John Brogden

The Financial Services Council commends the Senate for supporting the amendments to the Future of Financial Advice laws yesterday.

“With the critical support of cross bench Senators, the Government’s amendments to FoFA have withstood an attempt to have them disallowed today”, FSC CEO John Brogden said.

“With the support of the Palmer United Party, Family First, Liberal Democrat and Motor Enthusiast Party Senators, the Government defeated the Opposition’s attempt to disallow the FoFA regulation this afternoon.”

“The new FoFA regime will allow more accessible and affordable quality advice to millions more Australians whilst maintaining the highest level of consumer protection in the world.

“The best interest duty remains in tact. Financial advisers will, by law, be required to act in the best interests of their clients”, Mr Brogden said.

“The amendments proposed by the Palmer United Party − accepted by the Government − are constructive, practical and sensible.”

“We thank the cross bench Senators for their support.”

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John Brogden

The 2014-15 Commonwealth Budget will make a substantial contribution to restoring long term budget sustainability according to the Financial Services Council.

John Brogden, CEO of the Financial Services Council said: “The budget will control spending and secure growth. It’s also the first budget in years where superannuation has not been the target of tinkering.”

“Raising the pension age to 70 years by 2035 is an important, necessary and reasonable reform given the increasing life expectancy of Australians,” Mr Brogden said.

“Many Australians starting work today will live for more than one century. It is critical that the increased life expectancy of Australians is the driver for Age Pension and superannuation policy, so future generations of taxpayers are not burdened with the cost of an ageing population.”

“The government needs to match the Age Pension increase with an increase in preservation age to 65.”

Mr Brogden also said that keeping older people in the workforce is imperative if Australians are to self-fund their retirement.

He said having older workers in employment is important for the economy.

“Giving employers an incentive of $10,000 to hire older Australians who have been on income support for at least six months is a positive step towards ensuring people are employed for longer.”

“The retirement savings of Australians are increased by $200 billion for every year a person remains in the workforce,” Mr Brogden said.

The government has also paused the Superannuation Guarantee Charge at 9.5 per cent for another year until 2018.

“The government has delivered on its commitment to make no negative changes to existing superannuation arrangements,” Mr Brogden said.

“Importantly, they have committed to deliver on 12% super. However, the pause at 9.5 per cent for an extra year s disappointing.”

The FSC has welcomed the increase in the superannuation contributions cap to $30,000 per annum for working Australians under 50.

“This shows a commitment to help Australians self-fund their retirement,” Mr Brogden said.

“Superannuation is already doing its job saving the government $5.7 billion in Age Pension costs this year.”

At $1.75 billion, superannuation funds in Australia have an appetite to invest in infrastructure. The government has opened up an opportunity to build a pipeline of infrastructure investment for Australians.

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John Brogden

Sustainability and increased consumerism are at the heart of the changes taking place in the life insurance industry, John Brogden CEO of the Financial Services Council said yesterday.

“The FSC is taking a lead in how the industry is responding to these issues,” Mr Brogden told delegates at the opening of the fifth annual FSC Life Conference in Sydney.

“We engaged Milliman consultants to conduct research on the sustainability of the life industry with a particular emphasis on the retail and group markets,” he said.

The research categorised issues for the life insurance industry into three key areas of:

• Market – for  individual companies to address;
• Industry  − may require an industry response and would benefit from an industry-coordinated approach, but do not involve competition; and
• Regulatory − areas where regulatory intervention may be required by government.

Mr Brogden emphasised that the FSC and its members were strongly of the view that challenges driven by market factors should be left to the market to resolve.

“However, there is a role for the FSC in coordinating and leading responses to industry-wide issues and in advocating for regulatory and legislative reforms,” he said.

The FSC is advocating for proactive legislative changes.

The first will be to introduce a ‘statute of limitations’ on group insurance disability claims to help the industry manage pricing with more certainty and to ensure the long term sustainability of premiums. The second will be to change the Private Health Insurance Act so insurers can fund medical treatment for claimants to improve return to work rates.

“This is an important change which will deliver better outcomes for claimants and will help to manage increasing claims costs for insurers,” Mr Brogden said.

“It will also help to improve the welfare of individuals by allowing them to remain engaged in the workforce and ultimately contribute to economic growth through higher labour force participation.”

