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(December-2001) Standing up to Goliath
The repercussions of the run of high profile corporate collapses (HIH, One.Tel, Harris Scarfe and Ansett) and superannuation related entities (Commercial Nominees and EPAS) are likely to be felt by the superannuation industry for many years to come.
We had the unseemly spectacle of members of the boards of the regulatory authorities attacking the capacity of those authorities to carry out their prescribed functions and bemoaning the lack of resources to achieve their goals. Once the ability of the regulatory structure to identify players at risk and to bring them under control was questioned, it was inevitable that confidence in the security of the system would be eroded.
Out of it all has emerged three inquiries: one complete, one currently seeking responses to its findings, and one announced but still to receive submissions.
The Senate Select Committee on Superannuation and Financial Services brought down its three volume report in August. The recommendations in the first report focused heavily on things that APRA should do, and what the Government should do in support of APRA. The second focused on a series of unfortunate case studies, while the third contains a series of recommendations related to the audit of superannuation funds.
More recently, the Productivity Commission has handed down its draft report, which contained wide-ranging recommendations. It also contained a broad endorsement of the trustee system, one which seemed to produce an immediate response: another inquiry in the form of Joe Hockey’s Options Paper.
This paper itself is not nearly so interesting as the transcript of the press conference at which it was released. Clearly, Hockey did not appreciate the endorsement of the trustee system, most notably the industry fund trustee arrangements. It seems he is giving us notice that we will continue to endure inquiries until one comes down with a recommendation to do away with trustees, industry funds or both.
Anyone persuaded to the view that super policy is always driven by concern for the outcomes for members would be well advised to read that transcript. It illustrates that blind ideology will sometimes carry much more weight.
Indeed, the logic of much of the current discussion on super needs to be challenged. For instance, over recent months, the regulators have made great play on the fact that the bulk of their concerns and problems are generated by the large number of smaller funds that account for a disproportionately small number of members. They claim that they concentrate their resources on auditing the few large funds because this enables them to secure the benefits of the largest proportion of members, even though those large funds create very few compliance issues. But the various changes proposed are not directed only at the problem funds, but at all funds, thereby creating across-the-board cost imposts.
An increasing number of people are questioning whether there is a case emerging to challenge the regulatory structure that resulted from the Wallis inquiry. There is precious little evidence that the new APRA/ASIC/ATO regime is providing superior protection for fund members than did the product specific regime it replaced.
That result may not come as a total surprise to many people. After all, the major argument in favour of the new structure was convenience for the large financial institutions. It was argued that the task of reporting to a range of product line specific regulators on matters specific to those products was a burden too onerous for them to suffer.
More fundamentally, there may be a case to challenge the level of influence the major financial institutions are able to exert over government. Not content with the multi-billion dollar profits they extract from their clients and the competitive advantage their massive assets provide, they continue a large scale lobbying effort to impose meaningless but inhibiting regulatory constraint on niche market competitors. While we can well understand why the financial institutions are using their best effort to persuade the Government to introduce regulations that will bring the not-for-profit sector’s cost structure more in line with their own, it is impossible to find a case for the Government agreeing from a consumer perspective.
Because the bulk of money going into superannuation is by way of compulsory contributions, and because that compulsion suggests some form of government guarantee, there is a reasonable basis for the belief held by many members that their investment in superannuation carries with it a greater degree of government support than is in fact the case. That this perception is fairly widely held suggests there is a case to be made for superannuation to be separately regulated with a view to recognising that unique characteristic.
There are real issues to be addressed in superannuation. The Government and major financial institutions would serve the community better by addressing these, rather than waging ideological war on those providing superior member outcomes.
— Sandy Grant is managing director of Industry Funds Services.
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