super review (march 2012)

T H E L E A D I N G I N D E P E N D E N T J O U R N A L F O R T H E S U P E R A N N U A T I O N A N D I N S T I T U T I O N A L F U N D S M A N A G E M E N T I N D U S T R Y

6 SOCIAL MEDIAHow to make social media workfor your organisation

For the latest news, visit superreview.com.au

12 INSURANCEMySuper is impacting ontrustees’ insurance offerings

17 FINDING A BALANCEStronger Super challenges withcosts and time frames

The Federal Government isbeing placed under in-creasing pressure to use the

May Budget to provide a bettersolution to an excess contribu-tions tax (ECT) regime.

Amid widespread industrydisappointment at the Gov-ernment’s efforts to addressthe ECT regime in the 2011Budget, key bodies are point-ing to administrative short-comings in the new arrange-ments, as well as theperceived inequity of limitingexcess contribution refundsto just $10,000.

The 2011 Budget fix with re-spect to the ECT fell well shortof broad industry expectations,and has made the issue a focalpoint for a number of pre-Bud-get submissions.

A number of industry com-mentators have also pointed tothe fact that the AustralianTaxation ofice (ATO) has in-dicated its own misgivingsabout the operation of the ex-isting ECT regime and the lackof discretion available to theTax Commissioner.

The Self-Managed SuperFund Professionals’ Associ-ation of Australia (SPAA)early this month pointed towhat it described as the con-tinuing “harshness” of the ex-cess contributions regime.It said it represented a major

barrier and disincentive forpeople to save for their re-tirement.

“The consequences of theECT are exacerbated by thelowering of the contributionscaps,” SPAA chief executive,Andrea Slattery said.

She said SPAA would be urg-ing the Government to give theTax Commissioner greater dis-cretion to deal with inadver-tent breach scenarios.

At the same time, the In-stitute of Chartered Ac-countants in Australia(ICAA) has not only support-ed greater discretionary pow-ers for the Tax Commissioneraround inadvertent ECTbreaches, but has questionedthe current arrangementswith respect to allowing theATO to access ECT refundamounts.

It said the arrangementsflowing from the last FederalBudget could see the ATO al-lowed to have inappropriate‘first dibs’ on refund amounts.

The ICAA’s superannuationspecialist Liz Westover saidshe was disturbed by the re-fund process applying to the$10,000 available with re-spect to excess contributions,under which the Commis-sioner will deduct from therefund any tax that the in-dividual might owe following

the contribution being re-assessed as income to the in-dividual.

She said that while thismight seem fair enough, acatch existed.

“The Commissioner canalso deduct any other tax li-abilities owing to the tax of-fice, and also any other pay-ments owing by the individualto other government agen-cies,” Westover said.

She said that while currenttax laws may permit the Com-missioner to do this as the re-

fund is made by virtue of a taxlaw, “it doesn’t seem quite fairfor the Government to have‘first dibs’ on any refundedamounts”.

“This approach is inconsis-tent with the provision of re-lief,” Westover said.

She said it had to be re-membered that the majorityof excess contributions weremistakes.

“The provision of some reliefshould not include a debt col-lection medium for the Gov-ernment,” Westover said. SR

Pressure for further ECT fix

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COMPANY INDEX 2 NEWS 3 PRODUCT RATINGS 4 EDITORIAL 8 STRESSING TESTS 12 STRONGER SUPER 17 ROLLOVER 28

FEBRUARY 2012 Volume 26 - Issue 1

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21 ROUNDTABLEThe global investment outlookfor 2012

The Government has found itself under

pressure to deliver a better excess

contributions tax in the May Budget,

amid concerns its existing approach

denies the ATO enough discretion.

Andrea Slattery

“The provision of some relief should notinclude a debt collection medium for

the Government.”- Liz Westover

2 PAGE TWO www.superreview.com.au

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Accountants question Govt’s excess contributions remedy

FEBRUARY 2012 * SUPERREVIEW

By Mike Taylor

THE Government’s new arrange-ments around excess contribu-tions could see the AustralianTaxation Office (ATO) allowedto have inappropriate ‘first dibs’on refund amounts, according tothe Institute of Chartered Ac-countants in Australia (ICAA).

The ICAA has raised seriousquestions about the Govern-ment’s approach to excess su-perannuation contributions and

the role of the Commissioner forTaxation.

The questions have beenraised by the ICAA’s superan-nuation specialist, Liz West-over, who said she was dis-turbed by the refund processapplying to the $10,000 avail-able with respect to excesscontributions. Under thisprocess, the Commissioner willdeduct from the refund any taxthat the individual might owefollowing the contribution

being reassessed as incometo the individual.

She said that while thismight seem fair enough, acatch existed.

“The Commissioner can alsodeduct any other tax liabilitiesowing to the tax office, and alsoany other payments owing by theindividual to other governmentagencies,” Westover said.

She said that while currenttax laws might permit the Com-missioner to do this as the re-

fund is made by virtue of a taxlaw, “it doesn’t seem quite fairfor the Government to have ‘firstdibs’ on any refunded amounts”.

“This approach is inconsistentwith the provision of relief,”Westover said.

She said it had to be remem-bered that the majority of excesscontributions were mistakes.

“The provision of some reliefshould not include a debt col-lection medium for the Govern-ment,” Westover said. SR

ASFA points toMySuper CGT issuesTHE Association of Superannua-tion Funds of Australia (ASFA) hasrenewed its call for the Governmentto provide capital gains tax (CGT)roll-over relief – this time in the con-text of the implementation of My-Super.

In its submission to the Parlia-mentary Joint Committee reviewingthe Stronger Super legislation, ASFAhas argued that the absence of CGTroll-over relief and the fact that manyfunds are carrying deferred tax as-sets may necessitate many trusteesexpending considerable time and re-sources creating a MySuper offeringwhich would otherwise not haveneeded to be created.

“We note that CGT relief may begranted where APRA forces a fundto merge after the MySuper legis-lation is in place,” the submissionsaid. “In our view this is inadequate,as for this to happen the fund wouldhave to establish its MySuper of-fering first, which would be a wasteof resources.”

ASFA said it strongly urged thatif permanent CGT relief was notprovided, then as a minimum, itshould be provided from now until1 July 2014.

It said there was a clear precedentfor this, as similar relief was pro-vided during the last Australian Pru-dential Regulation Authority (APRA)licensing transition period.

“It was also a clear recommenda-tion from the Cooper Panel that suchrelief be provided in recognition ofthe extent of the transformation ofthe industry that Stronger Super willdrive,” the ASFA submission said.

“The absence of CGT roll-over re-lief creates a significant barrier tofund mergers,” it said. SR

LGsuper switchesinsurer to OnePath LifeBy Tim Stewart

QUEENSLAND fund LGsuper haschanged its insurance arrangement,replacing AIA Australia with OnePathLife, effective 1 July 2012.

The agreement with OnePath comesafter a tender process that was put intoplace in late 2011, following LGsuper’smerger with City Super in July 2011.

OnePath Life has been the insurer forCity Super – the fund for Brisbane CityCouncil employees – since July 2007.LGsuper’s agreement with AIA Australiaalso went back to 2007, said the fund’schief executive David Todd.

“Each fund was very happy with theincumbents, but obviously we neededto consolidate that post-merger. So wewent to tender, and the board only justsigned off to go forward with OnePath,”Todd said.

Since the merged entity knew both in-surers very well, it came down to gettingthe best coverage, design and premiumsfor members, said Todd.

“All the insurers can satisfy your needs,so it comes down to price, for one thing.We now have multiple options availableto our members to increase their coverwithout having to go through under-writing – things like lifestyle events.”

Death and total and permanent dis-ability insurance have also been linkedto salary, he added.

“It’s an across-the-board improve-ment in insurance coverage for themembership, and at the end of the daymost members will enjoy a lower pre-mium as well, so it’s a great result formembers,” said Todd.

LGsuper is a profit-for-members fundfor Queensland local government em-ployees and their spouses. It has $6 bil-lion in funds under management and93,000 members. SR

Annuities to help retirement fundingBy Milana Pokrajac

FACILITATING the development of annuitiescould help deal with Australia’s retirementfunding challenges and should be a Budgetpriority, according to the Actuaries Institute.

In its pre-budget submission to the Fed-eral Government, the Institute has calledfor a number of tax and regulatory reforms togive greater access to annuities, which the in-stitute chief executive Melinda Howes be-lieves would help baby boomers to better pre-pare for retirement.

Howes said annuities were a type of in-vestment which addressed two key risks re-tirees currently face: longevity and marketvolatility.

“Australians tend to take their superan-nuation balances as a lump sum on retirement– which puts pressure on the age pension be-cause it makes it harder to manage retirementsavings versus spending,” Howes said.

“But new generation annuities can addresskey needs in retirement, enabling retireesto better manage their retirement savings andprotect against longevity and market risks,”she added.

The Institute also called for the intro-duction of a temporary national insurancepool for high flood-risk properties.

According to the submission, the insti-tute believes greater government involve-ment in the flood insurance market wasnecessary due to high risk properties “be-coming uninsurable”. SR

www.superreview.com.au NEWS 3

Liz Westover

Melinda Howes

BIG West Australian Gov-ernment-related fund GESBhas recruited locally for itsnew chief executive, ap-pointing former Westschemechief executive HowardRosario to the role.

Rosario departed West-scheme after it was mergedwith Australia’s largest in-dustry superannuation fundAustralianSuper in the mid-dle of last year.

Rosario succeeds MicheleDolin at the helm of GESB

after she departed the fundin May last year.

GESB – which had beenthe subject of an independ-ent review commissioned bythe West Australian Govern-ment – has been led by act-ing chief executives FabianRoss and Larry Rudmansince Dolin’s departure.

In announcing Rosario’s ap-pointment, GESB chairmanJohn Langoulant said hewould oversee the implemen-tation of choice of superan-

nuation fund for public sectoremployees and the possiblemove by GESB towards be-coming a greater procurer ofsuperannuation services. SR

Howard Rosario

Rosario to lead next phase for GESB


Heron’s heroes

Sunsuper and Asgard haveemerged as the major win-ners in the Heron Partner-

ship's six-monthly superannuationproduct assessment.

Sunsuper Solutions was an-nounced as Heron's top-rated per-sonal product, while Asgard EmployeeSuper was named as the company'stop-rated personal product.

The Heron Partnership assessmentcovered 159 superannuation prod-ucts, including 122 personal products(comprising 61 master trusts and61 industry funds) and 37 mastertrusts and industry fund productsspecifically designed for the corpo-rate superannuation market.

The company said 60 personalproducts had been awarded thehighest rating of 5 Quality Stars,while 28 corporate products hadbeen similarly rated.

Importantly, where personal su-perannuation products were con-cerned, the laurels for achievingthe top 5 Quality Stars rating were

shared – even between retail mas-ter trust products and industryfunds – while where corporate su-perannuation products were con-cerned, the retail master trustsmaintained their dominance.

Commenting on the results ofthe exercise, Heron Partnershipmanaging director Chris Butlersaid it was the first time that ei-ther Sunsuper Solutions or Asgardhad been judged as the top-ratedproducts.

The assessment of personal andcorporate superannuation prod-ucts undertaken by Heron coversabout 130 key product featuresthat are grouped under five areasof importance: investmentarrangements; insurance; contri-butions; ancillary benefits; andcommunications.

Under the Heron methodology,investments and insurance havethe greatest impact on a product’sscore, with respective weightingsof 55 per cent and 30 per cent.

When it comes to the broad scope of their

product offerings, Sunsuper and Asgard

have emerged as the top-rated offerings in

the latest Heron Partnership analysis.

