POWERED BY MOMENTUM MEDIA
(May-2002) Blatant political meddling
The Superannuation Working Group (SWG) established by the minister previously responsible for superannuation, Joe Hockey, has handed down its draft recommendations. Few observers have been surprised that only the most bizarre of the proposals put forward for “discussion” have been discarded, such was the tenacity with which SWG members defended them during the consultation process.
That approach was only to be expected given the extraordinary press release and comments by the minister at the media function at which the enquiry was launched. Surely, the real motives behind a political exercise have never been more blatantly visible.
In all, the SWG makes 29 draft recommendations which, if implemented, will result in a very substantial increase in the powers of APRA and in the scope of its surveillance of super funds and their trustees. APRA has openly admitted that the reason it has not adequately addressed its key problem area — small corporate super funds — is that it has insufficient resources for the task.
Unfortunately, the draft recommendations do not directly address this fundamental issue, a matter of great concern to both the industry and the regulator itself.
Equally unfortunate is the fact that the draft recommendations do not specifically address the key problem areas that are casting doubt on whether we have a secure superannuation system, but rather prescribe a blanket approach to all funds. The result will be an across-the-board increase in complexity and cost for all funds with a consequential reduction in retirement benefit levels for members. This is particularly disappointing for those associated with well-run funds. Who would welcome an increase in costs for no benefit?
So, which recommendations increase the power of the regulator? The first is the proposal for a universal licensing regime. While the licensing of trustee boards and not individual trustees is to be welcomed, the fact that the qualifying standards are not clearly defined places a substantial discretionary power in the hands of the regulator. It is just a little harder to clear the bar, if the bar is invisible or subject to movement.
The second, and I think the most serious, is the recommendation to give APRA capacity to make Prudential Standards. In effect, this gives APRA the power to make legally binding policy decisions without reference to the Parliament or anyone else.
Surprisingly, those supporting this proposal point to the fact that APRA already has this power in respect of the general insurance industry. I say surprisingly because the more careful news watcher will have observed that there is presently a Royal Commission into the operations of two prominent general insurance companies — HIH and FAI — in which some truly remarkable transactions are coming to light.
Is superannuation to be made more secure by having it come under a regulatory regime similar to the one in which insurance contracts are negated by side letters, which are in turn negated by understandings? This is not the time to be quoting the effectiveness of the regulation of our general insurance industry as a model for a pie-eating contest, let alone for the regulation of Australian retirement savings.
There are also fundamental differences between general insurance and superannuation as products, and in terms of the contractual obligations and arrangements entered into. Does a positive outcome in one mean that it can be applied to the other?
Supporters of the introduction of new powers say “trust us/them”, they will consult widely with the industry before they act. IF APRA does not have the resources to do its job now (and there are no plans to increase resources), how will it find the time to consult without further reducing the level of actual review work done?
The proposal that not-for-profit super funds be forced to reduce member entitlements by creating a pool of capital within the trustee company in case the fund runs into difficulties is not only in direct contradiction with the philosophy of such funds and inadequate to meet any real crisis, it effectively gives the regulator the power to close down a whole segment of the industry.
The recommendation related to outsourcing is fine so far as it goes, but why are the parallel arrangements of funds where services are insourced not subject to the same level of surveillance?
Of course, not all of the recommendations are to be condemned. It is good management to have compliance plans in place and operational. The recommendations dealing with related party transactions are sensible and the suggestion that the previously unused financial assistance provisions be reviewed only after they have been used is plain common sense.
But the overriding concern remains: a body set up for blatantly political point-scoring has resulted in recommendations for a significantly more powerful regulatory authority without addressing that authority’s stated major concern, inadequate resourcing. Is that the recipe for a satisfactory outcome?
— Sandy Grant is managing director of Industry Funds Services.
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