Angel in the detail: Cooper's cost cutting measures
Tuesday, 16 March 2010 12:40pm
Jeremy Cooper, head of the Super System Review, estimates super funds can save up to $1 billion in costs by doing little things that add up to mean a lot.
Speaking at the Conference of Major Super Funds (CSMF) yesterday, Cooper detailed the ‘super stream' initiatives aimed at improving the efficiency of the system including: introducing industry standards on data collection; move towards a standard electronic payment processing system; and faster rollovers.
But where he received a round of applause was in the proposal to change the rules on superannuation account balances of less than $1,000, potentially abolishing the current 'member benefit protection' regime.
At present, super funds are legally obliged to manage account balances of less than $1,000 at no cost to the individual member, but subsidised by members with larger account balances in the form of ‘member benefit protection' fees.
This creates a big administrative headache and costs, particularly for funds in the hospitality and retail industries.
"When superannuation started, [in] a 3 per cent system, $1,000 was a meaningful [amount]. In the case of the funds we looked at, like REST, which has a very, very large membership, with casuals, it's actually costing a fund an absolute fortune to administer those members [with less than $1,000]," he said.
"Across all Workplace Super funds, according to the latest Rainmaker Fee Research, the average Member Benefit Protection cost stood at 0.01 per cent per annum, rising to a maximum of 0.2 per cent p.a. for some funds.
While small in percentage terms, it can be significant in dollar terms across the entire $1.23 trillion industry.
Automate me
Focusing much of his speech on the back-office end of running a super fund, Cooper said fund consolidation will also drive costs down, with the review proposing some form of ‘auto-consolidation'.
For example, under the auto-consolidation model, an Australian worker with three separate accounts could see all of them combined into the one account depending on whether it's the fund with the lowest fees or the most appropriate.
Cooper also said that super funds don't necessarily have to adopt a single clearing house model and argued that multiple clearing houses will work as long as there's a ‘single point of truth' or an industry standard on what set of data every member is identified by.
For example, a person's Tax File Number (TFN) could be a key identifier while another main data category could be their mobile phone number.
By standardising data sets, potentially abolishing the ‘member benefit protection' model and adopting ‘auto-consolidation', Cooper said the average super fund can save up to 25 per cent in back-office costs.
As for SMSFs, which are excluded from the super stream model, the Review is also looking at how to drive efficiencies there even though preliminary studies show SMSFs are highly efficient already, said Cooper.
Michelle Baltazar
This story was found at: http://www.financialstandard.com.au/news/view/28307
Printed: Wednesday, 8 September 2010 6:24am