4 HERON QUALITY RATINGS www.superreview.com.au

Area of Importance Weighting %Investment Arrangements 55

Insurance 30

Ancillary Benefits 5

Communications 5

Contributions 5

Total 100

Rating DefinitionOutstanding - this is an outstanding product with a greatdepth of features and hence flexibility

Commendable - these products are commendable and offer agood range of options and some flexibility

Good - these funds are basic in their offerings

Poor

Unacceptable

TOP RATED PERSONAL PRODUCT Sunsuper Solutions

TOP RATED CORPORATE PRODUCT Asgard Employee

PERSONAL

Asgard eWRAP Super

Asgard Infinity eWRAP

CareSuper Workplace

CareSuper Personal

Mercer Super Trust - PersonalSuper

MLC Navigator Retirement Plan

MLC Wrap Super

REST Industry Super

REST Personal Superannuation

The Catholic SuperannuationFund

CORPORATE

AMP CustomSuper

AMP SignatureSuper

Asgard Employee Super

CareSuper Corporate Super

Colonial First State FirstChoiceEmployer Super

Equity Trustees Freedom ofChoice - Business Super

Mercer SmartSuper

Mercer SuperTrust

MLC MasterKey Business Super

REST Acumen

AMP - Flexible Super - Employer

AMP CustomSuper

AMP SignatureSuper

ANZ Super Advantage

Aon Master Trust - Standard Solution


AustralianSuper Corporate

AustralianSuper Corporate Solutions

BT Business Super

BT Lifetime Super - Employer Plan

CareSuper Corporate

Colonial First State FirstChoice EmployerSuper

Equipsuper - Corporate

Equity Super Freedom of Choice - BusinessSuper

REST Acumen

Equity Super Freedom of Choice - CorporateSuper

IOOF Portfolio Service Corporate Superan-nuation

IOOF Portfolio Service Employer Superannu-ation

Mercer SmartSuper

Mercer SuperTrust

MLC Employer Super

MLC MasterKey Business Super

OnePath Corporate Super

OnePath Integra Super

Plum Superannuation Fund

REST Acumen

Russell SuperSolution Master Trust - Em-ployer Division

Spectrum Super

Sunsuper Corporate

AGEST

AMP - Flexible Super

Aon Master Trust - Personal Division

Aon Master Trust - Personal Super Essen-tials

Asgard Elements Super

Asgard eWRAP Super


Asset Super

AustralianSuper Finsuper Division

AustralianSuper Personal

AustralianSuper Workplace

AXA Summit - Personal Super

BT SuperWrap Personal Super Plan

BUSS(Q) Flexible Choice Employer Spon-sored

BUSS(Q) Premium Choice

CareSuper Workplace

CareSuper Personal

Catholic Superannuation Fund

Colonial First State FirstChoice PersonalSuper

Colonial First State FirstChoice WholesalePersonal Super

Energy Industries Superannuation Scheme -Accumulation Scheme

Equipsuper - Personal

Equity Super Freedom of Choice - PersonalSuper

First State Super

FSP Super Fund

FuturePlus Super

Government Employees SuperannuationBoard - GESB Super

Health Super

HESTA

HOSTPLUS

HOSTPLUS Executive

HOSTPLUS Personal Super Plan

IOOF Portfolio Service Personal Superannu-ation

Legal Super

Local Government Superannuation SchemeAccumulation Scheme

Macquarie - Super Accumulator

Media Super - Employer Sponsored Account

Media Super - Personal Account

MLC MasterKey Super & Pension

MLC MasterKey Super Fundamentals

MLC Navigator Retirement Plan

MLC Wrap Super - Superannuation Service

netwealth Super Wrap - Employer SponsoredSuper

netwealth Super Wrap - Personal Super

NGS

OnePath OneAnswer Frontier Personal Super

OnePath OneAnswer Personal Super

Plum Superannuation Fund - Personal Divi-sion

Pursuit Select Personal Superannuation

REI Super Elite

REST Industry Super

REST Industry Super Personal

Spectrum Super - Personal Division

Strategy Retirement Fund

Sunsuper Solutions

Tasplan

Telstra Super - Personal Plus

Unisuper Accumulation Super (1)

WA Local Government Super Solutions – Em-ployer

WA Local Government Super Solutions –Personal

CORPORATE


BT Business Super

BT Lifetime Super - EmployerPlan

IOOF Spectrum Super

Mercer SuperTrust

MLC Employer Super

MLC MasterKey BusinessSuper

OnePath Corporate Super

OnePath Integra Super

Sunsuper Corporate

PERSONAL

AMP Flexible Super

Asgard Elements Super

Asgard eWRAP Super


AustralianSuper Workplace

Colonial First State FirstChoiceWholesale Personal Super

OnePath OneAnswer Frontier Personal Super and Pension

Perpetual Select SuperannuationPlan

Smartsave Member's Choice Su-perannuation Master Plan

Sunsuper Solutions

OUTSTANDING PERSONAL SUPERANNUATION PRODUCTS

OUTSTANDING CORPORATE SUPERANNUATION PRODUCTS

TOP 10 INVESTMENT FEATURES

TOP 10 INSURANCE FEATURES

Heron’s Top Rated Superannuation Products for 2012

WEBELIEVE IN AUSTRALIA’S FUTURE. THAT’S WHY WE INVEST IN IT.

The IFM Australian Infrastructure Fund is not available to retail investors and does not have a PDS. Investment can only be made by eligible superannuation funds and other pooled superannuation trusts. The 12.24% p.a. return shown does not represent the return to retail investors. It indicates the average return on capital invested by superannuation funds from commencement to 31 December 2011.

making an investment decision. For more information, visit www.ifm.net.au Industry Funds Management Pty Ltd ABN 67 107 247 727 AFSL 284 404 *as at 31 December 2011.

As a world leading investment manager that invests over $30 billion* globally on behalf of many super funds,

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p.a.For 16 years. After tax. After fees.

On average

Social networks, tweets,podcasts, Facebook, wikis,forums, RSS, mashups,

2.0, widgets, peer 2 peer,YouTube, blogs, Google+... thelist goes on. It’s hard to lookaround and not see the impactof social media. People’s busi-ness cards and email signa-tures include their Twitter han-dle, LinkedIn profile and theirbrand’s Facebook site. TVshows are asking for immedi-ate feedback with #hashtags.And breaking news from allcorners of the globe is beingbroadcast through personalmobile phone videos posted di-rectly to the internet.

Our lives have been amplifiedby social media, and user-gen-erated content is growing by theday.

And it is simply not all aboutteenagers telling us “what theyhad for breakfast”.

Social media is being used in

meaningful ways by many or-ganisations across a broadrange of industries to addvalue to their brands and tohelp people learn about andengage with these organisa-tions’ products and services. Inthe financial services industry,we are seeing three primary so-cial media sites becoming astandard part of the commu-nication channel mix:

1. YouTube channels are turn-ing into hubs for educationaland instructional content,which is then syndicated ontocorporate websites. Common-wealth Bank is a leading ex-ample of how to use these chan-nels to help explain financialconcepts such as tax and su-perannuation. (Heaps of handyadvice on tax and super).

2. Twitter is growing as aservicing tool for members toask questions and to receivedirect responses quickly and

easily rather than waiting on-hold or sifting through gener-ic website FAQs.

3. Facebook is the primarysite for involvement of the com-munity – outside of the coreproduct and service offeringsof most funds. With one in fourpeople on the planet having aFacebook account, we expectthis trend only to increase.

As the superannuation in-dustry begins to engage with so-cial media, it is facing the samechallenges that other industrieshave been tackling:

• What will we talk about? • How can we control the

message? • Where will social media fit

in our channel communicationstrategy?

• Who will run our program? • How do we make a return

on our investment? Although these questions are

critical, even more important is

the fact that, whether you likeit or not, people are already outthere in cyberspace talkingabout your brand and yourproducts and services. You canchoose to engage and becomea part of the conversation (anda number of funds are doingthis) or risk leaving it up tosomeone else to speak on yourbehalf.

Many funds have the goalof increasing the engagementof members high on theirstrategic plans. Social mediacan be one of the most effec-tive tools that you can use tohelp you achieve this goal. Ifyou are unsure about how toapproach the use of socialmedia, a good place to begin iswith this fundamental ques-tion: what do my memberswant to know?

Many people in Australia –your members – could be morefinancially savvy, and do not fully

understand how their superan-nuation fund works. Why notconsider using social media toeducate your members in sim-ple English on the basics? Build-ing your members’ financial lit-eracy will simultaneouslyincrease members’ engagementwith you and enhance their levelof trust in your products andservices. Once you are engagedin a genuine dialogue with yourmembers about the basics, youcan expand into other importantareas – options for improving re-tirement outcomes, or checkingthat levels of insurance coverageare appropriate.

This approach, accompaniedwith good levels of service, willengage you in the rewardingjourney of conversing in socialmedia.

Please consider the following‘do’s and don’ts’ as you look atyour own approach to socialmedia:

Social media has added a new dimension to member communications, as superannuation funds

increasingly embrace the digital age to sell their message. Deloitte’s SETH GODIN shows how to do it.

Making social media work


6 SOCIAL MEDIA www.superreview.com.au

www.superreview.com.au SOCIAL MEDIA 7


DO…1. Observe and listen: Are

people already talking aboutyour brand? What are they say-ing? If you cannot answer thesequestions, then take the timeto find out where your audienceis. If they are talking about youon Twitter, then start there, anddon’t worry for the momentabout a presence on Facebook.Start where the people are al-ready talking.

2. Be prepared to service yourbrand: Although you can setyourself up on social media veryquickly, consider how you willmanage the platform and yourbrand going forward. Do youhave content to keep your au-dience engaged? Do you havepeople available to help you? Arethey trained in ensuring thatyour tone of voice and style stayon brand? What if there is neg-ative press and people using so-cial networks to vent dissatis-faction? How do you ensure thatyour marketing, communica-tions and legal teams are all en-gaged? Establish a plan as tohow you will handle these situ-ations. Build some key scenar-ios, both positive and negative,and consider your responses.

3. Look for peripheral content:If your brand is associated witha team, event or promotion thathas an existing community of fol-lowers, link the two together andgenerate content around them.Some good examples includeHOSTPLUS promoting the BigBash cricket, the MelbourneFood and Wine festival and theGold Coast Suns AFL team. Byengaging with content otherthan your core services you helpthe personality of your brandgrow, which will enable you toreach out to other online com-munities. Work to maintain ahappy balance between yourcore and non-core identities, buttry not to lose the focus on yourcore message.

4. Integrate your channels:Use social networks to drive traf-fic to your website for furtherengagement. Posting the ques-tions that everyone is thinkingabout, like “Will I have enoughto retire with?”, “How long willmy super last?”, and “Did youknow 50 per cent of the popu-lation is expected to live beyondtheir super balance?” can trig-ger interest and drive trafficto calculators and articles onyour site. Posting questions thatbring members to your site cre-ates an opportunity to offer

more specific information, ini-tiate a follow-up contact, orprovide additional products orservices.

5. Amplify your message: Pro-ducing content may not bene-fit your brand without an au-dience interested in consumingthe information. Tell peoplewhere you are active in socialmedia, and provide logos onyour website that link throughto your respective network pres-ences. Once you start to build afollowing, encourage your au-dience to share your message,

as doing so will unlock thepower and reach of socialmedia. You can reach more thanthree million people with justthree ‘likes’ of your message onFacebook, if each of the peopleclicking ‘like’ has 150 friends,and if each of those friendsclicks ‘like’ too.

DON'T...1. Be an ostrich: Social media

users are PR-savvy. They will im-mediately spot organisationsthat try to massage their profileby removing or ignoring badcommentary. Front up to nega-tive comments and engage in aconversation with their authorsto have your point of viewheard. Not entering the con-versation is generally perceivedas running away from the issueentirely, and may even be seenas an admission of guilt, cre-ating a much larger problem inthe long run.

2. Don’t be random: Estab-lish the amount of effort youwant to spend producing con-tent and engaging with your so-cial networks. Don’t start witha rush of enthusiasm and thendwindle off as other prioritiestake centre stage. Social mediais about now – remaining cur-rent. Try to set a pace andmaintain it.

3. Don’t think in today’s mind-set: Increasing life expectancy,changes in asset allocation, andbaby boomers / Generation Xersheading towards retirement withmore importance on capital pro-tection and income are all fac-tors that are changing the waythe superannuation industry op-erates. Meanwhile, 90 per centof all online Australians alreadyaccess social media and spend20 per cent of their time onlineon social media sites. Fundsneed to anticipate the future andthe changing needs of members,and they need to start providingeducation through social media

to empower members with theright knowledge to protect them-selves in their retirement.

4. Don’t comment and thinkthe job is done: Posting andconversing are only part of thestory. It is smart business todraw on the measurementtools available to help you trackthe performance of your con-tent and optimise your efforts.Set yourself targets, objectivesand KPIs, and then make useof technology to monitor howyou are being received. Are youbeing re-published? Are mem-ber satisfaction ratings im-proving? Are you buildingawareness of your brands? Isthere an increase in your mem-berships? Use the monitoringtools to iterate and optimiseyour approach.

