Super system 2.0 

By Ben McAlary

A keynote address at the FSC’s inaugural Retirement Income Products Conference by Challenger Chair Jeremy Cooper revealed that the current superannuation system was “not up to task” and “designed with a lifespan of 75 years in mind”.

“People are now typically living into their late 80s, more than nine years longer than they did in the 1990s. This is an inconvenient truth one recognized by the super system architect Paul Keating,” he said 

Mr Cooper argued that the current defined contribution (DC) scheme was designed to favour flexibility over income certainty and sustainability, and that this “lack of structure” in the decumulation phase continues to be the source of “growing pains” for the scheme.

Further, he suggested that: “Every super fund needs a retirement income philosophy,” and that “being great investors” does not account for on”.

“The return of a member’s money in the form of regular income and better managing their risks in retirement is not the same as the time-weighted returns achieved by the fund as a whole,” he said. 

Mr Cooper’s address to industry leaders in Australia’s retirement and superannuation sectors came off the back of media coverage that quoted his as saying that Future Fund chairman Peter Costello’s suggestion that the fund could manage the $600 billion ­default superannuation sector should be a wake-up call for the sector. 

Read the full article here.

The former Treasurer of the Howard government suggested last month that Australia’s sovereign wealth fund, the Future Fund, could assume management of default super payments.

At the time, he said: “Instead of the government arbitrating between industry funds and private funds, there is a fair argument that compulsory payments, the so-called default payments, should be allocated to a national safety net administrator.

“Default contributions are at the moment spread between many funds, allocated to many different products, many of whom use the same manager and all of whom pay fees to do so.”

Commenting on this, Mr Cooper said Mr Costello “had a point”. Emphasising that he wasn’t advocating such a shift, Mr Cooper explained that Mr Costello’s suggestion highlighted that the accumulation investing aspect of super funds “could be outsourced”.

He elaborated: “What this suggestion does is remind super funds where they have a natural advantage – their connection to their customers; their members, in meeting their needs in retirement. They have much less of a natural advantage when it comes to generating investment returns.

“The Future Fund would not be able to service retired members with pensions because it does not have the necessary data on them and it doesn’t know their financial needs and goals in retirement.”

Mr Cooper address concluded with a Q&A with FSC, CEO Sally Loane. You can listen to the full keynote and Q&A here if you are new to podcast head over to iTunes to subscribe, like or leave a review by searching for the Financial Services Council podcast. 

The format of the Retirement Income Products half-day conference proved to be a great success proved to be a huge hit for both delegates and speakers. Other sessions included panel discussion on what the industry can do better to meet the needs of the three million Australian’s already in retirement and the 1 million more expected to enter into retirement with the next 10 years.