Since many members of the financial services industry are submitting wish lists to Government, reviews and related committees, this month, I will be standing on THE SOAPBOX to deliver you my own super wish list:

1. Give Cooper a go
2. Create a better super system for women
3. More leadership for the adequacy debate
4. More accountability, and diversity on superannuation trustee boards
5. Stop financial advisers giving tax advice, including superannuation-related tax advice
6. Show mercy to the innocent people losing millions in super due to bungled TFN policy
7. Lift crazy contributions caps
8. Review silly silly excess contributions tax policies
9. Fix the unfair tax treatment on the super accounts of low-income earners
10. Make co-contribution available to full-time parents, and carers

1. Give Cooper a go

Bullying comes in many forms and I’m sure you have all witnessed it, or experienced it first-hand, at least once in your lives. I believe that a large chunk of the superannuation industry is trying to intimidate Jeremy Cooper, and in doing so, inappropriately influence the final report from the Cooper Review (Super System Review) due by the end of June 2010.

Jeremy Cooper has spoken publicly at several events and subsequently received public criticism for his comments from at least one industry association.

Four superannuation industry associations (ASFA, IFSA, AIST and Corporate Super Association) have issued a joint media release basically bagging the Cooper Review’s  Phase One report, while cheering the Phase Two report with an endless stream of media releases.

The superannuation industry needs to give the panel of Cooper’s Super System Review the space to process, and distil all submissions, and then the time to produce a considered and objective final report. After that, you can cheer or boo as long as you like.

Click here for information about the Super System Review.

2. Create a better super system for women

I’m a fan of Australia’s superannuation system because I believe that most of the time the super system helps a lot of people save for a decent retirement, unless you’re a woman with children who spends time out of the workforce.

Although we may all like to think women and men are the same, in terms of money and finance, women generally have different life experiences to men such as:

• earning less (on average)
• living longer than men (on average); which generally means women need to save more in retirement than men, or live a more modest life
• taking time out of the workforce to bring up children
• if divorce occurs, a woman is usually the main carer of children from a marriage or other type of previous relationship
• raising children while also caring for elderly parents
• in the case of women in their fifties or older, most women were not given the option of having a super account until much later in life, if at all.

This huge gap in our super system that continues to ignore the work and life patterns of most women is a result of slack social and economic policy from successive governments on both sides of the political arena.

3. More leadership on the adequacy debate

The Government has made it clear that increasing the Superannuation Guarantee (employer contributions) to 12% in the current economic climate is not going to happen, although Minister Bowen has not shut the door on the issue. The super industry needs to stop flogging a single solution to the problem of Australians not having enough super when they retire, and start examining the issue of adequacy more creatively.

A superannuation account balance is more than just compulsory super contributions. The other key elements when accumulating wealth via superannuation are voluntary contributions, investment returns, level of fees and tax management.

The question that consumers need to ask is: how much money is enough? Australians then need to be given the tools to be able to make that target happen. I will discuss this further in the April 2010 edition of SuperGuide.

4. More accountability, and diversity on superannuation trustee boards

The trustee boards of the 429 large superannuation funds control $800 billion on behalf of Australian superannuation fund members – two-thirds of all superannuation money (the remaining third is held by SMSFs).

Let’s say there are roughly 5,000 trustees on the 429 trustee boards. I am surprised that the Australian community is not given more opportunity to get to know these individuals. I’m even more surprised that the Australian media (myself included) are not asking these super fund trustees the difficult questions about dubious investments during the GFC, the one-size-fits-all default investment option system, and the belated development of any decent retirement products.

Do we know the skill sets of these trustees, the qualifications, the potential conflicts of interest, and any related party transactions?

In most cases, the trustees involved are dedicated to the noble cause of looking after the retirement needs of Australians, although I believe the benevolent (but well-intentioned) style of many trustee boards is becoming a bit stale.

5. Stop financial advisers giving tax advice, including superannuation-related tax advice

My views on this issue are well known, but for completeness here are my views again: A financial adviser is licensed to provide investment and retirement planning advice, while a registered tax agent, such as an accountant, is authorised to provide tax advice.

In reaction to the new tax agent laws, financial advisers, via the Financial Planning Association, are pushing to be exempted from having to be registered tax agents when giving tax advice, which would then enable them to continue to provide tax-related advice in relation to superannuation and other retirement and investment-related matters.

If you’re seeking tax advice – and superannuation strategies are usually tax-driven – then be careful about whom who you rely on for advice. Visiting an adviser with an Australian Financial Services Licence (AFS licence) is no guarantee that you will get appropriate tax advice. Having an AFS licence means the adviser knows a lot about investing, but not necessarily about super and tax.

