The Cooper Review. If research is to be believed, you don’t know about it and you don’t care about it. So why on earth would you want to read about it?
The release on Monday of the Superannuation System Review (Cooper Review) was a highly anticipated event. Well, highly anticipated by those employed in the super industry. A survey by REST Super shows that 94% of 800 fund members questioned didn’t even know that Jeremy Cooper was reviewing super. We suspect that the 6% who did know about the review are all REST employees.
So if none of us knows about the Cooper Review, surely none of us needs to concern ourselves with the 177 recommendations in the review. And if that’s what you think, you’d be wrong.
SUPER STREAMLINED
At the review’s core is a package of changes dubbed SuperStream. As the name suggests, they are mostly designed to streamline processes. These are things that you, as a super fund member, really needn’t worry about. But you will benefit from them. They will have an affect on administrative systems used by super funds. Making the necessary changes to meet these recommendations will come at a cost to the super funds, but they should ultimately save money. Treasury reckons savings could be as much as 25%.
These changes include standardised protocols for handling member information. The aim of this is to speed up transfers as members move between employers and super fund accounts. As part of this standardised system, transfers will move from being paper-based to electronic. Once implemented, these changes should ultimately reduce inefficiencies. So far, so good.
LOST SUPER A THING OF THE PAST
There’s currently about $10 billion in unclaimed super in Australia. That’s a lot. There are a number of services that help people track down lost super. It’s a reflection on how little interest most of us have in super that so much money remains unclaimed. In any case, lost super will become a thing of the past if the Cooper Review recommendations are adopted. The review suggests linking tax file numbers to super, so no matter where we move as employees, all our super fund accounts will be tracked. Back in the day when people worked at one job all their lives, that wouldn’t have mattered, but we’re a lot more promiscuous as far as jobs go nowadays, changing many times in our careers, so this is a smart solution. There are some privacy issues to sort out, but it’s likely that this will be implemented. So, good news here.
HIGHER STANDARDS OF GOVERNANCE
Funds are obliged to put the interests of their members first. The Cooper Review doesn’t suggest they don’t. But in the spirit of greater transparency and accountability, the Review has recommended new prudential and governance standards.
RESTRICTIONS FOR DIY FUNDS
Given how rapidly the SMSF sector is growing, it’s surprising that the Cooper Review hasn’t proposed more regulation on DIY funds. According to Cooper, he found that people with their own funds were generally doing the right thing. The key change proposed is to prevent SMSFs from making so-called exotic investments - in art, for example. There’s no doubt some considered logic behind this. It escapes us.
OK, now for the Review’s most controversial proposal -
MYNOTSOSUPER
The problem with super is that most of us just don’t want to think about it. That’s stupid, given that it will be the second most valuable asset most people own (after their houses). Anyway, rather than fight apathy, Jeremy Cooper has recommended a new no-frills super that would become the default super account for those who don’t want to make a choice. Every fund would be required to offer a MySuper product. Funds would be scrutinised by the Australian Prudential Regulation Authority and it is expected that MySuper will undercut current average super costs by about 40%.
Given that only 10% of Australians have bothered to exercise their right to choose their super fund, MySuper might be mistaken for a useful suggestion. It isn’t.
FEEDING THE BEAST CALLED APATHY
The government should be encouraging people to take some interest in their super and to make some informed decisions about where their money is invested. Offering a new no-frills, dumbed-down default super product isn’t going to do this. The Treasury reckons MySuper will mean that average wage earners will have an extra $40,000 in their super balances when they retire. If the average wage earners had $100,000 in the best performing Property option last year, they would have an extra $49,000 in their super accounts - after just 12 months. This is just an example of the power of understanding your super and choices within it.
In contrast to the secretive Henry Review, Jeremy Cooper made sure that all interested parties had plenty of opportunity to have a say on the terms of the recommendations. It doesn’t mean that everyone’s 100% happy with the final outcome.
Many of the Review’s proposals have already been anticipated. Administration is being simplified. Paper is being replaced by computer. Transparency within super is good and getting better. Major players like AMP and BT now offer much simplified products and have been able to reduce their fees.
MySuper places emphasis on reduced fees. There’s nothing in the Cooper Review that will directly result in better performance. That’s still something that’s in the hands of members who are prepared to look for the funds offering the best products, lowest fees and with a history of strong returns over a long term.
A Savvy member can quickly identify a number of funds that have very low fees but are also amongst the best performers. In five years time, it would be instructive to review any one of these against a MySuper product. We know which fund’s members would be better off.
It’s a shame that those of you who’ll take the time to find such funds are in the minority. The government needs to encourage Australians to make decisions that will improve the value of their super. Instead, they are proposing a product that simply feeds the beast called apathy.
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