Swan assures advisers not to fear industry funds

Independent financial advisers should not fear government moves to have super funds more involved in the provision of financial advice to fund members, according to Cbus chair and former federal treasurer Wayne Swan.

Swan delivered a wide-ranging address on superannuation to an audience at the annual conference of the Association of Independently Owned Financial Professionals in November, before the government unveiled its full Quality of Advice Review response last week, in which he said groups such as the AIOFP should have no concerns about super funds providing financial advice to fund members.

He also used the address to note his concerns that the current climate of distrust in institutions has led to the inability to prosecute policy ideas like super that has enduring benefits.

Swan said that advisers offering comprehensive advice would still be needed by people that have more complex financial needs but most members of Cbus, for example, would not require that level of assistance.

“To begin with, there are not enough advisers to deliver advice to so many new retirees, but funds will have some members with higher savings levels who will need calibrated full advice,” Swan said.

Swan told the audience that most Cbus members were people that has simple arrangements.

“They may obtain income from the age pension and their super – longevity products are unlikely to be suitable for many – especially blue-collar workers with lower life expectancies,” Swan said.

“We must also properly assess and communicate the role the age pension plays in providing longevity risk.”

Swan said there were some aspects of planning for retirement on which advice would be beneficial for super fund members.

“Many members would benefit from advice about ensuring their savings continue to grow strongly and don’t de-risk too severely,” Swan said. “This is important for delivering higher total incomes in retirement.”

While some advisers have raised concerns about super funds giving more advice in light of the QAR response, there is debate over how much appetite the institutional side has to service those needs. Funds like AustralianSuper, ART and Brighter Super have publicly expressed the need to have external advisers as part of their advice strategy.

Swan said he believed the government initiatives to reduce red tape such as the reduction in documentation and disclosures would “yield sensible improvements”, and that people would be talking about the retirement phase of superannuation and the role of advice as the government reviews the superannuation system again.

Unrealised impact

Controversy has accompanied the Federal Government’s move to increase the amount by which super fund balances above $3 million are taxed including a view from the opposition that the change constitutes a broken promise.

Swan said that the generosity of tax concessions cannot be limitless and that those impacted have “exceptionally high balances”.

He said that the issue of taxing unrealised gains had attracted a lot of attention but that the approach used by the government has similarities in other areas of tax or welfare administration.

“Just to be clear the approach which is used is consistent with APRA-regulated funds which set aside tax on capital gains on an accrual basis,” Swan said.

“The approach will also be familiar to any age pensioner who has their pension reduced by the value of their assets, including on paper capital gains, through both the asset test and deeming.”

Swan noted that the number of APRA-regulated funds had halved over eight years and that he expected further consolidation within the sector but at a reduced pace.

“Mergers can be incredibly costly and sometimes the benefits don’t necessarily outweigh these costs,” he said.

“There is room in the system for diversity in fund size – it’s good for members and healthy competition.”

Swan reflected on his time as Treasurer and the fact his involvement in global forums and visits to countries such as China left him optimistic about the future of the economy but pessimistic about the future of democracies across the world.

“In an era of mistrust in government and institutions more generally, it gets harder and harder to convince people that the power of public policy can change lives in an enduring way,” Swan said.

“That’s why superannuation should be given greater recognition for the strength it gives our national economy and the comfort it gives to millions of people retiring on modest incomes.”