Super under the Coalition – what to expect

We have a new Government and, soon, a new minister. What should the industry expect from Matthias Cormann – assuming he is appointed as the responsible minister – and the Coalition government?

This is no theoretical question. The industry has been head down implementing the ALP’s reform agenda for the past several years, at the expense of much else. It had better look up because the Coalition’s priorities are likely to be very different.

Some won’t be known until the financial services inquiry, which now includes super. The best known changes are the Coalition’s policy to cancel the low income super contribution scheme, and the increase in the SG rate from 9.25% currently to the ALP’s planned level of 12%. It’s likely to be frozen at its current level.

Putting aside equity issues, these won’t have a huge effect on the industry. They will slow the industry’s growth rate, but only at the margin.

More far-reaching impacts are likely to come from action – or inaction – in other areas:

– SMSFs: the Coalition is likely to be friendlier to self-provision in super (not that the ALP was exactly unfriendly to SMSFs). If anything the already limited constraints on SMSFs on issues such as collectibles may be loosened further.

– Governance: the Coalition is committed to altering the equal representation board model of industry funds, initially via independent directors. This will be a major battleground. The funds’ view is essentially “it ain’t broke, so why fix it”. They see a political agenda.

That’s fair enough, but undermined by two things. The biggest super funds are now bigger than some banks. Funds increasingly need more skills around the board table than equal representation can provide. Expectations of governance in general are also changing. The addition of independents is no guarantee of superior performance, but it is a closer match with those expectations.

– Awards and super: a Coalition government would probably like to sever the connection between industrial awards and super altogether. This connection, which channels substantial flows to industry funds in particular, is likely to come under attack from at least a couple of directions.

The Default Superannuation Panel within Fair Work Australia, which determines the shortlisting of funds for awards, was given appointees with primarily not-for-profit backgrounds by the last government. This approach is likely to be reviewed. But it could become entirely irrelevant if any MySuper product becomes eligible to receive contributions under an award – surely the endgame for MySuper.

– FoFA: the Coalition has committed to easing the burden of FoFA, but how far will it unpick things? It’s expected that opt-in will go, but the interesting part will be whether the conflicted remuneration and grandfathering provisions are rolled back.

While the removal of conflicted payments was an important achievement, FoFA has also created some industry distortions (such as making it difficult for financial planners to move). Wealth management has also become an industry – pretty much the only industry – where it has become effectively illegal to pursue a sales career. These may sit uneasily with the Coalition. A significant roll-back of FoFA would be a shock for a retail industry which has just spent many millions on implementation, but it cannot be ruled out.

– Post-retirement: expect changes to tax and other regulations which permit deferred annuities and other retirement products found in overseas markets to be offered in Australia. This still leaves the problem of finding a good balance sheet to back them – especially if volumes really ratchet up.

Much will depend on the eventual make-up of the Senate of course, which looks like it might be interesting. But expect this to be a de-regulating Government to the extent it can. That will be a different experience to the recent past – a relief for retail, more challenging environment for not-for-profits.