IT has been a huge week or so for those in the retirement savings business, with the federal government seeking to change the rules for investment advisers and then proposing to push the compulsory superannuation contribution to 12 per cent by the end of
IT has been a huge week or so for those in the retirement savings business, with the federal government seeking to change the rules for investment advisers and then proposing to push the compulsory superannuation contribution to 12 per cent by the end of the decade.
This week’s news of the plan to raise the Superannuation Guarantee in increments from the current 9 per cent was seen as an electioneering move by many, especially as its announcement came in the federal government’s response the Henry tax review.
It is understood the Henry review did not recommend the change.
The government is proposing a 0.25 percentage point increase in 2013-14 and 2014-15, followed by 0.5 point increments until the guarantee reaches 12 per cent by 2019-20. Financial Services, Superannuation and Corporate Law Minister Chris Bowen said the three-year lead-time recognised that employers and employees need to factor this into future wage negotiations.
But business was howling, knowing it would bear the brunt of the cost.
“Business has deep concerns about the mooted changes to superannuation, including the raising of the Superannuation Guarantee to 12 per cent,” the Australian Industry Group said.
“This is a 33 per cent increase in what it costs employers to fund superannuation for their workers.
“To adopt this, business will be looking for wages trade-offs similar to those that accompanied the introduction of compulsory superannuation in the early 1990s at a minimum.
“Productivity in Australia will also have to lift considerably to support such an increase.”
Australian Chamber of Commerce and Industry CEO Peter Anderson said the federal government had reneged on an election promise with the contribution change.
Mr Anderson also said that any perception that the government was funding the increases in superannuation through the proposed resource super tax was wrong.
“The government’s funding of increased superannuation benefits is going to be paid for by Australia’s one million employers and small businesses,” Mr Anderson said.
“Those businesses are going to be required to increase compulsory superannuation obligations from 9 per cent to 12 per cent in seven stages over the next 10 years.”
The ACCI estimated the cost to employers would be up to $23.6 billion per year once the full effect of that measure is put in place by the year 2020.
“Alarmingly, what was announced was not what the Henry tax review recommended,” Mr Anderson said.
“The Henry tax review recommended that employers should not have to shoulder any increase in the 9 per cent superannuation contribution.”
While many in the superannuation industry will welcome the government-mandated increase in business for them, the sector also has other issues to deal with.
Just a week earlier, Mr Bowen released the federal government’s response to a Parliamentary Joint Committee on Corporations and Financial Services inquiry chaired by Bernie Ripoll.
Confusingly, the federal government’s response to that inquiry closely followed another report, the second from the Cooper review into superannuation, which proposed a separation of financial advice from super as part of a scheme to offer a low-cost basic super product, MySuper, through existing funds.
“Australia is facing the challenge of an ageing population. Access to quality advice remains an important part of planning for the future,” Mr Bowen said.
“These reforms will see Australian investors receive financial advice that is in their best interests, rather than being directed to products as a result of incentives or commissions offered to the financial adviser.”
Mr Bowen announced the federal government’s Future of Financial Advice package, which proposes:
• a ban on conflicted remuneration structures including commissions and volume based payments;
• a statutory fiduciary duty so that financial advisers must act in the best interests of their clients;
• introducing ‘adviser charging’ that to align the interests of the financial adviser and the client;
• percentage-based fees (known as assets under management fees) will only be charged on ungeared products or investment amounts, with agreement from the retail investor;
• expanding the availability of low-cost ‘simple advice’ to provide access to and affordability of financial advice;
• strengthening the powers of the Australian Securities and Investments Commission to act against unscrupulous operators; and
• the examination of a statutory compensation scheme.
While the changes were officially welcomed by most organisation representing funds and financial planners, it comes after a long and exhausting battering of retail advisers, notably by the industry funds sector, which has close ties to the federal government.
Industry funds have won a greater slice of the important default fund business through their inclusion in mandated panel lists enshrined the federal government’s modern awards.
Many independent financial advisers deny industry fund claims of better performance and are suspicious of the industry funds sector’s ability to offer advice without charging fees.
The Association of Financial Advisers, which last year called for an end to the current ‘open season’ on financial advisers, which it said amounted to wholesale defamation of the entire financial advice community.
Last week, AFA executive director Richard Klipin suggested the federal government’s reviews and reforms had the hint of the nanny state.
The federal opposition attacked the changes, with its financial services spokesman Luke Hartsuyker labelling the reforms a con, claiming the plan to ban the payment of commissions to financial advisers would not end conflicts of interest.
The Association of Superannuation Funds of Australia, the Investment & Financial Services Association, and the Financial Planning Association of Australia welcomed the general thrust of the changes.
IFSA claimed the proposed changes – set to come into force in 2012 – were a win for consumers and would build trust between financial advisers and the community.
”Our objective is to create a financial services industry where advice is transparent, of the highest quality and available to all Australians,” IFSA CEO John Brogden said.
“This package, in addition to industry initiatives to enhance customer control and ban commissions on superannuation, will substantially achieve these outcomes.
“The government needs to go the next step and make all financial advice tax deductible.
This is critical to ensure all Australians have access to available advice.
“While investors must take responsibility for informed investment decisions, the regulatory structure must support the provision of appropriate financial advice in the best interests of the client.”