5. Don’t ignore the cost of in-action with social media: Nomatter how much you believe –or hope – that social media isjust a ‘fad’, most analysts believethat social media will not goaway, that it represents a sig-nificant development in the in-ternet and how people can andwant to use it. People expect or-ganisations to have a presenceon social media. Those whichdon’t may lose ground as theirmembers make choices abouttheir superannuation. The lostopportunities of viral referrals,brand perception, and beingconsidered a progressive or-ganisation can have a direct ef-fect on the bottom line.

6. Don’t be inconsistent: Don’tpretend to be what you are not.Social networks are another keychannel for your mix of brandand communication, so ensurethat they are aligned and man-age them accordingly.

“Social networking that mat-ters is helping people achievetheir goals. Do it reliably and re-peatedly so that over time peo-ple have an interest in help-ing you achieve your goals.” SR

13 millionFacebook

YouTube11 million

Blogspot3.8 million

LinkedIn2 million

Twitter1.8 million

Wordpress.com1.6 million

Statistics show that Australians are visiting social networksites in massive numbers: (visits to the site per month)

Awarded by default

The Productivity Com-mission will spendmuch of this year re-

viewing the controversial issueof default funds under modernawards, but the terms of ref-erence laid down by the Gov-ernment are such that it willnot necessarily touch on a veryimportant point – the rele-vance of the industrial judi-ciary to superannuation.

Notwithstanding the factthe Productivity Commissionwill examine key elementssuch as “the design criteria forthe selection and ongoing as-sessment of superannuationfunds eligible as default fundsin modern awards by FairWork Australia”, the level offees incurred and the scaleof funds, it will not examinethe underlying relevance ofthe Government's legislation.

By introducing the legisla-

tion underpinning defaultfunds under modern awards,the Labor Government effec-tively turned back the clock tothe early days of the Prices andIncomes Accord between theHawke/Keating Labor Gov-ernment and the ACTU andbefore the superannuationguarantee – the period ofaward superannuation.

Virtually ignoring the real-ity that the superannuationguarantee had significantly di-luted the influence of partic-ular trade unions on the se-lection of superannuationfunds, the Government’s leg-islation saw Fair Work Aus-tralia selecting menus of de-fault funds based on anindustrial relations regimewhich had predated the elec-tion of the Howard Govern-ment in 1998.

The problem with the currentProductivity Commission reviewof default funds under modernawards is that, at the end of theprocess, its terms of referencewill have dictated that it hasdone little to break the nexusbetween superannuation andan industrial relations regime,which had more relevance inthe early 1990s.

Under the terms of refer-ence delivered by the Govern-ment, the Productivity Com-mission has eight months todeliver its findings – meaningthat it is likely to present itsfinal set of recommendationsto the relevant minister inaround September. Allowingthe usual time for the Gov-ernment to consider those rec-ommendations, it is unlikelythey would be reflected in pol-icy any time much before themiddle of 2013, by which timemost attention would be di-rected towards the next Fed-eral Election.

In circumstances where theGovernment promised the Pro-ductivity Commission reviewof the default funds at the2010 Federal Election, thetimetable and terms of refer-ence announced by AssistantTreasurer, Mark Arbib, in mid-January could be interpretedas adding a measure of cred-ibility to Opposition claimsthat the Government has beenacting to protect its union andindustry fund constituents.

However, such claims over-look the fact that while manyretail superannuation fundsclaimed to have been disad-

vantaged by the current de-fault funds arrangements, sotoo did a number of industryfunds. A little-recognised factis that reference to historicalaward respondents failed toaccommodate the evolutionof industries and the conse-quent and legitimate entry ofother funds.

What is true of the currentarrangements around defaultfunds under modern awards,however, is that they haveserved to advantage those in-dustry funds with the strongesthistorical union/industry linksand to diminish the level ofchoice available to both em-ployers and employees work-ing under particular awardswithin particular industries.

Moreover, it is arguable thatin an environment in whichcompanies such as ColonialFirst State, AMP and BT havebrought increasingly compet-itive offerings to market, thelack of choice within the de-fault fund regime has servedto disadvantage employees inparticular sectors.

Then too, there is the ques-tion of the Government pro-ceeding to implement itsStronger Super and Future ofFinancial Advice (FOFA)changes without at the sametime addressing the defaultfunds anomaly.

No-one disputes that thedefault fund arrangementswill impact key elements ofStronger Super (includingthe workings of MySuper),

and there are suggestionsthat this, in turn, has impli-cations for FOFA.

Certainly, if the Govern-ment had delivered on its2010 election promise earli-er in its current term, thenit might have been able toensure inclusion of the Productivity Commission'sfindings in the legislationsoon to be considered by theParliament.

By almost any measure, de-fault funds under modernawards represent a glaringloose end in the context ofbroader financial servicespolicy, and one which is high-ly unlikely to be fixed in thelife of the current Parliament.

If, as the Government's crit-ics suggest, its slow approachto addressing default fundshas been owed to protectingthe interests of its union andindustry funds constituents,the ploy may backfire if thereis a change of government atthe next Federal Election.

The Coalition has made itsviews clear on the existingdefault funds regime, withthe result that any changesit implements will, at thevery least, see a return to the regime which existed before 2008.

In the meantime, havingjust finished their submis-sions on FOFA and StrongerSuper, the financial servicescommunity can begin prepar-ing their submissions for theProductivity Commission.

The Government has finally referred default funds under

modern awards to the Productivity Commission, but as

Mike Taylor reports, the outcome is unlikely to matter in

the life of the current Parliament.

Mike Taylor


8 EDITORIAL www.superreview.com.au

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The Federal Opposition seemslikely to find plenty of supportin the superannuation industryfor its push to impose tougherrules around multiple super-annuation fund directorships.

The MetLife/Super ReviewSuper Outlook survey con-ducted during the Associationof Superannuation Funds ofAustralia national conferencein November revealed sub-stantial support for imposingrestrictions on multiple trusteedirectorships.

According to the survey, 67.5per cent of respondents be-lieved stronger rules were nec-essary, although nearly 60 percent believed their fund wouldnot be affected by such a move.

The Federal Opposition hasraised the issue of multipletrustee directorships in thecontext of a number of majorindustry superannuation fundsin circumstances where somewell-known former trade unionofficials sit on the boards of anumber of funds.

The Opposition spokesmanon Financial Services, SenatorMathias Cormann, has said hebelieves multiple directorshipscan give rise to serious conflictsof interest.

Particular concern has beenexpressed around conflictswhere major fund amalgama-tions occur.

The Federal Opposition hassuggested that superannuationfunds should be subject to thesame levels of corporate gov-ernance as publicly-listed com-panies.


10 METLIFE/SUPER REVIEW SURVEY www.superreview.com.au

Superannuation fundsshould be subject to an-nual liquidity stress

testing, with the results beingmade public, according to thelatest MetLife/Super ReviewSuper Outlook survey.

The survey, conducted dur-ing late November's Associ-ation of SuperannuationFunds of Australia conferencein Brisbane, revealed strongsupport for the annual stresstesting.

Further, the survey indi-cated significant support forthe results of that stress test-ing being made public.

The survey questions weregenerated by reports about

the number of superannua-tion funds which had soughtregulatory relief from theAustralian Prudential Regu-lation Authority (APRA)based on liquidity issues atthe height of the global fi-nancial crisis.

While the regulator hasconfirmed the number offunds which sought relief dur-ing that period, it has alwaysdeclined to name those funds.

The MetLife/Super Reviewsurvey revealed overwhelm-ing support for the yearlystress testing of funds, with89.1 per cent of respondentsagreeing with the concept.

Asked whether APRA

should make public thosefunds which failed such astress test, 64.8 per cent of re-spondents said this should bethe case.

The survey results are con-sistent with the outcome ofsurveys conducted by a rangeof groups, including the In-stitute of Actuaries last year.

APRA defines an illiquid in-vestment as an investmentthat cannot be converted tocash within 30 days or where

conversion to cash within thatperiod, by itself, would havea significant adverse impacton its realisable value.

According to research re-leased to the industry lastyear on liquidity risk man-agement, only six per cent oftrustees undertake formal liq-uidity stress testing, and only14 per cent of trustees ac-tively monitor liquidity for theinvestment choices offered tomembers.

The latest MetLife/Super Review

survey has revealed substantial

support for tighter controls around

multiple-trustee directorships and the

liquidity stress testing of

superannuation funds.

Stressing testsRules ofmultiplicity

The Federal Government has signalled it wants to imposestronger rules around multiple directorships in superannuationfund boards. Do you believe this is necessary?

Do you believe there should be fewer but largersuperannuation funds in Australia?

Would your fund be affected by a ban on multiple trusteedirectorships?

SuperStream remains themost popular element ofthe Government's StrongerSuper initiative, with theindustry remaining lessthan convinced about My-Super.

That is the bottom line ofthe latest MetLife/SuperReview Super Outlook sur-vey, which indicated broadsupport for the benefits ofSuperStream, but less en-thusiasm for MySuper.

Asked to rank theStronger Super measuresaccording to the benefitsthey will deliver, more than80 per cent of respondentsfelt positive about the im-provements likely to be de-livered by SuperStream.

Indeed, 50 per cent of re-spondents ranked it as theforemost benefit to flowfrom the Government'schanges.

This compared to MySu-per, with only 33.7 per centof respondents listing it asthe foremost benefit.

Significantly, respon-dents were even less posi-tive about the regulatorychanges flowing from theStronger Super changes,with only 17.5 per centranking increased regula-tion as likely to have a ben-eficial impact.

www.superreview.com.au METLIFE/SUPER REVIEW SURVEY 11


Superannuation fund merg-ers and consolidations re-main broadly unpopular inthe superannuation industry.

The latest MetLife/SuperReview Super Outlook surveyhas revealed a significantmajority of respondents don'tbelieve there should be fewerbut larger superannuationfunds.

The survey revealed 60.8per cent of respondents wereopposed to there being fewerfunds in the industry – some-thing which defies govern-ment and industry expecta-tions of further consolidationin the sector.

Survey respondents alsoremained opposed to month-ly ratings of superannuation

funds, agreeing such arrange-ments undermined percep-tions of superannuation asa long-term investment.

The survey revealed thatnearly 70 per cent of respondents believed month-ly ratings served to under-mine the necessary long-term nature of investment inthe sector.

Fund diversity foremostSuperStream stronger

Do you believe superannuation funds should be required to undergoannual stress testing to ensure they have adequate liquidity?

The government’s Stronger Super package has been delivered. Which of the majorinitiatives do you believe will have the most beneficial impact?

Best life insurance provider?


12 INSURANCE www.superreview.com.au

As the Australian super-annuation industry em-barks on the year

ahead, the one certaintyseems to be change. Ofcourse, that change isn’t re-stricted to super funds alone.

From MySuper to Super-Stream to the Future of Fi-nancial Advice (FOFA), theenvironment super indus-try service providers operatein is shifting, and accordingto chief executive officer ofGroup Life for TAL LimitedAndrew Boldeman, insur-ance provision is an integralpart of that shift.

“We're already seeing someof the MySuper changes flow-ing through at the momentand seeing people thinkthrough how MySuper im-pacts their insurancearrangements, particularlyfor default MySuper mem-bers,” he said. “So I thinkwhat these changes havedone is enshrine an expec-tation that trustees have toconsider the appropriate lev-els of insurance for thosemembers who haven't nec-essarily selected a choice.

“Now most trustees wouldsay that they did that before,but I think that the way it’sbeen written into the legis-lation, the guidance and soon, many trustees are takingthe opportunity to think itthrough and make sure thatthere are appropriate default

levels of insurance in place,”Boldeman continued. “So asthey split out their MySu-per product, most are simplyreviewing their insurance atthe same time.”

According Frank Crapis,head of industry funds forCommInsure, the currentraft of Government reformhas turned super fundtrustees’ focus to providingmore comprehensive insur-ance benefit packages totheir members.

“And there will be funda-mental changes required [forthat], especially in regard toproduct definitions,” he said.“Trustees may be restrictedto the types of benefits theycan provide within the superenvironment, as it is likelythat any benefit within superwill need to meet a condition

of release under the Super-annuation Industry (Super-vision) Act (SIS).

“Thus, some employers arenow looking to provide extrabenefits outside the superenvironment as part of agroup insurance policy.”

Alternatively, Marc Lieber-man, chief executive officerfor MetLife in Australia, saidthat the industry’s proposedlegislative change also raiseda number of concerns for in-surance providers.

“In my two years here inAustralia, what I’ve seen inthe group insurance marketis a highly competitive mar-ket, which can be good interms of ensuring value forthe customer,” he said. “ButI think that there’s a lot moreroom for growth and oppor-tunity around education ofthe customer, and makingsure customers have appro-priate levels of cover.