Superannuation is rich with tax incentives but burdened by complex tax rules, which means accountants, who are invariably registered tax agents, are often the most appropriate person for your tax-related super advice (provided it does not amount to financial product advice). According to the ATO, generally only a registered tax agent can charge a fee for handling your tax affairs. Your tax affairs include preparing tax returns and business activity statements, and providing advice on tax-related matters, including tax-driven superannuation strategies.

6. Show mercy to the innocent people losing millions in super due to bungled TFN policy

The super accounts of hundreds of thousands of Australians are at risk of penalty tax (46.5%) on their employer contributions, because the fund members have not provided tax file numbers to their super funds. For example, REST superannuation has 300,000 members aged between 18 and 30 years who have not provided their TFNs.

Charging penalty tax is only an effective tool when the victim knows they are being penalised, and a fair system is where the punishment fits the crime. Clearly, penalty tax is not working as a tool to motivate fund members to provide TFNs.

7. Lift crazy contributions caps

The main points I want to make about the contributions caps I wrote in THE SOAPBOX in May 2009: Does the government think we’re stupid.

8. Review silly silly excess contributions tax policies

The punishment of excess contributions tax doesn’t fit the crime in the short term because the dramatic cut in the contributions cap from July 2009 has caught many Australians unawares. The Government needs to show leniency when implementing the excess contributions tax policies. I explain the implications of exceeding your contributions cap in the article Super tax alert: Have you counted your super contributions lately?

9. Fix the unfair tax treatment on the super accounts of low-income earners

The deal with super is that in return for locking your money away until you retire, you get a tax break. The maximum tax that you pay on your super fund earnings, and super concessional (before-tax) contributions is 15%.

The problem with this system is that SG contributions (compulsory employer contributions), are subject to 15% contributions tax upon entry into a super fund, even when the super account holder personally pays no income tax, or less than 15% income tax.

The low-income earners are financially penalised by having a super account. That’s not very fair.

The Government needs to consider some type of tax offset for these Australians, to ensure, at the very least, that they are not penalised financially. The preferable outcome is that they receive the same tax concessions, perhaps in the form of a rebate or government super contributions.

Successive governments have continued to ignore this equity issue.

10. Make co-contribution available to full-time parents, and carers

You can read my views on this issue in THE SOAPBOX in April 2009: Women and carers ignored by super law-makers.

Related posts:

1. THE SOAPBOX: Let’s talk about consumers, but don’t invite them to the table
2. THE SOAPBOX EXCLUSIVE INTERVIEW: Cheap financial advice now available – what does it mean for consumers?
3. Another super review: Who’s looking out for consumers?

Senator Sherry has made it clear that this review is not looking at the tax aspects of superannuation (we already have the Henry Tax review doing that), but rather this new review will look at “the structure, operation and efficiency of the superannuation system…”.

The following organisations have signed a communiqué committing to the industry review:

• Australian Institute of Superannuation Trustees (AIST) (non-SMSF trustees)
• Australian Superannuation Funds Association (ASFA) (large funds)
• Corporate Super Association (company funds)
• Financial Planning Association (FPA) (financial advisers)
• Industry Funds Network (industry funds)
• Industry Funds Forum (industry funds)
• Self-Managed Super Fund Professionals’ Association of Australia SPAA (SMSF advisers)
• Investment and Financial Services Association (IFSA) (retail funds)

I am concerned that no consumer groups were involved in the communiqué supporting the review, and nor are DIY super (SMSF) trustees directly represented, even though DIY super trustees control one-third of all superannuation wealth. Significantly, the major accounting associations have not participated in the communiqué even though apart from consumer groups, they have the closest contact with Australian consumers via tax strategies and tax returns. Accountants also play a major role in retirement planning, and running DIY super funds.

Although I’m a little fatigued at the number of reviews that Australia’s superannuation system has been subjected to, I am keeping an open mind on this process because the superannuation system does have some structural problems that need fixing. In the June edition of the SuperGuide newsletter, I will outline what I believe are the top 10 problems with the super system.

In the meantime, I suggest the Government consider including one or more of the following organisations and associations in its industry advisory group to better represent consumers:

• Australian Investors’ Association
• Other financial adviser associations apart from the FPA (the FPA supports commission-based advice which is not in the best interests of consumers)
• CPA Australia and Institute of Chartered Accountants
• A representative from one of the financial counselling associations
• Choice (formerly Australian Consumers’ Association)
• One of the seniors associations

In case the industry has forgotten, superannuation exists to build retirement benefits for fund members – Australian consumers.

Related posts:

1. THE SOAPBOX: My top 10 super wish list for Australian consumers
2. What the heck is the Super System Review?
3. THE SOAPBOX: Let’s talk about consumers, but don’t invite them to the table