R ICE W ARNER C ANBERRA S UMMIT 2019 S UPER ’ S S ILVER L INING
D ELIVERING BETTER VALUE AND IMPROVING MEMBER OUTCOMES IN RETIREMENT IN AN AFFORDABLE AND SUSTAINABLE WAY Andrew Boal Chief Executive Officer Rice Warner #RWSummit2019
C URRENT S TATE Agenda M EMBERS F IRST A F OCUS O N O UTCOMES D IGNITY IN RETIREMENT , N OT SELF I NTEREST #RWSummit2019
Current State #RWSummit2019
Damage to brand super C ONSTANT CHANGES AND REVIEWS IMPACT REPUTATION OF SUPER Productivity Government is Royal Commission has Constant changes to Regulators under Commission report concerned members exposed bad super system since pressure to be more has criticised fund are not getting value practices introduction of SG effective performance from group insurance Ongoing and high Grandfathered Retirement Incomes profile conflict Commissions banned Review announced between sectors from January 2021 #RWSummit2019
Our industry is much maligned , but has benefited the national interest Affordable and Growing super $2.8 trillion Reducing CPI + 5% returns universal life balances will lead contribution to dependency on over 25 years insurance to many achieving capital markets Age Pension coverage dignity in retirement #RWSummit2019
Growth of the Super industry H ISTORICAL AND PROJECTED SUPERANNUATION ASSETS AS A PERCENTAGE OF GDP 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Year #RWSummit2019
Age Pension Historical and projected proportion of the eligible population receiving the Age Pension A CTUAL P ROJECTED 100 ➢ The proportion receiving Percent of eligible population (%) 90 a full Age Pension has 80 fallen from 80% to under 70 70% 60 50 ➢ It will keep falling from 40 68% in 2018 to around 30 57% in 2038 20 10 ➢ The cost will fall too from 0 2.6% of GDP in 2018 to 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 around 2.5% of GDP in 2038 Year % Full Rate % Part Rate % Receiving Pension #RWSummit2019
Our industry continues to evolve and improve, and there is more to do F INANCIAL Y EAR E VENTS Introduction of MySuper ▪ 2013-14 SG reached 9.5% ▪ 2014-15 Financial System Inquiry Final Report ▪ Budget introduced measures to improve fairness, sustainability and integrity of the superannuation ▪ 2015-16 system The Treasury consultation on Development of the Framework for Comprehensive Income Products ▪ 2016-17 for Retirement (CIPRs) Establishment of Insurance in Super Working Group (ISWG) ▪ Productivity Commission Final Report into the efficiency and competitiveness of the Australian ▪ 2017-18 superannuation system Royal Commission Final Report into Misconduct in the Banking, Superannuation and Financial ▪ 2018-19 Services Industry #RWSummit2019
FUM in MySuper ($ million) #RWSummit2019 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 FUM IN M Y S UPER PRODUCTS FROM 30 S EPTEMBER 2013 TO 31 M ARCH 2019 MySuper 0 1/09/2013 1/11/2013 1/01/2014 1/03/2014 1/05/2014 1/07/2014 1/09/2014 1/11/2014 1/01/2015 1/03/2015 1/05/2015 1/07/2015 1/09/2015 1/11/2015 1/01/2016 1/03/2016 Quarter 1/05/2016 1/07/2016 1/09/2016 1/11/2016 1/01/2017 1/03/2017 1/05/2017 1/07/2017 1/09/2017 1/11/2017 1/01/2018 1/03/2018 1/05/2018 1/07/2018 1/09/2018 1/11/2018 1/01/2019 1/03/2019
Fees D EFAULT PRODUCT FEES – 2017 M Y S UPER VERSUS 2014 M Y S UPER A VERAGE ANNUAL FEE BY ACCOUNT BALANCE ($) A VERAGE PER MEMBER FEE A VERAGE OF ASSETS FEE S EGMENT ($ P . A .) (% P . A .) $5,000 $20,000 $50,000 2014 Corporate 77 0.85 120 247 502 Retail 60 0.78 99 216 448 Industry 75 0.72 111 219 435 Public Sector 58 0.51 84 160 313 Total 66 0.71 102 209 423 2017 Corporate 81 0.76 119 234 462 Retail 75 0.97 123 268 559 Industry 75 0.79 114 232 468 Public Sector 41 0.55 68 151 316 Total 71 0.77 110 225 457 #RWSummit2019
Investment Returns A VERAGE NET INVESTMENT RETURNS FOR M Y S UPER PRODUCTS FROM 2014 TO 2018 14 Average net investment returns for 12 MySuper products (%) 10 8 6 4 2 0 2014 2015 2016 2017 2018 Financial year #RWSummit2019
Members First #RWSummit2019
Key 2018 Budget changes S OME ASPECTS OF P ROTECTING Y OUR S UPER Protecting Your Super Package P ACKAGE H AVE B EEN Legislated LEGISLATED WITH SOME • Member Consolidation CHANGES • Fee Regulation – caps and exit fees (except inactive • Insurance members) Retirement N O CHANGES TO • Retirement framework SG SCHEDULE • Longevity products – CIPRs • Budget changes for pensioners 13 #RWSummit2019
