Kelly O’Dwyer, the Minister for Revenue and Financial Services, talks about planned superannuation reforms including making it easier to opt-out of life insurance
Introduction: Super overhaul
Ross Greenwood: Welcome back to money news right around Australia. One issue that’s taken people’s attention over the weekend is to whether the two major parties can get cooperation as to whether Australia should have four-year elections terms. If you’re an outside observer to Australia, you would think the current electoral cycle is completely bonkers. We know it doesn’t create stability for the economy, for the ruling party, or for the nation as a whole, therefore, its economy. As a result, you then sit there and say to yourself, “Well, where do we go?” Because of course constitutional change is so difficult to get in this country.
We know about the squabbles we have on any other different area. Social security, infrastructure, superannuation, taxes but then when it comes to something big like, how should we vote? How should we actually structure the country for the future? Well, you’re almost lost before you started.
Let’s now go to the Financial Services Minister and the Assistant Treasurer, Kelly O’Dwyer, who’s on the line right now. Many thanks for your time, Kelly.
Interview: Kelly O’Dwyer, Financial Services Minister and the Assistant Treasurer
Kelly O’Dwyer: Great to be with you, Ross.
Ross Greenwood: I do want to talk to you about the superannuation member outcomes package which is coming in, which of course is going to change the rule on the compulsory 9.5% employer superannuation contributions. In the mean time, I just want to get back to that point about constitutional change and the way the nation’s setup. In an ideal way, if you were as Assistant Treasurer with the government, able to setup Australia from brand new and of course that’s impossible, surely you would not have three-year electoral terms that are arbitrary, like we’ve currently got.
Kelly O’Dwyer:Well look, there’s nothing that’s going to be perfect I think, in these circumstances, whether it’s three years, four years, maybe even five years. Different countries have got different arrangements. My view is, with four-year terms, you can either entrench a good government or a bad one. We have to think about this very carefully before we proceed but I’m not sure, Ross, it’s the number one priority issue of most of your listeners out there. I think they want us to be focused on them, what’s impacting them day-to-day. One of the things that I was able to announce today was the big transforming superannuation package which will help a lot of your listeners.
Ross Greenwood: I get that and I’ll come back to that very shortly because that is important, there is no doubt about it, but surely even a person listening to this program would recognize that stability. Even if you vote in the wrong party, at least you got four years to try and get it right. If you vote in the right party, they’ve got the stability to know that they can get half way through economic cycle, make changes that actually do count, and can see the results of those changes.
It’s not as though we suddenly get a change of government every three years or so, or we get a slightly held majority, or something like that and as a result, compromise is made to what otherwise might be very good legislation. That must be one of the frustration for you as a politician.
Kelly O’Dwyer:Well look, that’s one of the arguments for four-year terms. I think you’ve articulate it very well, Ross but at the same time, the contrary argument is, I suppose that you can also potentially have governments that aren’t doing a particularly good job. It’s important that the democratic system work in such a ways to give people their say. That’s what the current system does. I think before we make any changes to the current system, there has to be a clear argument made as to why it does require change. I’m very open to this question.
As I said, I don’t know that it’s the number one priority issue that is keeping people awake at night but I certainly think what is keeping people awake at night, is the need for good, strong government that works in people’s interest. What we’re trying to deliver.
Ross Greenwood: Let’s go to superannuation. There’s now more than $2,000 billion worth of people’s money in superannuation accounts. The nest egg, the pot of superannuation is building up and will continue to grow. It is going to become a significant influence in terms of Australia’s wealth long term. In regards to the value that people get, the bang for their buck from that superannuation, do you believe that really Australians generally get good value for money for their superannuation funds?
Kelly O’Dwyer:Well, I suppose it depends on what fund someone’s in. I couldn’t say to you hand on heart right now, that people have got complete confidence that their fund is working directly in their interest. The reason is because everyday Australians right now don’t actually have a lot of control over their superannuation providers. It’s a mandated system that they’re forced to put their deferred wages into and they don’t have a lot of say over it.
There isn’t a huge amount of accountability for where they put their money and we think that ought to change because as you say, we’re talking about $2 Trillion worth of funds under management right now. That’s gone up from 130 billion odd when the compulsory system were setup around about 25 years ago. We also need to make sure that not only do we have strong rules in place but we need to make sure we’ve got a very strong regulator that can enforce them, to make sure that those funds are being managed in men’s best interest.