The FSC is leading the response to non-regulatory issues that must be dealt with by the industry/ These include:

• Improving the quality and consistency of data shared by the industry, particularly for group insurance;
• Considering an industry fraud bureau similar to that used by  the general insurance industry and in other countries such as Canada and South Korea; and
• Establishing a medical impairment bureau.

Mr Brogden also said financial services industry can increase its already significant role in supporting the sustainability of the Federal Budget.

“Life insurance needs to be seen in the context of its capacity to reduce government outlays,” he said.

“Underinsurance has a significant impact on the Federal Budget as many of those with insufficient insurance ultimately draw on the government through various pensions.”

“The potential for life insurance to reduce welfare costs has not been considered.”

The FSC is examining how the industry can help reduce the future costs of the National Disability Insurance Scheme and the Disability Support Pension to the government.

“Life insurance can be the private sector solution to the increasing budget costs of welfare just as superannuation is the private sector solution to the costs of an ageing population and private health insurance is a private sector solution to managing health care cost.

Mr Brogden said the FSC’s Financial System Inquiry submission will include modelling by Deloitte on the potential benefit of privatising some elements of the NDIS and DSP to the Federal Budget.

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Megan Beer

Winners of the Financial Services Council’s prestigious Life Insurance Awards for 2014 − proudly sponsored by the BT Financial Group − were announced at a black tie function at the Sofitel hotel in Sydney last night.  

Now in their second year, the FSC Life Insurance Awards are presented to individuals and organisations in recognition of outstanding achievement in the life insurance industry.

There were six awards – three for individuals and three for organisations. They were judged by a panel of three independent experts, all who have extensive industry experience.

BT Financial Group’s Head of Life Insurance, Phil Hay, presented the awards to the 2014 winners who were:

• Industry Pioneer Award winner:  Megan Beer −  Director, Insurance, AMP;
• Leadership Award winner:  Tracey Crowe– National Manager, Underwriting, New Business and Claims, BT Financial Group;
• Young Achiever Award winner:  Rajasree Variyar – Direct Life Insurance Product Manager, ANZ Wealth;
• ‘Big Thinking’ Award winner:  Zurich Life & Investments Research Program;
• BlueChip Communication Social Media Innovation Award winner:  BT Insights −  BT Financial Group; and
• William Roberts Lawyers Consumer Innovation Award winner:  Smarter Years campaign − Asteron Life.

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John Brogden

The Financial Services Council briefed government and Treasury yesterday on the excessive costs associated with the Fair Work Commission process for selecting MySuper default funds and is calling for the end of the FWC’s role in selecting superannuation funds in Modern Awards.

John Brogden, CEO of the Financial Services Council said: “Australia’s superannuation industry is paying $45 million just to comply with the Fair Work Commission default fund selection process with no benefit whatsoever.”

“The system has delivered more red-tape and unnecessary regulatory costs for employers and the super industry,” Mr Brogden said.

“MySuper funds are approved in a detailed process by the prudential regulator, APRA. The role of the Fair Work Commission is a duplication of an existing process by the appropriate body.”

“Ultimately, it is consumers who pay the price.”

The FSC’s submission to Treasury on superannuation reform condemns the multi-staged FWC process for selection of default fund products for MySuper as anticompetitive and biased to superannuation funds owned by unions and employer organisations.

“The current default fund selection process explicitly favours superannuation funds owned by unions and employer organisations which are only parties eligible to make submissions to the Commission during the second stage of the selection process.” Mr Brogden said.

“It’s a closed shop.”

“Half of the superannuation sector has been excluded from the critical staged of the decision making process which determines whether a fund will be named in a Modern Award.”

“It is completely unacceptable that consumers’ best interests are being overlooked in favour of sectional interests.”

“We are calling on the government to commit to a genuinely competitive default market and to bring an end to this outrageous waste of members’ money.”

“We also urge the government to disband the Fair Work Commission default fund selection process as a priority,” he said.

Mr Brogden also said: “True competition will result in lower fees and innovation in the default superannuation market.”

The FSC also said the government should intervene in the Fair Work Commission hearings this week to seek to delay the process until its review of the default arrangements is finalised.

“Otherwise, superannuation funds will be forking out members’ money unnecessarily.

The FSC surveyed members and calculated that compliance with the current default fund regime for generic MySuper products will cost superannuation funds $45 million.

In addition, the separate FWC process for tailored MySuper products will cost superannuation funds $38 000 per application. This can equate to massive costs for large superannuation funds which can have several hundred employer specific plans.