Member consolidation ATO STARTS IT ITS All in inactiv ive super accounts ATO will proactiv ively fi find any lo lost FIR IRST SWEEP IN IN with balances belo low $6,0 ,000 super r and have it forwarded to a O CT CTOBER 2019 2019 will be transferred to the ATO member’s current active account to protect members through account consolidation $6 BIL $6 ION FEE REDUCTION WITH CLOSURE OF 3 3 MIL ILLIO ILLION MEMBER ACCOUNTS #RWSummit2019
Number of accounts against the number of superannuation members Number of accounts ('000) 30,000 25,000 20,000 15,000 10,000 5,000 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Year Accounts Population with superannuation #RWSummit2019
Fee restrictions 3% CAP ON COMBINED N O LONGER POSSIBLE TO CHARGE N EARLY 10 10 MIL ADMINISTRATION AND INVESTMENT ILLIO ION ACCOUNTS AN EXIT IT FEE WHEN ROLLING FEES FOR ACCOUNTS WIT ITH AFFECTED OVER SUPER FROM ONE FUND TO LESS THAN $6,000 ANOTHER #RWSummit2019
Insurance Removal of in insurance for MySuper and Choic ice E STIMATED members with: REDUCTION OF OF $3 $3 BIL ILLIO ION IN GROUP Inactive accounts - defined as those which have not received a contribution in the last 16 months – unless have opted-in to retain cover INSURANCE (legislated in PYSP ) PREMIUMS IF ALL LEGISLATED All new members under age 25 (re-introduced to parliament 4 July 19 in Putting Members Interests First bill) C OVER TURNED OFF FOR INACTIVE Accounts holding less than $6,000 (re-introduced in Putting ACCOUNTS FROM 1 J ULY 2019 Members Interests First bill) #RWSummit2019
Impact of PYSP on group insurance premiums 16 14 Premiums paid ($ billion) 12 10 8 6 4 2 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Year Without PYSP With PYSP #RWSummit2019
How Putting Members’ Interests First Bill if legislated would affect funds Decrease in Increase in On day 1, new Potential carve- insured insurance members have outs for high-risk members premium rates no cover occupations The Senate Economics Committee has recommended that Protecting Members Interests’ First be passed with the only change being a deferral of the start date to 1 December 2019 #RWSummit2019
Other insurance implications if legislated Loss of young members will create 700,000 underinsurance gap and move risk to social 600,000 security 500,000 400,000 Likely increase in the number of complaints received by insurers and funds 300,000 200,000 100,000 Less cross subsidies in the industry 0 15-24 years Rules required for when automatic cover Median Life Insurance Required Death Cover Required TPD Cover switches on or off Source: Rice Warner Underinsurance in Australia 2017 #RWSummit2019
A Focus on Outcomes #RWSummit2019
APRA SPS 515 Member Outcomes I MPLICATIONS FOR COHORTS OF RETIREES AND MEMBERS APPROACHING RETIREMENT It is about members’ Super funds are required The first assessment is Needs to be considered at the retirement outcomes ! to set up strategic plans of expected to be carried same time as Retirement Income delivering better out in conjunction with the Framework requirements, retirement outcomes to trustee’s 2020 review of its including the covenant which members and have it annual Business Plan the Government proposed to reviewed at least annually legislate by 1 July 2019 with commencement by 1 July 2020 #RWSummit2019
Requirements of SPS 515 I DENTIFY QUANTIFIABLE E MBED MEMBER OUTCOMES MEMBER OUTCOMES BY S TIPULATE A VISION THAT ASSESSMENT WITHIN THE MEMBERSHIP COHORT THAT FUND ’ S STRATEGIC AND OUTLINES THE VALUE - ARE CONSISTENT WITH THE ONGOING BUSINESS PROPOSITION TO MEMBERS SUPERANNUATION FUND ’ S PLANNING PROCESSES VISION #RWSummit2019
Member Outcomes V ISION Target Member Outcomes • SPS 515 requires superannuation fund trustees to: T ARGET MEMBER OUTCOMES FOR FUND • consider the member outcomes that are consistent with the fund’s vision • Assess fund performance against these outcomes A PPROVE STRATEGIC OBJECTIVES TO SUPPORT TARGETED MEMBER OUTCOMES •Embed this process within the fund’s strategic and business planning process. • Trustees must identify and specify key outcomes that the fund seeks to achieve for its members. These must be stated as measurable objectives. These must be stated as B USINESS B USINESS measurable objectives. P ERFORMANCE P LAN R EVIEW • Product development will need to support the member outcome assessment ... Which will need to validate the product development! O NGOING S TRATEGIC M ONITORING I NITIATIVES #RWSummit2019
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