THE SOAPBOX: Let’s talk about consumers, but don’t invite them to the table

If you’re confused about what is happening with the Super System Review, then you’re not alone. Over the past few months, I have chatted with many Australians who are reading in the newspapers about phases, issues papers and preliminary reports and not sure what fits where in the Super System Review (SSR), and whether they should read any of it, or simply wait, for when all the noise stops. (I explain what the SSR is all about in the article What the heck is the Super System Review).

Ironically, although the SSR is “to be conducted around the concepts of the best interests of the member and the maximising of retirement incomes for Australians” (see scope of SSR), the Review panel has no consumer representation.

The SSR’s preliminary report for Phase One (Governance) ‘Clearer super choices: matching governance solutions’, released on 14 December 2009, proposes a member-oriented model rather than a product-based or industry-sector based model. The Review panel is trying to protect the interests of fund members by recommending that fund types be classified in terms of member engagement as follows:

• disconnected
• universal
• choice
• SMSF.

Quoting directly from the Phase One report (page 6):

Some of the design features envisaged for each category of member… include:

Disconnected member: Must be placed in a fund with the following features: low cost,conservative investment strategy, minimal information or disclosure, low cost facility to aid member identification so as to expedite relocation, consolidation, and transfer to other categories.

Universal member: Must be in a fund with a single diversified investment strategy(including a life-cycle strategy) overseen by trustee with traditional duties, insurance offered, but few other ‘bells and whistles’. Limited role for advice because advice is ‘embedded’ in the product and no choices need to be made by the member.

Choice member: Will be in a fund with potentially unlimited menu of options for investment, insurance etc, though still subject to sole purpose test, trustee responsible for reasonable due diligence on investment and insurance options offered, but limited liability for choices made by individual members, effective disclosure of paramount importance. Members likely to rely on advice or disclosure and other information about their options.

Self-managed: Because SMSFs are being dealt with in Phase Three: Structure, it is too early to suggest possible changes to the SMSF sector.

Although I consider the SSR a valuable process, and the Review panel a competent and experienced bunch, it seems that the industry is talking to itself, and forgotten what the superannuation system is really about. I repeat: the SSR has no consumer representation but its proposal is all about member engagement… you know, those people – what are they called? Ah yes, consumers!

The report certainly makes some reasonable suggestions, but my overriding reaction was the benevolent nature of the report. What I mean is that the report is well-meaning, and obviously has been produced with a lot of thought and consultation (with the super industry, not consumers) but this outdated view that the Government and super industry know what’s best for consumers means that the report has proposed a member-oriented model with no mention of member engagement or member education, and apparently no knowledge of the fact that even though fund members don’t change super funds or investment options, Australians are taking an increasing interest in their super benefits.

The popularity of our website, SuperGuide, is testament to the fact that Australian consumers are ready for something different. The continuing existence of commissions, multiple super funds and paper-based processing is evidence enough that the super system cannot be driven only by those with vested interests

The SSR has a big job ahead and the preliminary report is a start, but I suggest they talk to some consumer groups, or even arrange some consumer focus groups. Hopefully, such an approach will ensure that the final recommendations, due out by 30 June 2010, resonate with the most important stakeholder of all – the consumer.

I will be writing about the SSR in more detail in 2010. Chat to you next year.

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