“So with all the regulationand change that’s coming in,that’s probably my biggestconcern,” Lieberman con-tinued. “It’s this question ofwhether the changes comingthrough are going to createa situation where the levelsof insurance go down, eitherthrough auto-consolidationor other changes aroundFOFA, and we end up havinga really exacerbated under-insurance problem.

“That’s something we need

to take great pains to avoid.”Indeed, the problem

Lieberman alludes to is onethat has already been raisedby a number of insurers.After all, the consolidation ofsuperannuants’ inactive ac-counts is an entirely appro-priate objective but, if itcomes at the expense of theinsurance held within thoseaccounts, are fund membersreally better off?

For Boldeman, the chal-

lenge is out there for the in-dustry to find a solutionthat achieves the Govern-ment’s objectives but thatalso don't cause unintend-ed consequences.

“So what the insurance andsuper fund industries are re-ally looking at is what are theways of achieving both objec-tives,” he said. “And one pro-posal that’s been put forwardis to ask whether there's a wayof consolidating insurance at

As the Government implements its Stronger Super policy

and in particular MySuper, trustees are reviewing their

insurance offerings. As Damon Taylor reports, the impact

is already being felt among the major insurers.

When the only certainty

“It’s this questionof whether the

changes comingthrough are going

to create asituation where thelevels of insurance

go down.” - Marc Lieberman

www.superreview.com.au INSURANCE 13


the same time.“So if someone has con-

solidated their accounts andthey've got $100,000 worth ofcover in both funds, wellmaybe they can consolidateand have $200,000 in thefund that they've consoli-dated to,” Boldeman contin-ued. “And I've seen a numberof different variants of thatproposal in place and there'smerit in those.

“There are still challenges

though; you've got transitionrisks, and ‘what happens ifI lose the better insuranceproduct in the one fund?’ Or‘if the fund that I'm consol-idating into doesn't have asgood an insurance product,do I miss out?’”

Crapis suggested that analternative solution would beto notify a member of the po-tential loss of insurance ben-efits prior to any consolida-tion occurring.

“We agree that it can be in-efficient for members to havemultiple funds and becharged multiple fees,” hesaid. “In some circum-stances, however, there maybe valid reasons for a mem-ber to hold multiple super-annuation accounts, insur-ance benefits being one.

“Further, if a member’shealth, age or occupation haschanged significantly be-tween leaving one fund and

joining another, they mayfind it difficult either gettingthe same level of cover orhaving the same low premi-ums that they enjoyed intheir original fund,” Crapisadded. “So the balance hereis to ensure that the client isaware of the fact that theyhold multiple superannua-tion accounts so that theycan make an informed andeducated decision.”

Echoing Crapis’ com-

ments, Lieberman agreedthat education was the key.

“So if you’ve got an auto-consolidation going on,you’ve got to make sure thatthe individual understandswhat they’re giving up in thatauto-consolidation,” he said.“If they had three differentsuper accounts, $1,000 inone, $500 in another and$20,000 in another and theyauto-consolidated into thelarger one, make sure in thatauto-consolidation that theyunderstand the benefits thatare associated with each.

“They have to have the op-portunity to keep the insur-ance benefits that may be as-sociated with the fundsthey’re being consolidatedout of,” Lieberman contin-ued. “Just don’t do it blind-ly because, unfortunately,most people don’t look attheir super account everyday, they don’t really payclose enough attention towhat benefits may be aroundit, and you don’t want thatauto-consolidation meaningcoverage is lost.

“You particularly don’twant the first time someonefinds out that that’s the casebeing when they have tomake a claim.”

Yet while underinsuranceis a constant topic of dis-cussion for the insurance in-dustry, recent data releasedby Plan for Life would seemto indicate that inflows intothe group risk market are in-creasing.

So are we to assume thatAustralia’s underinsurancegap is increasing? Or is theinsurance market itself sim-ply getting bigger?

Continued on page 14

is change


14 INSURANCE www.superreview.com.au

The answer, according toLieberman, is that it’s both.

“I think it is an indicationthat the market is growingand an indication that su-perannuation funds arerecognising that insuranceplays a significant value-addto their customers,” he said.“They know that they’ve gotto make sure they have acompetitive offering when itcomes to insurance where,for some, I think insurancewas a bit of an afterthought.

“They knew they had tohave it but it was at mini-mum levels,” added Lieber-man. “Now, however, they’rerealising that the cost of get-ting proper insurance cover-age is relatively small in thegrand scheme of things.

“There’s an awareness nowthat if they spend a littletime and a little bit of money,they can make sure thattheir members are well pro-tected.”

With regard to underin-surance specifically, Bolde-man said that both the in-surance and super industrieshad made good inroads interms of the level of insur-ance most Australians have.

“Going back five years ago,it was a much more signifi-cant underinsurance gapthan it is today,” he said. “Butthere's still a lot of researchout there that suggests thatwhile we've made good in-roads, there's still a fair wayto go, particularly on the dis-ability side.

“The majority of Aus-tralians are chronically un-derinsured in the event ofdisability,” Boldeman con-tinued. “Income replacement

benefits have a very low pen-etration rate and if people dobecome disabled, in manycases they've got access toa very small sum that's re-ally only going to get them byfor a year, two years at most,from a salary replacementperspective.”

“As with so many of thesethings, I think there’s beengood progress but there’s stilla long way to go.”

On the other hand, Lieber-man said that measures ofunderinsurance tended todepend on which report youwere looking at.

“Clearly, premiums seemto be going up on the groupside and that’s a good sign,”he said. “But if you ask mostconsumers about whether ornot they have insurance orneed insurance, I thinkthere’s still a big gap in termsof the understanding of whatinsurance is designed to doand how much is the appro-priate coverage.

“So I would say that westill have an issue out there,”Lieberman continued. “I’dlike to think it is getting bet-ter, but I’d say that theamount of benefit or increaseis probably still pretty min-imal at this point.

“The industry still has a lotto do in terms of educationand really getting people tounderstand how much theyneed and why they need it.”

However, if underinsuranceis the problem and educationan integral part of the solu-tion, the onus is still on superfund executives to ensurethey have appropriate cov-erage in place, regardless.

To that end, their insur-ance focus seems to waverbetween having as much

cover as possible for as littleas possible on the one hand,or having as many options,cover types and enhance-ments as possible on theother. Yet for Boldeman, thetwo are not necessarily mu-tually exclusive.

“In fact, I think we're prob-ably trying to do both,” he said.“It’s about trying to give goodvalue coverage to everybodybut still enabling people witha series of choices.

“And really everybodyshould be looking at their in-surance and making their owndecision; it’s just unfortunatethat most people don't.”

Alternatively, Crapis point-ed out that based on the pro-posed Stronger Super re-

forms, insurance coverageprovided through superan-nuation was likely to be re-stricted to those benefitsthat meet a SIS Act condi-tion of release.

“So that’s likely to resultin more homogenous benefitsand features for the insurancecoverage provided by funds,”he said. “As a result, funds willneed to differentiate them-selves based on premiums,sums insured and auto ac-ceptance limits (AALs).

“But service, administra-tive support and claims man-agement are also featureswhich insurance providersand funds can use to differ-entiate themselves.”

In admitting that superfunds would inevitably focuson price, Lieberman saidthat he would warn themstrongly against commodi-tising insurance.

“So we don’t play the pricegame and we don’t try tomaximise coverage for min-imal cost,” he said. “We real-ly look at what’s appropriatefor the member and for thesuper fund partner that we’redealing with and try to comeup with a custom solution.

“To me, there’s been toomuch focus on commoditisedpricing and I think it’s goingto come back and bite someof the super funds as wellas the industry,” Liebermanadded. “It has to be aboutvalue, it has to be about cus-tomer service, how you’redoing things for the cus-tomers, so that when itcomes time for claims, you’reeasier to do business with,they get their claimsprocessed quickly, they haveaccess to information so thatthey know what kind of cov-erage they have and can getquestions answered easily.”

“It’s about service, it’sabout value, it’s not justabout trying to turn this intoa commodity so that you getmaximum coverage for thecheapest price, because veryoften when you go out forjust price, you get what youpay for.”

So with that thought inmind and looking to theyear ahead, Lieberman saidthat MetLife’s focus wouldbe education.

“Educating the super fundpartners that we have, ed-ucating the prospects thatwe’re working with and re-ally educating them on mak-

Continued from page 13

“The industry stillhas a lot to do in

terms of educationand really getting

people tounderstand.”

- Marc Lieberman

Andrew Boldeman

When the only certainty is change

www.superreview.com.au INSURANCE 15


ing the right decisions fortheir members,” he said. “Wewant them to stop focusingon price, start focusing onvalue and look at long-termvalue proposition for theirmembers.

“You don’t want to con-stantly switch because you’relooking for the next cheapprice,” Lieberman continued.“You want to give your cus-tomers long-term value, long-term security with a com-

pany that will be there.“After all, you’re talking

promises that are made overthe next 40 or 50 years, interms of when the payoutcomes, and you want to besure you’re dealing with theright company over that time.”

On the super funds side,Boldeman suggested that en-suring there was an interplaybetween advice and insur-ance would be vital.

“I think the big thing from

the funds' perspective is re-ally just continuing to updatetheir product and respond tothe regulatory change thatwe've seen,” he said. “So it’sreally around MySuper andthe various scalable advicecomponents and just think-ing through their advicemodel and how it interfaces.

“From an insurance per-spective, we're just continu-ing to expand our service andpartnering model,” Bolde-

man continued. “So the lasttwo or three years we've re-ally spent a lot of time fo-cusing on our claims processand trying to have a consis-tency of process and service.”

And Boldeman said thatthe proof of success would bethat insurance claimantswere also the funds’, andtherefore the insurers’, bestadvocates.

“So for people who've need-ed to use their benefit at some

point, hopefully the processhas been quick and easy forthem so that they're also ad-vocates for the industry andthe benefits of these prod-ucts,” he said. “And, to do that,we have to continue to en-hance our claims process.

“If we’re differentiated andknown in the industry as theinsurer whose claims processis the easiest to weave yourway through, then we’vedone our job well.” SR

SuperReview

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www.superreview.com.au SUPER REFORMS 17


When it comes to super-annuation legislationand policy, 2011 was a

year characterised by consul-tation, and its fair share of ro-bust discussion. The reformsimplicit in Stronger Super, inFuture of Financial Advice(FOFA), even in MySuperhave become that much clear-er, and more importantly,their implementation is nowthat much closer.

But while Russell Mason,Partner – Superannuation forDeloitte, believes the vast ma-jority of super funds are keento make preparations andmove into implementationmode, the key ingredient miss-ing remains draft legislation.

“We spent last year hypoth-esising on what these changeswould look like and what theirimpact would be, but fortrustees and fund executives,what we really want is the leg-islation, or at least the draftlegislation, so that we can ex-actly see what, for instance,the MySuper rules are goingto look like,” he said. “We’reall sitting there now sayingthat we know we have to dothings, we’ve got a bit of anidea and we can start to im-plement some of the changes– but again, I want to see thelegislation.

“If I’m a trustee or a fund

executive, I want to see whatoptions I might have with theMySuper product,” Masoncontinued. “I want to knowwhat degree of reporting I’llhave to do, what changes I’llhave to make to my existingoptions, whether my existingdefault option for instanceis adequate or not, is a lifecy-cle-type option going to bepreferable?

“These are all questionsthat need answering, but mostof them won’t be until thatdraft legislation becomesavailable.”

Echoing many of Mason’scomments, John Quessy,Trustee for industry fund NGSSuper, pointed out not onlythe number of questions thatremained unanswered, butalso that time frame was anincreasing concern.

“Now having said that,you’ve got to allow time forconsultation and that [is] ab-solutely essential,” he said.“And I know that there havebeen a fair number of changesas a result of that consultationwhich, again, is good.

“But there’s no doubt thatwe’re getting to the sharp endof this,” Quessy added. “Goingfrom the top, I think with theSuperStream stuff, that’s allfine and there was less con-tention around that.

“I think that was somethingthat pretty well everybody,whether administrators, fundmanagers or funds themselves,everyone put their hand up andsaid ‘this is sensible, let’s goahead with this’,” he said.

Continuing down the list,Quessy said it was obviousthat a number of people werestill keen to make commenton the FOFA reforms.