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John Brogden

The Financial Services Council has called on the government to consider whether the income and asset tests for the Age Pension are too generous and whether the long term cost of the pension is sustainable.

It is 2014-15 Federal Budget submission, the FSC says it is concerned that the stability of the retirement system is being undermined by loose eligibility rules that allow Australians with substantial assets to receive pension payments.

John Brogden, CEO of the FSC said: “A couple with one million dollars in assets and an annual income of $60,000 are eligible to receive a part pension.”

“It’s time to assess whether this is an appropriate spend of government funds.”

The FSC has also recommended increasing the preservation age for accessing superannuation payments from 60 to 62 years to reduce the gap for Age Pension eligibility from seven to five years.

“This would have a significant positive budget outcome and also reduce the national private retirement savings gap by $400 billion,” Mr Brogden said.

Other recommendations in the FSC’s 2-14-15 pre budget submission focus on the contribution of superannuation and life insurance to improving the budget bottom line, red tape reduction and promoting the growth and export of financial services. Key recommendations include:

• Policy options − including tax incentives and/or disincentives − to increase the level of private disability insurance coverage to reduce the level of Commonwealth expenditure on the DSP;
• The McClure Review of welfare should consider ways in which private disability insurance could reduce the increasing flow of persons onto the DSP without compromising living standards of disabled persons;
• The government should communicate that the NDIS and NIIS do not replace the need for adequate personal disability insurance and highlight the differences between the financial support that will be provided by the NDIS/NIIS and financial benefits of having adequate life and disability insurance;
• Policy options should be considered to encourage the take-up of private disability insurance that would complement the NDIS and NIIS;
• A reduction in the Managed Investment Trust (MIT) withholding tax rate from 15 to 10 per cent should be delivered to bring Australia into line with other financial centres in our time zone;
• The government maintain its commitment to implementing the Asia Region Funds Passport across APEC economies;
• Release the Board of Taxation’s report on Collective Investment Vehicles as a priority;
• Maintain the commitment to an increase in the Superannuation Guarantee to 12 per cent by 1 July 2021;
• Retain the Low Income Superannuation Contribution but pause payments for two years in line with the delay in the Superannuation Guarantee increase; and
• Increase the superannuation preservation access point to 62 years of age;
• Provide that payments for up-front financial advice could be tax deductible; and
• Publish an Intergenerational Report in 2014.

Click here to view the FSC’s 2014-15 pre-Budget submission and new research by KPMG for the FSC − Disability Protection Gap in Australia 2014.

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Private insurance could reduce the NDIS and DSP burden: FSC

Life insurance can play a major role in reducing government welfare expenditure on the Disability Support Pension (DSP) and National Disability Insurance Scheme (NDIS) according to the Financial Services Council.

In its pre-budget submission to the Federal Government, the FSC says it is timely to consider whether the costs of the DSP and NDIS could be partially defrayed through personal disability insurance thereby transferring the risk to the private sector.

John Brogden, CEO of the Financial Services Council said: “The DSP is increasingly eating into the federal budget. In the current financial year the DSP cost the government $15.5 billion and this will increase to $18 billion by 2016-17.”

New research conducted for the FSC by KPMG shows 9.5 million Australians – 44 per cent of the population – could mitigate the economic risks of disability through personal disability insurance.

There were more than 50,000 new DSP claims in 2012-13.  If working Australians were adequately insured for disability, the government would save $340 million in the first year for new recipients of the DSP. In the tenth year this would equate to annual savings of $2.5 billion.

“The contribution of superannuation and life insurance will be critical for the Australian economy in the medium to long term,” Mr Brogden said.

“There is an opportunity for the government to share the financial risk and budget expense associated with acquired disabilities to the private insurance sector under the right policy settings,” Mr Brogden said.

He said a higher take up of private disability insurance would reduce pressure on public finances and will be likely to deliver a higher standard of living for disabled Australians.

The FSC’s pre-budget submission has recommended the government considers tax incentives and disincentives to increase the level disability coverage through private insurance and that the McClure Review of welfare payments considers how private insurance for disability could reduce the increasing use of the DSP.

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John Brogden

“The government’s announcement on the backlog of unlegislated tax and superannuation measures provides long overdue certainty to the Financial Services industry,” Financial Services Council CEO John Brogden said today.

