Let’s hope the revelation of a $600 billion looming retirement savings gap by the Investment and Financial Services Association (IFSA) last month (see p13) has some impact with the legislators. There’s a time-bomb ticking away, lots of talk on what to do about it and so far, little action .
In 2001, the Association of Superannuation Funds of Australia succeeded in getting retirement savings on the pre-election agenda. The Government responded with a package to boost savings, but has thus far failed to get most of these through the Senate. Even its co-contributions bill, a “tinkering at the edges” move that did attract widespread support, has not been passed.
With not much happening, the minister for revenue and assistant Treasurer, Senator Helen Coonan, recently gazetted her portability regulations in a step regarded by many as an attempt to bring in choice via the backdoor.
Strangely, she did this before the Senate Select Committee on Superannuation had completed its inquiry into portability. And at the time of going to press, there seemed to be a push to get portability disallowed in the Senate (see p8).
One concern is that portability may encourage members to switch from well run, not-for-profit funds into high-fee retail funds. This is worrying, considering how well the not-for-profit funds have been performing compared to their retail cousins. For example, eight of the funds in SuperRatings’ listing of Top 10 performers over the past financial year were not-for-profit funds.
If we consider how poorly consumers score in research examining their financial literacy and the questions raised about the quality of financial planning, we risk throwing members to the wolves by introducing portability and choice-of-funds without strong safeguards.
IFSA’s recommendations on the problem of adequacy combine many of the calls we’ve heard before. Its proposals on portability and choice-of-funds may not get industry wide support, but let’s hope its initiative can at least get the debate going again. This is especially because savings conditions look set to become tougher. First, there are signs that negative returns have discouraged members from making additional personal contributions to super and secondly, it will only get harder to earn the returns that helped build up the (albeit inadequate) nest eggs we already have.