“I read something the otherday that said that the big or-ganisations and the very smallboutique organisations willsurvive, but everything in themiddle will get swallowed up,”he said. “I’m not convincedthat that’s right, but as withall of these reforms, we’ll justhave to wait and see.

“In terms of MySuper, thereare still a few unansweredquestions there,” Quessy con-tinued. “But I think we’re goingto have to wait for APRA (theAustralian Prudential Regu-lation Authority) to produce

their range of test scenarios sothat individual funds can havea look at them, determine theones that are similar to them,and ensure that they’re com-plying well before time.

“Personally, I’ve still gotdoubts about whether MySu-per is going to achieve any-thing like what it’s supposedto achieve, but again, we’regoing to have to wait and see,”he said.

Pauline Vamos, Chief Ex-ecutive of the Association ofSuperannuation Funds Aus-tralia (ASFA), said that shetoo was concerned about rap-idly approaching implemen-tation timetables and the dif-ficulty they would cause.

“It is going to make thingsa lot more difficult,” she said.“But we all know the conceptsare there, and we all know thepolicy outcomes.

“The unknowns are morearound the system builds andthe process builds, but as

often happens with legisla-tion, I think you’ve got tomake your calls now and thentweak things later,” Vamoscontinued. “Despite the unan-swered questions that are stillout there, I wouldn’t wait forfinal legislation, because ifyou do, you will almost cer-tainly run out of time.

“There is, after all, no guar-antee that there will be any ex-tensions on timing,” she said.

Of course, most funds al-ready have the preparationsVamos is suggesting well un-derway. However, the concernthat remains for much of theindustry is whether MySuper –as a piece of legislation – in-tended to simplify default su-perannuation arrangements,will actually end up being morecomplex than the current sta-tus quo.

According to Quessy, com-plex or not, there could be any

The superannuation industry

recognises that 2012 will be a year

of change generated by Stronger

Super, but as DAMON TAYLOR

reports, their real concern is

around cost and time frames.

Getting the balance of change right in 2012


number of problems with My-Super if it focuses on thewrong aspects of superannu-ation to achieve its goals.

“Whether it’s going to beoverly complex or not, we’llhave to wait and see,” he said.“But I could never see thatit was going to be simple.

“It potentially was going todumb things down – but forme, we were always lookingat a default superannuationproduct which I’d describe as‘set and forget’,” Quessy con-tinued. “It’s a no frills prod-uct that will provide basiceverything and look to min-imise fees.

“Problem is, everyone in theindustry knows that minimis-ing fees means a serious po-tential for minimising returns.”

For Quessy, the industry’snew focus on management ex-pense ratios (MERs) couldeasily be a disaster waiting tohappen.

“You can get into all sorts ofoverlays that are fairly ex-pensive, but they don’t showup in your MER,” he said. “Sois this simply going to be a waynow of people trying to findsome way to get a return ontheir members’ money, evenif it’s an expensive exercise,just so long as it doesn’t showup in your MER?

“If that’s what this ends upbeing, then I think we’ve gota serious problem,” Quessysaid.

Mason said that, complexi-ty aside, his larger concernwas that the industry was re-acting to perceived problemswith MySuper without havingdetailed knowledge of thefinal, or even draft, legislation.

“This industry seems to be

reacting to the Governmentand to the regulators – APRAin particular – with concernswithout knowing exactly whatwe’ve got those concernsabout,” he said. “So it may turnout that MySuper is a complexproduct, but it may also turnout that it still remains the rel-atively simple product that theCooper panel and the Gov-ernment intended.”

“In fact, I would expect thatfor many funds – industryfunds in particular – their cur-rent default option, with someminor tweaking, will probablyend up being their MySuperoption without too much con-cern,” Mason continued. “Ithink that most corporate, in-dustry and public sector funds,especially if they’re DC (de-fined contribution) funds asmost of them are, that wecould be tilting at windmills –that MySuper could be a rel-atively easy conversion.

“Yes, there’ll be work re-garding reporting, amend-ments to licenses and perhapslooking at the liquidity ofthose products and the coststructure, but I don’t believetoo many funds will have to doa major re-haul or revisit oftheir current default option,”he said.

However, beyond the logis-tics of putting MySuper inplace, Quessy said that hisgreatest concern lay in whatits impact on member en-gagement would be.

“It’s partly because mybackground is teaching andwe’re an education fund, butwhat concerns me is thatwe’ve spent a lot of time, a fairbit of money, and a great dealof thought – as have a lot offunds – trying to get moremembers engaged,” he said.“And not just members on thecusp of retirement, but thosejust commencing their work-ing lives.

“Now we know we’re allfighting a bit of a losing bat-tle with regard to engagementof members (especially youngadults) in superannuation,but I think the whole conceptof MySuper is going to becomea set-and-forget,” Quessy con-tinued. “It’s going to, in fact,entrench disengagement.”

That’s my feeling, and Iknow it’s the feeling of some,but the Government saysthat’s not the case. Well, allwe can do is wait and see.”

Yet if the overarchingtheme behind what is cur-rently on the superannuationpolicy table is increasing in-formation and catering for alllevels of engagement, mostwithin the industry seem toagree that such objectives areappropriate.

And despite all the issuesand all the unknowns,Mason’s belief is that they areobjectives that can beachieved.

“I think they can beachieved,” he said. “If you lookat most trustees and fund ex-ecutives, if you look at what’stop of their list of what they

want to do, I believe it’s un-derstanding their membersand engaging those members.

“So if I was the trustee ofa large super fund, I wouldwant to say ‘do I understandmy members, what informa-tion do I need, what can I doto better understand whothese members are, what’s theprofile of the membership,what’s their ability to payextra contributions, what dothey really want out of groupinsurance?” Mason listed. “Be-cause if you can answer thosequestions, then hopefully bet-ter engaging them will comeas a matter of course.”

For Vamos, though a mod-ernised superannuation frame-work is indeed possible out ofthese legislative changes, theindustry will still need to con-template a number of signifi-cant gaps.

“For us, the biggest disap-pointment is that MySuperdoesn’t allow a pension to bepaid out of it,” she said. “Andalso, that we don’t have cap-ital gains tax relief.

“So from our perspective,there are some significantpieces that are missing, andunless the industry is able toinvest ‘whole-of-life’, unlessthe assessment of the indus-try’s performance is long-term, we’re not going to getthe fundamental changes thatwe still require.

“My concern is that there’sso much focus on implemen-tation, and a lot of the detailof the legislation that trusteesaren’t going to have enoughtime to look at their invest-ment environment,” Vamoscontinued. “And this is thetime that they really have todo that.

“This is a very difficult time

for the industry becausetrustees and fund executivesare already stretched, but un-fortunately, that’s only goingto increase,” she said.

Yet the gaps mentioned byVamos, or more particularly,the prospect of legislativechange and reform beyondwhat the industry currentlyhas before, it is not necessar-ily a pleasant one. Many with-in the industry – members in-cluded – have found variousGovernments’ constant ‘su-perannuation tinkering’ asource of frustration for anumber of years, but accord-ing to Quessy, constant changeis a trend likely to continue.

“It would be nice if therecould be a moratorium onBudget night announcementsabout changes to superannu-ation,” he said. “I think thereare two issues where changeshould still happen, and theygo to the issue of adequacy.”

So certainly, we want to seethe 12 per cent SG (superan-nuation guarantee), and cer-tainly, we want to see capaci-ty for people to make voluntarycontributions and the like,”Quessy continued. “And maybethe only other change that Ithink would be favourably en-tertained is a relaxing of thecontribution caps.

“Other than that, and un-less the current changes area complete disaster, I thinkwe should leave it alone forfive years and see what hap-pens. The politicians won’t dothat, of course, but it wouldbe very nice if they did.”

However, Vamos’ counter-argument to industry pundits’criticism of constant changeis that without change and




18 SUPER REFORMS www.superreview.com.au


Pauline Vamos

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improvement, the industrycan hardly be expected pro-vide Australians with the bestretirement savings systempossible.

“As I said before, there arestill gaps, and because of theextent of this legislative re-form, we’re going to have to re-view it as well,” she said. “Ithink we have to understandthat because this system isabout peoples’ retirement, andthe environment of retirementconstantly changes.

“There will always bechange, and I think peoplejust have to get over it,” Vamossaid.

For Vamos, the simple factis that it is vitally importantthat the superannuation isable to ensure that Aus-tralians get the most out oftheir retirement.

“It must be fair, and it mustbe about driving adequacy,”she said. “But how you deliv-er that will necessarilychange, and the social and theeconomic policy levers willchange along with it.

“The key, however, is thatpolicy should be looking sub-stantially forward,” Vamosadded. “What is not sustainable,is tinkering every year with nolead time and with no realthinking behind the policy.

“That is untenable.”Moving beyond what the

Government and Australia’ssuper industry currently hason its policy plate, it seemsthe next area of focus is post-retirement. But while thereare various takes on the issueand various proposed solu-tions, Vamos said that currentsocial security legislation hadto be the first port of call.

“The first problem we haveis that our social security leg-islation only really recognisesan annuity and an allocatedpension,” she said. “And yetbecause a deferred annuity istreated as income – eventhough you’re not getting thatincome – there’s a disincen-tive there as well.

“Basically, we want to en-courage people to take incomestreams, we want people tospend their superannuation,and we still want to makesure they have a good pensionnet,” Vamos continued. “Sothere’s a big conversation tobe had, because at the mo-ment, it’s a bit of a ‘one sizefits all’ approach.

“So we’ve got people whoare retiring on a small lumpsum, people who are retiringon a large lump sum, and peo-ple with large lump sumswant to take it as an incomestream, but they’re not gettingthe choice that they deserve,”she said.

For his part, Quessy saidthat funds had to have a se-rious look at the different of-ferings available in the post-retirement space and startconsidering what would bestmeet their members’ needs.

“But I think the one issuethat we have to focus on is aninvestment option for thedrawdown phase that inspiresconfidence rather than fear,”he said. “I hate to use the oldcapital stable-type language,but it’s about the sort of thingthat I think people are re-treating to.

“They’re starting to say ‘look,I’ve got my nest egg and I’ve gotto live off it for the next 30years, but I just don’t see howI can do that with so muchvolatility in investment mar-

kets’,” Quessy continued. “AndI think we’ve really got to pay alot of attention to that.

“But whoever gets it rightwill do extremely well in themarketplace,” he said.

According to Mason, thereare undoubtedly some veryclever products developedspecifically to handle post-re-tirement, but he also pointedout that they were, almostwithout exception, prohibi-tively expensive.

“My personal point of view isthat we can’t develop a goodpost-retirement market untilwe have some sort of Govern-ment guarantee,” he said. “Andwhat I would like to see – andit happens in some countriesnow – is that if you agree toself-fund yourself to age 80, youwill get a pension equal to say

50 per cent of your averageweekly earnings.

“If you agree to postponethat to age 85, it will be 55or 60 per cent, and so on,”Mason continued. “So, as amember, I can know what I’vegot in my retirement savingsand I can now target a date,because no matter what hap-pens, you’ve got longevity riskaccounted for,” Mason said.

The reality, according toMason, is that no-one knows

whether they’re going to liveto 70 or 107, and so people willbe conservative for fear ofrunning out of money.

“And with the current testfor social security, they canrun out of money and still notbe sure of receiving a retire-ment of age pension,” he said.“Instead, by agreeing to post-pone any social security enti-tlements to a reasonably ad-vanced age, they can thenhave the certainty of knowingthat their savings were tar-geting a specific date.

“It’s about being able to re-tire and actually target a cer-tain age, knowing that there’sgoing to be a reasonable back-up should you run out ofmoney,” Mason said.

So with what is evidently afull policy and reform agenda

in 2012, it seems trustees andfund executives must turntheir minds to preparation.And though legislative un-knowns persist, Mason’s adviceis that funds focus on meet-ing these changes head-on.

“Engage with your serviceproviders, seek as much in-formation as possible, sched-ule strategy days and meet-ings, allow time in the agendaof your trustee meetings toaddress the changes,” he sug-gested. “We have committeesfor compliance, for market-ing, for investments, but per-haps funds need to look at leg-islative change or benefitchange in a similar way.

“What funds need is to beable to do is sift through all theinformation that’s out there andbe able to filter it through to theboard,” Mason continued. “Thatway, when changes need to bemade or new legislation isabout to be brought in, theboard has enough informationand is educated enough tomake good decisions,” he said.

Looking to the year ahead,Vamos said this would not bea year of ‘business as usual’.

“That is, if there ever was a‘business as usual’,” she said.“Black sun events are going tobe happening regularly, andhave been regularly happen-ing for quite some time.

