issue emerged in a situation whereby an advice fee was deducted from a member’s AustralianSuper account.
“We are one of the funds that has an arrangement with the independent advisers,” he said, adding that the model appeared to be working well until recently when a new regulatory world had intruded into those arrangements.
“Now we are wrestling with the issue of what is our obligation when it comes to checking the quality of advice… and what if the advice is atrocious,” he said.
Silk said the panacea of outsourcing advice to industry professionals might have some dimensions that he had not considered.
As for the long-awaited review of Australia’s retirement income system into the age pension, superannuation and voluntary savings, Silk said the interaction between super and the aged pension was especially critical. He said the problem with the current aged pension assets test is the so-called taper rate which determines how much money pensioners receive.
The taper rate is an “arcane piece of the policy architecture” which had a huge impact on retirees, he said. “That is the most important axis between those two pillars of the system and while it doesn’t get much publicity, it has a material effect on the amount of money people enjoy in retirement.”
Speaking on the Hayne royal commission, Silk said not all the misconduct has been exposed and there were many people who were still “dramatically worse off due to bad behaviours”. He said the loss of trust in the financial services was not just a failure of political leadership but a sign that the industry needed to improve community standards.
“Will it last 10 years?” he asked. “I would be staggered if it did. These are issues of culture and I would suspect we may have cause for another royal commission before 10 years pass. It’s human behaviour we are talking about and the egregious behaviours we saw will come back unless regulators take a stronger position than they have in the past.”