Thursday, August 07, 2014

Brogden's Swan Song: Leave Super Alone

John Brogden has just delivered his final speech as CEO of the Financial Services Council (FSC).

Predictably he referenced the scale and importance of our industry - as he has consistently since taking the role. It's this theme that most, in my mind, defnes his tenure as the FSC's leader.

Let's face it, when Brogden took the helm from well-regarded predecessor, Richard Gilbert, not all the industry thought it was the best hire they'd seen.

In part this was to do with the new CEO's lack of industry experience. What the critics underestimated was that this former politician understood a far bigger picture and could, in time and with shrewd political calculation, place our industry well in that bigger national picture.

There is no doubt he has done that - getting across the issues, engaging Canberra on all sides of government and raising the industry's profile to the point where our industry debates are often front page news. This is, overall a positive and reflects the national importance of having our people well served by the financial system, it's institutions and the products and services it delivers.

After our health and relationships, the state of our finances is the next most significant determinant for many people of their happiness and well-being. Added to that super plays a key role in the financial stability of the nation as the pool of retirement savings has grown to become a globally significant capital base.

It's perhaps appropriate then, as Brogden leaves the industry that he mounted a defence of what works, and called for a halt on "tinkering" - instead asking that we leave the reforms in place for enough time to allow them to do their job.

Today he spoke of a system in it's infancy, a system that needed to be allow to grow into it's own free from further tinkering. Quoting Churchill, Brodgen said, in effect, it's the best worst system we have (see the video for an excerpt). In super's defence, Brogden cited:
  • Global research suggesting the larger the retirement system, the higher the returns. Size, along with competition and other key features that exist in our super system are shown to correlate with stability and returns
  • Today's data from Chant West shows median fund return over the long term is 8 per cent per annum, some 5.4 per cent above inflation, net of fees and tax. This is well above typical return objectives of CPI plus 3 per cent. Evidence the system works, says Brodgen
  • Citing the Deloitte super report, Australia has the world's third highest returns.
  •  Fees are in fact dropping, and at an accelerating rate
  • It's too early to assess the effect of My Super reforms: while the Grattan Institute calls My Super a failure, Rice Warner data suggests the reverse, showing drops in fees accelerating, indicating an immediate decline in cost of default funds.  Total fees moved from 1.3 per cent to 1.2 per cent 2002 to 2010 then between 2011 and 2013 declined on average from 0.92  to 0.73 per cent
  • With 80 of Australians in default funds, most of us are getting immediate benefits from super reform and competition
  • On a global scale these numbers compare to CALpers fees at 0.77 pe cent and a return of 3 per cent and the major Canadian fund at 0.92 per cent fees and 5 per cent returns.
So our system may in fact be pretty good - and as Brogden says it's only today's ten year olds who will have the benefit of a lifetime of 12 per cent of their earnings being saved for their retirement.

And that's a good note to end on: our industry is one that should be thinking about lifetimes to come, not just this year's shareholder returns.