“The world is shifting dra-matically, so funds need to beflexible and robust in theirimplementation and strategy,”Vamos added. “Priorities willchange on a weekly basis andfunds will have to be flexibleenough to deal with that.

“The challenge is for us allto be a lot more innovativein how we approach superan-nuation and the business thatit represents.” SR



20 SUPER REFORMS www.superreview.com.au


Russell Mason

“There will alwaysbe change, and Ithink people just

have to get over it.”- Pauline Vamos

www.superreview.com.au ROUNDTABLE 21


MT Okay I’m letting you knowthe tapes are running and I’mgoing to kick off with a questionwe kind of discussed a littlebit over the period before lunch– and that is how the Round-table views the next 12 monthsof the global economy: I guess,what are going to be the key fac-tors that are going to drive thedecisions from, say, 2012.

JM Well it’s Europe, Wash-ington and China as we dis-cussed. Europe is going throughthe midst of a reconfiguration,and we’re going to at this stage,here in November 2011, have towait a little bit longer to seewhat the denouement might be.Washington in 2012 of coursefeatures quadrennial electionswith significant differences inpolicy among the two major par-ties, which will set the coursefor the US domestic and foreignpolicy over the course of the bal-ance of the teens. And it’s prob-ably too early to prognosticate… whether China is headed for

some deceleration in terms ofeconomic growth.

MT Tom?

TH I would add to that: whatwe expect to see is a further di-vergence between Europe andthe rest of the world. We expectEurope to go through to reces-sion as Jack mentioned earlier,and that the rest of the worldwill slow down, and the growthrates won’t be as robust, withone third of the global economyin a recession – but that theywill remain positive. And there’s

a difference between the econ-omy’s performance and finan-cial market performance. Wedon’t think Europe is goingto come to a full resolution; infact you heard this morningfrom the head of the EuropeanCommission that it might takeup to two years for them tofully resolve the issues thatface the eurozone.

Now we’re going to gothrough these periodic boutsof volatility in the markets, andwhen there is high volatility,asset correlations increase. Soin financial markets, even asthe economies diverge in per-formance, you may see finan-cial market performance re-main high at times of volatility.And so we still think that youstill want to be where thegrowth is in the global econ-omy, but you’re going to stillsee periodic bouts of volatilityover the next year or so untilthe issues in Europe are fully

resolved. And then there’s someof these other issues that Jackmentioned that will continue tohang over to a lesser degree. Wethink the US budget is one, andalso the Chinese situation andconcerns about an overheatingof the economy.

SF Yeah, the hope is that Eu-rope doesn’t drag the rest of theworld down, and I think that is apossible outcome, that they justcontinue to battle with their is-sues but don’t create a globalslow-down. And I think we arestarting to see some level of de-coupling, if you think aboutwhat’s going on over there rightnow. But in the US, as you point-ed out, people are walkingaround optimistic. We’re show-ing pretty good GDP growth, andthat’s really what we’ve been talk-ing about: Can we finally estab-lish this decoupling of letting Eu-rope battle with their issues andjust kind of wittering away, while

the rest of the world gets alongwith their growth. So the USagain is demonstrating that we’rea generation of spenders and wecontinue to spend, and that’sdriving a reasonable althoughmodest GDP growth.

And then emerging markets.We came into 2011 worriedabout inflation, and that con-cern has really come down quitea bit. Now we’re seeing Brazilcut rates – granted they may bea little bit early and some peo-ple are questioning if they areearly – esia’s cut rates, Aus-tralia’s now cutting rates. So weare starting to see easing cy-cles across a lot of the rest ofthe world. And China I thinkclearly is getting to the pointthat they engineered somelevel of a slow-down and we’restarting to see signs of easingthere. So from that standpointI think the US and emerging

While Australia continues to weather

the uncertainty emanating from Europe

and North America, a Super Review

Roundtable conducted in New York has

revealed a more pragmatic assessment

of conditions entering 2012 and beyond.

Think globally: the 2012 outlook


Mike Taylor – Managing editor, SuperReviewJack Malvey – chief global marketsstrategist, BNY MellonSean Fitzgibbon – senior managingdirector, The Boston CompanyTom Higgins – global macrostrategist, StandishMark Enman – executive director,Man Investments

PRESENT

markets really could continueto be bright spots for 2012, whilewe continue to watch Europebattle with their issues.

ME I think just feeding offthat, we’re seeing a lot of op-portunity with our managers incommodities across the entirespectrum. If you take out pre-cious metals for a second and(talk about) something thattrades on a different set of dy-namics, we’re seeing a lot moreopportunity both in terms of dis-crete discretionary managersin commodities, as well as gen-eral macro guys playing every-thing from Ags to industrial met-als to the energy complex. Andwith, I guess, the headlines lastweek or the week before, withseven billion people in the world,it’s going to continue to be a veryinteresting, and a place wherewe see opportunity for not justthe next 12 months but for sometime to come.

EUROPE AND THE COMMONCURRENCY

MT Okay. Again one of thethings we discussed earlier wasEurope, and the manner inwhich Europe, in Australia atleast, seems to have investorsfixated, even though there’sno great linkage with Europe ina lot of ways. I’m just wonder-ing, and I’ll turn to Jack again:what is your take on Europe andwhether the common currencyis something that is ultimatelysustainable in the long term?

JM The common currency isand will be sustainable in thelong run. The question is thenumber of members in thegroup. And it would not be sur-prising to see some defectionsor exits over the course of thenext half-decade to decade, inorder to boost their competi-tiveness, particularly some ofthe southern European nationswho unfortunately have been

left behind. So specifically manynow expect Greece to possiblyexit at some juncture, and thereare those who think that Por-tugal possibly could be a can-didate for moving out of the eu-rozone. But that’s down theroad and we’ll have to wait andsee. So the currency is just stay-ing. In terms of the Europeandenouement, it seems as if it’sbeen a very difficult process,given so many political partiesand policymakers involved. Andit’s very difficult to really at thisjuncture say when and exact-ly how the denouement evolves.Hopefully it’s not two years assomeone was suggesting earli-er here, but I think it’s unfor-tunately going to continue todrag on over the course of thecoming months.

ME It’s a big roll of string andI don’t even know where to at-tack it. I guess if we go backto 2008 people could ask howthe problems at Lehman or theUS sub-prime problems couldaffect Australia. And clearlythere are ripple effects in thelarger macro space to verymicro effects, such as basis cap-ital blowing up in Australiabased on issues with tranchesof CBOs that they’ve bought. SoI think in Australia, or wher-ever you are in the world, youhave to keep an eye on it, it justwon’t go away right now. Andwith Berlusconi in the press andItalian yields hitting new highstoday, it’s one of these gifts thatare going to keep on giving.

SF I think the pain of leav-ing the euro in the near termis just so great that they will tryto patch together whatever theycan to keep all the membersintact. I agree with Jack that ul-timately in the long run the otherside of the pain is: how do yougive up your sovereignty andstart allowing the euro area, Ger-many, to dictate some of yourpolicies. And that’s where I think

that battle could come to – hav-ing someone like Greece leavethe euro. And again, in our view,it was just going to be Greece,and most of the others wouldtake their medicine and try tostay part of the euro region.

From a global perspectivethere certainly is the hit to con-fidence which I think thatwe’ve been watching for solong. I think the hit to confi-dence is getting a little bitmuted, that we’ve kind of seenthis several times or thesepanic waves several times, sothat the hit to investor confi-dence is not as great as it al-ways had been.

But the other piece is, justfrom an economic impact view-point, that the emerging mar-kets are export-oriented, and ifthe euro area slows, what typeof impact does that have. I takesome comfort in the fact thatthe euro area never recovered,that they never had a capexboom; they never had a housingboom coming off the crisis. Thata lot of the economy is kind ofrunning at replacement levelanyway. That yes, they will havea weak economy, but I don’t seethem having such a severe re-cession that it really drags downthe rest of the global economy.So from that standpoint I dothink that euro just becomesthis kind of headline that wehave to deal with every oncein a while, and it does havesome impact on consumer con-fidence and investor confi-dence. But I think those effects

will become muted over thenext few years.

TH I would just second someof the comments. Regarding theeuro surviving, I think it’s toopainful to undo what’s beendone. And although it’s difficultto see at the current time, evencountries like Germany havebenefited from the euro. So wedon’t think that we’ll see a break-up, although as Jack said, ifGreece were to leave, which wedon’t think is in the Greeks’ in-terest to do, but if they were toleave, it wouldn’t surprise us. Buta break-up of the euro, whichwould probably mean not only a

European recession but the riskof a global recession, given theundoing of the common cur-rency and the contracts – noteven just currency contracts butall the different financial mar-kets that are tied into that, theEuropean bond market – couldcause a huge global financial cri-sis. And we think it’s very un-likely because it’s in everybody’sinterest to avoid that happening.

In terms of adopting a solu-tion – although it’s going to takethem time adopting a solutionthat will actually draw the eu-rozone closer together and it’spartly because of what Seantalked about – you have to havemoved towards fiscal union.That’s the only way to make thissystem work in the long term.And they’re making gradualsteps in that direction throughthe European Financial Stabil-isation Fund, and we think

they’ll take further steps andpossibly even … you’ve heardformer ECB president Trichettalk about having someone com-parable to the Treasury Secre-tary in the United States. So inthe long term we think they’ll getthere, but it’s going to take timebecause you have all these mem-ber governments that have toagree to all these reforms.

And in the interim, we thinkthere’s going to be continuedvolatility in financial marketsfrom time to time. And what Ithink you’re starting to see is,that we look at say, equity mar-kets or we look at credit mar-kets and fixed income, and yousee that things are trading ata discount because of this con-cern about this tail-event, thiscabal financial crisis that couldoccur if Europe was to break up.That’s going to remain in theback of people’s minds, and wethink you’ll see a premium incredit markets as a result untilthe situation in Europe is fullyresolved. So everything maylook cheap but it’s because ofthis fat tail-event risk that peo-ple are concerned about.

AUSTRALIA – THE GOOD NEWSSTORY

MT I’m just going to move thedynamic on a little bit, and Iguess this is very Australian-cen-tric, but looking from the outsideinto Australia and allowing forthe fact that we were discussingearlier, it’s my take on Australiathat we’re all very pessimisticwhereas you guys are all very op-timistic about how things arehere, or reasonably optimistic.Looking from the outside in, andagain I’ll start with you Jack, howdoes Australia look and what doyou think are the sort of dy-namics that need to be taken ac-count of?

JM As a regular visitor, amost pleasant view to start




22 ROUNDTABLE www.superreview.com.au


Mark Enman and Sean Fitzgibbon

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with! More realistically and cul-turally, there is a divide aroundthe world and you typically findEuropean investors would bethe most pessimistic on aver-age. You’re right – US investorstend to be more enthusiastic.And across Asia it is moremixed, including Australia. Ithink looking at Australia,there’s so many great strengths.Now while there will be fluc-tuations in growth, and con-cerns about the linkage to Eu-rope as you mentioned earlier,Mike, as well as the beginningof the Chinese hard-landingpieces for the middle part ofthe teens, nonetheless it’s thecase that there are so manycharacteristics of the Aus-tralian economy which look tobe significantly offset. Andthat’s part of the reason why in-vestors, whether it be in bondsor in equities, why on a glob-al basis they enthusiasticallyseek to overweigh. And whilethat may not be constant al-location preference, I thinkthat is the general view andwill probably persist.

MT Mark, you’ve spent timeon both sides of the equation,and I just wonder what yourtake is?

ME I guess I would offer twothings, maybe moving awayfrom the fundamental eco-nomics of it. Almost every Aus-tralian that I worked with inLondon and New York is backin Australia now. So whether it’sfamilies drawing them back orthe optimism about work, every-body is back and enjoying them-selves. The second thing is I wasfortunate enough to get an iPadfor Fathers’ Day last year andone of the great things is youcan read most Australian news-papers on an iPad. And so

whether it’s reading about theManly Sea Eagles or whateverelse it is, the tone, whether it’sthe Sydney Morning Herald orreading the Perth newspapers,whatever it is, is very positive.So from outside looking in it’squite an envious attitude oraura, compared to what I hearspeaking with my peers or myneighbours.