Ross Greenwood: Where is it do you believe that members might not be getting value for money? We’ve got two distinct types of funds in Australia. The retail funds that are owned by the banks and the life insurance companies and then there’s the industry funds, which clearly are not for profit funds. In both cases, their returns are transparent. Which part of this is the consumer missing out on, do you think?
Kelly O’Dwyer:Well, they don’t get to see a lot of the details. They don’t get to see really the outcomes that are being delivered with some investment and insurance strategies that are put in place. We think that we should have, rather than simply just the scale test, we should be looking at the outcomes that are delivered in the default my super product space and that there should be an annual assessment of the product outcomes to ensure that those investment insurance strategies are right, the fees are right, the scale and the returns are promoting the financial interest of members.
We think that there needs to be more accountability there for members, whether it’s through things like AGMs, which we are going to put in place or whether it’s through these vetted disclosure requirements and the ability of the regulator to intervene when funds are not acting in their best interest. We think that these are essential changes to give people confidence.
Ross Greenwood: Let’s get to that point about intervention because quite clearly the Australian Prudential Regulation Authority, which regulates banks of insurance companies currently, you’re going to give them powers to intervene. What types of powers of intervention will APRA have?
Kelly O’Dwyer:They will get a directions power, which will mean that they have the ability to take preventative or corrective action if they’ve got prudential concerns about a superannuation fund or if they’ve got concern the fund is not acting in the best interest of members. We think that this is very important because as I said, we force people to put money into the superannuation system and they need to know that that money is going to be there for their retirement income and that it’s not being used for other purposes that don’t relate to their best interest.
Giving the regulator powers beyond simply moral persuasion powers with these funds, actually giving them a stick, we think gets the balance right to give members that confidence.
Ross Greenwood: Okay. Is there a simple guide for most people that if, say for example, as we saw last week Super Ratings and Chant West put out the typical returns that funds would have. I think a balanced fund was 10.4% after tax over the past year. If a person’s fund was only, say 3% after tax over the past year, quite clearly you’d need to look at the type of fund or all that type of thing but all things being equal, if it was only 3%, would that raise a trigger with the organization such as APRA to go on look at that fund, look at the processes and work out why those members are getting so much less than the vast majority of members.
Kelly O’Dwyer:Well I think, we want APRA to be able to look at all of the funds, whether they’re retail funds, corporate funds, or industry funds. To look at all of the elements that make up the arrangements that make up the life insurance policies. To be able to see whether or not that’s actually working in member’s interest.
One of the great challenges for many members who get into a superannuation fund, particularly those younger members as we’ve discussed before, Ross, is that their default arrangements are you get into a particular insurance premium and if you’ve got more than one fund and there are over 2.7 million Australians who’ve got more than one fund. That means two lots of fees or three or four, depending on how many funds they might be in. It means that they might have their retirement income eroded by these fees, which is clearly not in their interest.
Ross Greenwood: In fact, for insurance they do not need and they’re barely–
Kelly O’Dwyer:They will get no benefits from.
Ross Greenwood: No, and that’s–
Kelly O’Dwyer:They’ll only be able to claim once.
Ross Greenwood: This is all in place right now, APRA’s now got the power to walk in if they see something untoward in any of these funds?
Kelly O’Dwyer:They don’t have the power in these instances to be able to direct a fund. We think it’s quite important that they have that power to be able to direct the fund. We also think it’s important, as I mentioned in the insurance example, for people to able to opt out more easily. Ross, you’d be horrified to learn that you’ve got to pick up your pen and papers in some of these funds and write in and sometimes, actually get the Justice of the Peace to prove your identity before you can actually opt out of these insurance arrangements. Now, that’s quite clearly ridiculous.
When a lot of people would be looking at their statements online, where a lot of people would be using their phone to be able to telephone their funds, why can’t they use those devices to be able to opt out of these arrangements?
Ross Greenwood: There’s no doubt about that. Kelly O’Dwyer is the Minister for Revenue and also Financial Services in this country. As always, we appreciate your time here on the program, Kelly.
Kelly O’Dwyer:Great pleasure, Ross.
Articles posted this year so far on Superannuation