ISN & FSC JOIN FORCES: AUSTRALIA BENEFITS

Pictured is David Whitely, CEO of ISN addressing the FSC delegates in an historic first

The main news, to my mind, from the morning sessions of Day 2 of the Financial Services Council's 2013 conference (#FSC13) happened off stage.

And that news was the joint announcement by the Industry Super Network (@IndustrySuper) and the Financial Services Council (@FinServCouncil) that they will work, collaboratively, on a better future for superannuation in Australia.

Now I could permit cynicism to kick in at this news, but the fact remains: this is a "maturity milestone" for Australia's retirement savings system.

Warring parties, fundamentally trying to achieve the same thing, albeit with different philosophical bents, have come together in the name of a greater good: a decent retirement, characterised by the greater choices and standard of living you can only get from having enough money.

I particularly liked these two quotes, from David Whitely and John Brogden respectively:

"Industry Super Network and the Financial Services Counsil should lead the elevation of superannuation out of the political discourse and ensure policy making is considered, sector neutral and even handed."

"Because we have allowed ourselves to be divided, the significance of the industry and our prominence in the minds of government and consumers has been diminished. Ultimately, it is superannuation that suffer."

The full release is available on both the FSC and ISN websites.

Perhaps it's time for both sides to read it, and bury the hatchet - for the sake of a better future.

I'm attending the FSC Conference with Aideen McDonald (@BlueChip_Comm) and Bruce Madden (@madd_23n) on behalf of BlueChip. You can follow my commentary at @carden and www.cardencalder.com.

Day Two at the FSC Annual Conference: a call for higher retirement age

Will we outlive our money?

As Reg the goldfish (@RegTheFSCMascot) headed for a quiet corner of the tank this morning (too many bubbles last night) John Brogden, Financial Services Council CEO, called for a higher preservation age.

With no magic policy wand to wave in order to make our national savings gap disappear, what are the practical opportunities available to us? 

Increase the preservation age, argued Brogden, on the basis of Rice Warner research. And consider other reforms: putting GST back on the agenda (to be broadened or increased) and reform of state taxes - cited as the most distortionary in the Australian economy.

Economic reform to support financial services and superannuation

Tax reform decreases pressure on Government to use superannuation as a honey pot for funding, argued Brogden. Such reforms, such as the abolition of state taxes, promise direct and indirect benefits to the financial services industry, said the FSC chief.

Arguing that the economic power of superannuation will eclipse that of banking, Brogden called for economic reform that will support a stronger industry.

Marking his third year as FSC CEO he also referred to the industry's greater ability to influence the economy in which we invest - and the likelihood that superannuation as a sector will become more significant to the economy and individuals than banking.

The Johnson report featured in Brogden's remarks - increasing withholding tax creates sovereign risk he argued, and government must look to the Johnson review as a priority.

Longevity risk - aka how to pay for us all living longer?

Brogden told assembled financial services industry delegates that Australian life expectancy has increased from 55 to well over 80, while the age pension age has only moved two years - from 65 to 67. 

There is, as a result, a huge savings gap as people live longer.

So increasing the preservation age in Australia to 62 (from 60) would increase retirement savings by $400bn. Expect more policy development and research as the FSC mulls impact of increasing preservation age.

Cited as the single most effective way to address the longevity risk, Brogden advocated increased work place participation by older workers - ensure older workers stay in the workforce. And thus reduce longevity risk - the very real danger of outliving our retirement savings.

Breakfast with the Prime Minister today

Squeezed tightly between two clients I listened intently to Kevin Rudd talk this morning.

I say "squeezed tightly" because the sold-out event drew the financial services industry in force to the Shangri-La ballroom in Sydney to hear Chris Bowen, Minister for Financial Services, Craig Dunne, AMP CEO, John Brogden IFSA CEO and the Prime Minster.

Chris Bowen told a great story about a Prime Minister who began a national savings system yet left the office before he could complete the vision. He went on, of course, to say that last weekend another Labor Prime Minster finished the job by announcing the phase in of a 12% Superannuation Guarantee Charge.

The Prime Minster positioned super as a buffer that helped Australia avoid the worst of the global economic slowdown, and as one of our greatest national strengths - contributing both to the nation's economy and the security of Australian families.

Certainly there wasn't a lot of talk about banks today - as the PM went on to say super gave depth to domestic investment markets, diversification in the financial system and provided a source of capital for business.

What he didn't say was that all the talk about retail term deposits being granted concessional tax status, of say 15%, came to nothing. There was a firm view, pre-Henry announcement, that we would see a product created that enjoyed the same tax benefits as super and also provided a ready pool of onshore bank funding.

The Prime Minster also talked about Australia in 2009 and painted a picture of a nation that, in 2009, remained an attractive source of capital globally, with a strong financial sector making up the single largest sector of our economy.

Australians' expertise in funds management, risk analysis and financial markets, he argued, should encourage us to take what we have learned here and apply it in the region to make Australia (and Sydney) a regional hub for financial markets.

Continuing challenges for super? Adequacy, fairness and efficiency.

So what of the future for super? 

Many in the industry have called for regulatory certainty around super in order to give investors full confidence in the system - and the impetus to invest more with certainty.

Short term, it sounds as though the Government plan is to let the dust will settle.

I'm sure I heard an assurance there would be no more changes to super in next week's Federal Budget.

Longer term the promise is for "a fair system" that is "simpler and more efficient".

And I'll still be interested to see if that much-written about long term deposit product appears on Tuesday night in the Treasurer's speech.

Will Cooper reshape the world of super as we know it? ASFA Day 2

Jeremy Cooper may not be planning wholesale changes to our super system. On the other hand, his comments in an ASFA plenary session suggest he's certainly not entirely buying the industry line that "it ain't broke so don't fix it".

In a wide ranging speech, Jeremy Cooper outlined the potential governance issues facing the industry in 2025, including the potential for a group of four "super" super funds to dominate the landscape, providing direct private equity sources of funding and wielding far greater leverage in their investment decisions. Cooper drew a parallel with Canadian behemoth funds Ontario Teachers and the Canada Pension Fund.

In this brave new world, the superannuation industry "dog" would no longer be wagged by the funds management tail. Cooper shared a possible view that super the system, if re-designed around members' interests, may look significantly different to the possibly funds management-centric structure of the industry today.

He asked if perhaps superannuation trustees are captive to their service providers, and suggested that without greater scale our funds are at a significant disadvantage in bidding for access to global assets.

In a message that made trustees happy, although perhaps didn't deliver joy to fund managers, Cooper suggested "Super funds have to start acting like they are at the top of the food chain", using their power to benefit members.

Other advantages of scale? Lower fees, in-house investment expertise, improved diversification, lower admin costs per unit and better member education.