SF I think it’s the only placein the developed world whereshort-term interest rates areabove 2 percent, so yeah, youguys are battling with issues wewish we had. But in terms of theAustralian economy I do sub-scribe to the view that this isgoing to be a very long bull runin commodities, and so I thinkthe natural resource-rich coun-tries are going to fare better overthe next five, 10, 15, 20 years. Butthey are commodities, so theywill have cycles to them. But Ithink a lot of the mining com-panies’ balance sheets look greatand the monetary crisis ab-solutely tagged. I think they’relooking at their capex budgetsgoing out: is this going to pro-duce a better mine that’s goingto last 30 years. So from thatstandpoint I do think that you’llcontinue to see good invest-ments in Australia. I think thatit’s going to keep unemploymentat good levels, and so I think Aus-tralia remains one of the mostattractive developed countriesin the world and I think that willstay the case for many years.

But there’s perception andthere’s reality, and people cer-tainly do tie Australia to com-modities, so from outside in-vestors’ perspective I think thatthey are susceptible to [theview] that when commoditiesweaken people will get con-cerned about the currency, getconcerned about the stocks inAustralia. But from a long-termperspective I think everythingremains positive.

TH Just to be a wet blanket,I think in general I buy into thewhole short-term story. Whatdoes concern me is the pointthat Sean brought up regard-ing the reliance on commodi-ties, and it seems to be in-creasing. And what worries meabout that is what economistsknow as Dutch disease. It’s aheavy reliance on a commoditythat eventually leaves too manyresources going into that area

of the economy, and a depend-ence on these short cycles thatyou see in commodities overtime. And I would agree withthe general story that in thelong term you’re going to seecommodities [grow in impor-tance], because these are lim-ited resources that we’re goingto run out of, but as an econo-my I don’t know that you wantto open yourself up to that kindof volatility in economic per-formance. And right now themacro fundamentals in Aus-tralia look very strong, particu-larly versus the rest of the majorindustrialised economies. Butit is a long-term concern thatyou have a lot of resourcesflowing into the commoditycomplex.

HARNESSING THE AUSTRALIANRESOURCES BOOM

MT Which brings me to thequestion I guess, and Tom has

kind of pushed us in that di-rection, which is: do you think,looking from the outside,whether the pressures that areon from some elements of Aus-tralia for the development ofa sovereign wealth fund basedon the commodity boom, isprobably sound thinking? I’llthrow to you for that Sean.

SF Yeah, absolutely, it is goingto create boom-bust cycles and

right now it’s been pretty goodtimes. And so to the extent thatthey can create something thatcan provide some kind of cush-ion during the downtime, that’sexactly how they have to bethinking. I think that’s the mis-take that most of the developedworld got into; that during thegood times we over-indulgedand what you should be doingin the good times is trying tobuild up a cushion to protectyou in the downside.

JM Well it makes great senseand it’s a concept that’s beenaround for many, many decades,actually, as you know, in Nor-way and the Middle East andthe Abu Dhabi Investment Au-thority. But even the UnitedStates Teachers’ fund in Texashas effectively an endowmentthat generated more wealth, tothe extent that you have a com-modity which is at some point

exhaustible. Having a reserveagainst that eventual future re-ality does make sense.

ME I can’t really add any-thing to that, it makes sense.I guess you talk about SaudiArabia at some point being outof oil and having spent all of itsmoney, and what’s going to hap-pen if they don’t set aside; that’san example of finite resourcesright there.

TM I think the strategymakes sense from an invest-ment perspective. I think theother thing the governmentcould do in the long term is justprovide incentives for invest-ment in other areas so thatthere’s less reliance on the com-modity complex over the longhaul. Changes in tax law can bean effective means of stimulat-ing that kind of investment.

One of the things that struckme when I was at a super con-ference in Australia in Manlywas how many of the attendeeswere talking about their chil-dren going into work not nec-essarily in the mines, but serv-icing the mines. And so it seemsa whole service industry aroundthat is building up as well. Andso it would be good to foster Ithink some diversification inthe economy, given this con-centration of growth comingfrom that one sector.

WILL CHINA KEEP DRIVINGAUSTRALIA?

MT Of course the driver forthe commodities boom in Aus-tralia is in large part China, andwe discussed this as well overlunch, the idea that China atsome point has to have thegrowth curtailed somewhat. Iguess much as we discussedearlier, Jack, what’s your takeon China’s growth outlook, andcan it be sustained where it cur-rently stands?



Jack Malvey



JM Well, in the broaderlonger-term scheme, China ispart of the great emergent storyfrom emerging markets to ad-vanced economies’ status. Andthis will be a remarkable periodin history over the next 10 to 15years; on an absolute basis, theChinese economy will go backto being the world’s largest econ-omy, where it was 18 of the last20 centuries. In terms of thecontinuity of short-term growth,that cannot be necessarily as-sured. Naturally in any eco-nomic system there are fluctu-ations. So somewhere in themiddle of the teens it would notbe surprising to see some minordeceleration in the rate ofgrowth of the Chinese econom-ic juggernaut, particularly fromthe capital spending side. Sothere are those out there whosuggest that China could effec-tively enter a so-called hardlanding, that is, growth below5 percent, mainly as a functionof capital investment flatteningfor a little bit of the period. Sothat’s a possibility, but outrightrecession is certainly not on thecards in the near to immedi-ate term.

SF Definitely a lot of con-cerns in terms of what we havestarted to see: the slow-downand that we’ve got the bearscoming out of the woodworkand making the case for thehard landing in China. I thinkthat they do have enough re-sources. We had seen some

tightening in some of the non-traditional lending sources, andthe government I think hastheir arms around what the im-pact of that is going to be.They’ve already started toloosen things like the reserverate requirement for bank loansto small-to-medium enterpris-es – and there are even otherforms of stimulus starting tocreep in – so I do think thatthey’re going to get through thiswave of the slow-down.

But there is that concern thatthere is a pool of non-perform-ing loans building up, and atsome point that is going to haveto be recognised. I think thegovernment does have a lot ofresources to counteract that,that they’ve shown in the pasta willingness to take them ontothe government’s balance sheet,and with a relatively under-lev-ered balance sheet I think theycan absorb it. But that is cer-tainly going to be the concernas you go out the next couple ofyears.

I think they’re very con-cerned about having a slow-down during the transition inthe government which happensover the next 12-to-18 months,but beyond that I think they aregoing to have to start to dealwith some of the non-perform-ing loans.

ME Yeah, so the only thingI could do is reiterate that fromthe funds that we’re talking to,the cat amongst the pigeons

could be the non-performingloans, to the extent that someof the lending has created abubble of sorts and that couldthrow things off in the shortterm.

TH I think the transition andthe leadership over the next yearsuggests that the melt-down con-cerns over that time period areunlikely, but there are thelonger-term concerns. The for-tunate thing is that China is stilla very rich country in terms of

the savings. With debt-to-GDP30 percent versus the averageindustrialised country of 100 per-cent, they can deal with the non-performing loan problem. So wedon’t think it’s enough to, as Jacksaid, throw the economy into anoutright recession. But I thinkthe government wants to seeslower growth and they’ll achievethat. But they’re going to doeverything in their power toavoid a hard landing.

WILL CHINA SUPPLANT THE US?MT Something Jack raised

in his last answer is that China

is inevitably going to becomethe gorilla in the room in termsof the economy and its power inthe market. I guess that meansthat the US isn’t. So, Jack, isthat your take: that I guess theUS, much the same way the UKdid 80 years ago and possiblylonger, is going to have to takea second seat in terms of ab-solute economic muscle?

JM I wouldn’t say a secondseat. I think the general view

is that from where we char-acterise the dominate positionin global affairs being eco-nomic and military, that the USwill effectively be part of theworld of a multi-polar dimen-sion where it will be US, China,Japan, certainly other parts ofthe world who will be moreforced to work together in sit-uations of mutual interest,whether it be economic or en-vironmental or questions of for-eign policy. So the US will con-tinue to have a significantstake and have a significant po-sition in the world by virtue

of its tremendous resourcestrength. It has, unlike parts ofEurope, a growing populationbase; right now to 2050 the UNreport has the US going fromnearly 310 million to about 400million people, unlike againparts of Europe. There’s sig-nificant strength and I thinkthat will certainly persist. Soa more balanced world, as op-posed to taking a back seat ormoving into the position nec-essarily that the UK did 80 yearsago, as you mentioned. Thenagain, the UK was of coursebankrupted effectively by theGreat War, and again by the Sec-ond World War. So the US is cer-tainly not bankrupt.

ME I thought that was verywell said. I guess I would lessmake the correlation betweenthe US and the UK as the US andEurope before, say, some of thedebt crises that’s going on – andyou’re not going to suggest thatEurope as a conglomeration isnot a significant player on theglobal stage. The second thing isyou’ll find that future presidentsof the US will have a passport be-fore they’re actually elected.Take Bush who had never trav-elled outside the US; in the worldthat you’ve just described that’snot going to be possible.

TH China is already the sec-ond largest economy in the


“I think it will be more of a symbolic measure when China’s GDP exceeds

that of the United States.”– Sean Fitzgibbon



world on a purchasing powerpriority basis, and they will bethe largest economy in theworld at some point before 2020according to the IMF numbers,but it’s still a developing coun-try. Per capita GDP is muchlower, a fraction of the UnitedStates. And they’ll move to high-er stages of development, even-tually they’ll hopefully eliminatecapital controls and allow theRMB to be internationally trad-able, and then the currency willplay a role in reserves. Theseare all very long-term issues,and even if we do go back to thecase of the British pound andthe US dollar on in the after-math of World War II, it’s a 30-year process that began beforeWorld War I. And so I don’t thinkanything is likely to change. Ifthe US adopts reforms such astax reform and addresses en-titlement reform, then therecould be a resurgence in the US.I think we’re looking at it froma very low point in US history,and so it’s easy to extrapolatethat this period is going to con-tinue; that’s not necessarily thecase.

SF Yeah, I think it will bemore of a symbolic measurewhen China’s GDP exceeds thatof the United States. I don’tthink the Chinese people willreally feel it, because of yourcomment about the per capi-ta GDP, they’ve still got a longway to go there. And I thinkwhat is more important is thatChina now has joined the restof the world in terms of tryingto work together to try to findsolutions to global economic is-sues. And to be honest, rightaround the time that they crossover to [the point where] theirGDP gets greater than the US,they’re going to start facingsome pretty big demographic

headlines themselves that theywill probably be trying to battlewith at some point. So I thinkit’s more a symbolic thing thananything really meaningful.

MT There is of course an ar-gument that says that China willgrow old before it grows rich. Ithink there’s research out therethat says that the limitationson children and what-have-youare now having a huge demo-graphic impact. Jack, undoubt-edly you’ve seen that research?

JM We’ve seen the researchand China is going to be dis-placed by India as a result atsome point as the largest in Asiain terms of population. But Ithink that certainly does posesome longer-term structural ad-justment issues for China, andI think they’ve recognised andacknowledged that and are en-couraging larger families again.So it’s unclear whether that re-ally will materialise. And I thinkthe agility of the Chinese poli-cy makers to recognise, ac-knowledge and respond possi-bly lessens the threat in termsof having a significantly nega-tive factor in the Chinese econ-omy. And we’re sort of in the ex-pected realm because we’relooking at 2030, 2040. The truthis we don’t know what the 30-year US Treasury will yield onFriday let alone what’s going tohappen in 2030.

WHERE NOW FOR THE GFC?MT Just turning back to the

broad economy again, when Iwas last here, I think in this verybuilding, I sat down and had aconversation with Richard Hoey,and that it must be remem-bered was in the dim dark daysof the start of what we call inAustralian the global financialcrisis. He said then, drawing Ithink on his vast wealth of ex-perience, that it would be the

longest slowest recovery from arecession that many people hadever experienced. I’m just won-dering these some years later,did Dick call it right? Jack?

JM He did call it right, itstarted really in February 2007,accelerated in the middle of2007 and here we are four anda half years later. How do youdefine full recovery? The end ofstructural unemployment in the

US and Europe, you employ thatmetric and maybe it’s 2016 and2018/19 before it’s completelyconcluded. So it is a decadecross-correction.

It really is for the West, theUS and Europe a bit reminis-cent of what’s been takingplace in Japan unfortunatelyfor the last two decades plus.So congratulations to Dick fora good call.

Unfortunately there doesn’tseem to be a means to acceler-ate this recovery process be-cause this is part of the great re-structuring, the great transitionperiod that we were highlight-ing earlier. The global econom-ic system is in the midst of a rad-ical change compared to the late20th-Century model. The globalfinancial system, which is a partof the global economic system,is also in the midst of significantchange, with regulators, legisla-tors and even the courts ad-justing and making recommen-dations to effectively reduce theprobability of what we saw over

the course of the last four anda half years. And the channellingand the distribution of financialassets is also something whichis in the midst of a change, withinvestors and some wealthfunds all giving considerationto how best to steer in this typeof environment where there’ssuch significant uncertainty.

SF Yeah, I think in manyways this is playing out what alot of us had pictured, which

was that, yes, we’ll have a re-covery off what was a very lowbottom, but it’s going to be im-mediate recovery and thenwe’re going to have to start topay back all the bills for our sinsof the past decade or two. Andthat’s really the phase that we’reentering right now: that therewas stimulus initially comingoff the bottom and a lot of thathas waned and now we’re all try-ing to figure out how much aus-terity to apply. And the expec-tation was that the US GDP isgoing to get hit by 1-2 per centdue to less government spend-ing and so instead of running3-4 per cent GDP we’ll runhopefully 2 per cent. And that’sprobably what the outlook hasto be for the next few years. Andto Jack’s point, that’s not goingto bring down the unemploy-ment rate very fast and so we’regoing to feel the effect of thisfor quite a while.

And in Europe: the expec-tation was Europe is going to bein even worse shape and sure

enough, here we are watchingEurope being in even worseshape. And the thought was thatEurope would be around zero,and so they are going to kind ofbounce around this, kind of …I think that the medium is goingto be zero but they’re going tobe tiering on recession for thebetter part of five or 10 years asthey apply more meaningfulausterity than what the US willhave to do.

ME Yeah, I can’t add toomuch from the macro perspec-tive, I guess just a comment lo-cally. We’re hearing about anumber of financial institutionsthat are about to or have laid offa significant number of peo-ple and are not putting that cap-ital to work in the financial mar-kets. So people that I grew upwith in the markets are leavingfinancial services, and there’sdiscussion that this extendedrecovery is going to change theway financial companies, the in-vestment banks, operate goingforwards. So it’s quite a dra-matic time.

TH I think the only thing Iwould add is that in these en-vironments after these delever-aging cycles – and you’ve seenit after whether it be the GreatDepression or in the financialcrises of the 1800s – you real-ly see a protracted period of ad-justment in this deleveraging.And interest rates would tendto remain very low in those en-vironments. There’s a high vul-nerability to policy errors. Politi-cians right now in the UnitedStates are talking about tight-ening fiscal policy, and while wetalk about entitlement reformand cutting that spending, re-ally cutting short-term spend-ing is not what you want to dowhen aggregate demand isn’texactly robust. And so I thinkthe economy for a lot of Amer-


“While we talk about entitlement reform andcutting that spending, really cutting short-term spending is not what you want to do

when aggregate demand isn’texactly robust.”

– Tom Higgins




icans isn’t going to feel like it’sin full recovery mode for severalyears to come.

STAY SAFE OR TAKE A RISK?MT One last question, and

this is maybe one where somepeople go off the record. MostAustralian investors, as we werediscussing earlier, seem to bestaying in very safe havens,whether it be in cash [or] noone much really getting into themarkets in the way that theyused to. Knowing what youknow, seeing the markets andthe economy as they currentlystand and the progress in Eu-rope and here in the US, is ita smart call to be staying safeor are they missing opportuni-ties in the market right at themoment?

JM Well it really depends oneach individual investor ofcourse, and it’s tough, almostlike a physician, to suggest ageneric prescription. But I thinkin general, as someone whogrew up in fixed income, I findthe world bond market entire-ly unappealing at the presenttime. High-quality low yields arejust not where absolute total re-turns are going to be drivenfor high quality investmentsover the course of the next sev-eral years. We saw last weekin the United States the lowestcoupon ever for a corporate bor-rowing, six-tenths of one percent for a Colgate Palmolivethree-year. That does not augerwell for absolute total return.So there are opportunities andthere are really two opportu-nities. We hear from Mark herethat one of the big opportuni-ties will be in the distressedarena over the course of thenext two to three years. A lot ofthings have been splashed withthe European contagion, whichat some juncture will be moneygood and valuable and we’ll see

recovery in valuations. And I think the second area

is the equity market. We havedividend yields in parts of theworld which are superior. Forbond yields we have growth op-portunities. And we’re seeing al-most a miraculous decouplingin large parts of the world of cor-porate profitability growth. Ithink these low interest ratesare significantly positive, andI think they will be one of thedrivers of the economic recov-ery, particularly, as Tom high-lighted, if we end up with theUS and maybe other parts of theworld with some additional taxincentives, as has been sug-gested here. So I like genericallythe equity market, almost as a

strategic hedge, which fea-tured the worst absolute totalreturns in equities on a glob-al basis in any decade goingback to the 1920s; that’s whenmy records became global. Soactually the ‘30s were better forglobal equities than the last 11years; I don’t think that’s sus-tainable. I think the environ-ment is ripe for genericallyhigh quality, good ship-type eq-uities to outperform fixed in-come investors.

ME I absolutely agree thatfixed income, whether it’s sov-ereign debt or corporate debt,is not very appealing. I guessAustralia’s penchant for putting

money into property as a safehaven is creating its own prob-lems in extremely high housingprices, issues that come not tothe extent that the US has hadin terms of excess need to bor-row, but certainly a lot of moneyhas flown into property and youcan read about it constantly.And so in that sense equities,given what’s going on, I wouldhave to agree carefully is whereto segue.

SF Yes, it’s pretty easy toargue that equities are cheapright now, with most devel-oped markets trading be-tween 10 and 11 times earn-ings. Europe is trading atnine times and it probably

deserves to; I’m not sure I’dpoint people in that direc-tion. Emerging markets aretrading at nine-and-a-halftimes earnings. So are theymissing opportunities? Po-tentially yes. It is said that weare starting to see an easingcycle play out in emergingmarkets, and at nine-and-a-half times earnings, if peoplestart to feel that that’s takinghold and we’re getting backto another wave of growth inemerging markets, I’d expectthose multiples to expand theearnings growth. It’s alreadyprojected to be double-digit,and we could even see upsidethere. So there are opportu-

nities. It’s a question of howrisky do you want to be andto the extent that a lot of eq-uity investors have just givenup faith in equities.

I think at a minimum you cango into those blue-chip high div-idend yields; that for the mostpart corporations have shown apretty good ability to managetheir capital, especially thosethat are paying big dividends.And from that standpoint Ithink those returns are going tobe superior to bonds.

I often hear people put theargument that look, over thepast 10 years equities haven’tgiven me anything and bondshave given me a great return, sowhy would I go to equities. AndI think that’s such a failed ar-gument to make, because youdon’t take into account thestarting point of, where did westart 10 years ago when inter-est rates were high in generaland you got principle appreci-ation, as rates came down com-pared to equities which had ahigh PE multiple 10 years ago.But if you look at the startingpoints, today it’s pretty tough toget any principle appreciationfrom a bond yielding two percent, but equities again are 10times earnings, you’ve got a lotof potential in terms of the mul-tiple expansion and also I’dargue some protection on thedownside.

TH The first point I’ll makerelates to something I said ear-lier regarding these delever-aging periods, and if you lookback to the ‘30s, ‘40s and ‘50s,look how low interest ratesstayed for that whole period andthe Fed was a player in thatmarket too. But this is not to saythat treasuries are an attractiveoption at the current time. I’mjust saying they could remainwell bid in these periods. Andregulatory reform adds to that

bid because right now underBasel 3 we’re going to be rais-ing core capital requirements,and that’s treasuries effective-ly for US institutions. Not onlythat, the Fed wants to even in-crease it further beyond that, soyou’re going to have a buyer fortreasuries. I don’t think in-vestors should be out buyingthem but you’re going to havelow rates.

In terms of high-yield bonds,though, I think it’s an attrac-tive alternative for investors toequities. You’re talking yieldsat the current time of seven tonine percent and default ratesare still declining. So I thinkit’s an attractive option with adecent return. And I’m notsure, I know in previous peri-ods return expectations for eq-uities were 94 per cent or evenhigher, about 90 per cent rangeor higher, and I don’t knowthat that’s still the case. I thinka lot of people’s return expec-tations have come down, be-cause global growth, when youtake all the leverage out of thesystem, is going to be lowerand so return expectations aregoing to have to come down.So a seven, eight or nine percent yield on a high-yield bondcan be a decent return.

The other place is EM localcurrency debt, which I thinkis still very attractive. Funda-mentals are sounder and theyields are attractive, especiallyafter this period of volatility. Youhave to be able to weather thatmarket-to-market because weknow Europe is going to behanging over the global econ-omy for some time. But I stillthink that those are two at-tractive options in the fixed in-come world. G7 debt no.

MT Thank you gentlemen,thank you for your time and foryour patience and I’m now turn-ing off the tapes. SR

Tom Higgins

ROLLOVER T H E O T H E R S I D E O F S U P E R A N N U A T I O N

Ageism shall not worry them

Got a funny story?

ROLLOVER notes the minor furore created amongst financial plannerswhen Association of Superannuation Funds of Australia (ASFA) chiefexecutive Pauline Vamos was reported as suggesting the Government shouldnot unduly delay the implementation of the Government's Future of Fi-nancial Advice (FOFA) changes.

He wonders, then, how this sits with some of ASFA's constituents whohave been arguing for sensible transitionary arrangements around the im-plementation of the Government's Stronger Super initiatives, not the leastof which is MySuper.

Some of the same companies required to make serious platform changeswith respect to MySuper are also required to make changes relating tothe Future of Financial Advice – something which the Financial Ser-vices Council has suggested could cost as much as $700 million.

Notwithstanding the state of public opinion polls and election timeta-bles, Rollover is betting the Minister for Financial Services and Superan-nuation, Bill Shorten, will back appropriate transitionary arrangements forboth Stronger Super and FOFA. SR

AS a more mature chap working amongst a bunchof 20-somethings, Rollover welcomed last month'srelease by the Financial Services Council of a re-port covering attitudes towards older workers– ‘Attitudes to Older Workers’.

He was particularly taken by the finding thatthose older workers earning almost spot-on av-erage weekly earnings – around $75,000 to$80,000 – were more likely to have suffered agediscrimination than those earning more.

Now Rollover is no guru when it comes to work-place psychiatry or labour market demographics,

but he reckons that any 55-year old earning$75,000 to $80,000 is probably sitting on a parwith a whole bunch of upwardly mobile 20-some-things.

It ought to follow, therefore, that the challengefor the more mature person is to avoid being iden-tified as an impediment to the career advance-ment agendas of Generation Y.

Of course, Rollover has no such concerns, giventhat he is certain that none of his young colleagueshave actually figured out what he does or whetherhe is actually paid for his attendance. SR

MARCH is lining up as a key month forthose in the superannuation industry, withthe Conference of Major SuperannuationFunds scheduled for Brisbane and the an-nual Super Review Charity Golf Dayscheduled for 14 March.

Rollover is wondering whether, afterdominating the Super Review tournamentfor most of its first five years, AMP will beable to regain the coveted plastic andwooden trophy in 2012.

Given the influx of golfers which oc-curred when AMP merged with AXA AsiaPacific, Rollover believes there is everychance the boys working in AMP Corpo-rate Super can reassert themselves.

However he understands that Pillar Ad-ministration once again has a strong team,and that having shifted camps from Mer-cer to Deloitte, Russell Mason is lookingfor fellow swingers in his new locale. SR

Swingers’season

The Perils of Pauline


about people in thesuperannuation industry?

Send it to Super Review and you could be raising a glass or two. Super Review isgiving away a bottle of bubbly for the funniest story published in our next issue.

Email [email protected] or send a fax to (02) 9422 2822.

ROLLOVER is wondering whether it is a measure oftheir success – or an indicator of the challenging yearahead – that a number of senior funds managementtypes gave themselves a longer-than-normal break overChristmas and New Year.

Without naming any names, your humble corre-spondent noticed at least half a dozen who began theirleave more than a week before Christmas, and thendid not return to their desks until after Australia Day.

Given that a number of the major banks were fore-shadowing job cuts before January had even got prop-erly underway, Rollover decided to investigate the rea-sons for the longer-than-usual vacations.

That reason became only too obvious when he ex-

amined the Plan for Life data closing out 2011 – andWarren Chant's analysis of superannuation fund per-formance in December.

The bottom line? If you badly needed a holiday afterone of the industry's most challenging years, andyou had confirmed the intentions of all your clients,then you couldn't have picked a quieter time than De-cember/January. SR

Funding by the pool

super review (march 2012)

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