Mr Brogden’s comments follow a statement released by the Assistant Treasurer, Senator the Hon Arthur Sinodinos AO, yesterday (Saturday) which detailed the status of the remaining 64 of 92 announced but unenacted superannuation and tax measures.

“Within the constraints of the government’s budget conditions these changes provide certainty on a number of important measures.”

“Over the past few years the industry has been 110% focused on red tape and regulation at the expense of innovation and developing Australia as an exporter of financial services,” Mr Brogden said.

“The Assistant Treasurer’s statement has provided certainty and clarification on tax and superannuation announcements from the Howard and Rudd/Gillard governments and will be a boost to confidence within the industry.”

“Australian taxpayers will also gain confidence in knowing that the cost of those measures have been addressed.”

Mr Brogden also said: “The government has been sensible in proceeding with the most critical tax measures for the industry as a priority and in opening others to further consultation.

“We particularly welcome the changes that provide greater certainty on the tax relief provisions for fund managers,” Mr Brogden said.

He also said retaining proposed legislative changes on functional currency rules were beneficial for the Asia Region Funds Passport.

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Shailendra Singh

The Asia Pacific region continues to be the biggest source of investment into Australian managed funds, according to the second annual Australian Investment Managers Cross-Border Flows Report, released yesterday by the Financial Services Council and The Trust Company.

The FSC-Trust Company report shows that Asia accounts for 66 per cent of all fund flows, followed by Europe (including the United Kingdom) at 24 per cent. Collectively, Europe and Asia account for 90 per cent of all fund flows into Australia.

Since the first study, which began on 1 January 2010 to coincide with the implementation of a new Managed Investment Trust (MIT) regime, investment flows into Australia have increased by 78 per cent from $20.3 billion to $36.2 billion − an average increase of 21.3 per cent per year, compound.

John Brogden, CEO of the FSC said: “The report shows the massive potential export market for Australian financial services”.

The FSC estimates that revenue from the management of overseas funds could inject as much as $700 million into the Australian economy each year.

CEO of The Trust Company, Shailendra Singh said: “Australian funds management expertise is widely recognised across the region. In addition to good levels of inflows into Australia, our managers have invested approximately 24 per cent of these flows in offshore assets.

“We have seen an increased focus in Australia by foreign investors, which has been evidenced in the sale of Port Botany and the Barangaroo project.”

According to Mr Singh, the stability of Australia’s economic and political environment has attracted a large proportion of fund flows from Asia in Australian fixed interest and cash. This asset class comprised 49 per cent all of cross-border investment.

“While interest rates in Australia are at an all time low, they are considered to be a good investment as they are comparatively higher than in Asia,” Mr Singh said.

The report findings also show fund managers are the largest source of inflows at 37.5 per cent, followed by pension funds at 31.6 per cent.

The FSC-Trust Company Australian Investment Managers Cross-Border Flows Report highlights the significant potential of Asia as a source of foreign fund flows. While Asia has 60 per cent of the world’s population, it has 12 per cent of the worldwide FUM market. In comparison, the US has 12 per cent of the world’s population and has 57 per cent of FUM.

Mr Brogden also said: “The proportion of funds sourced from overseas has the potential to increase exponentially if the right policy settings are in place. The finalisation of the Investment Manager Regime and the Johnson Report recommendations will further grow the market potential and capitalise on Australia’s expertise as a fund manager.”

“It is clear the Asia Pacific region holds large, untapped opportunities for the Australian financial services industry, with phenomenal potential for Asia to quickly increase its overall share of funds management activity. Australia needs to ensure it is positioned to capitalise on this.”

“The government has shown its commitment to the region with the signing of intent of agreement for the Asia Region Funds Passport in September. It is time to focus on completing the Johnson Report recommendations as a priority,” he said.

Key findings

• The flow of funds into Australia through MITs increased by 78.3 per cent over three years from $20.3 billion at 1 January 2010 to $36.2 billion at 31 December 2012
• The Asia Pacific region continues to be the most prevalent source of fund flow into Australia with 66 per cent of funds sourced from the region. Europe is the second largest contributor accounting for 24 per cent of total fund flows of which the UK contributed 5.9 per cent
• Australian fixed interest and cash was the largest asset class at 31 December 2012 − 49 per cent of the sample
• Fund managers were the most prevalent investor type at 38 per cent closely followed by pension funds at 32 per cent
• Overseas asset classes accounted for 24 per cent of investments.

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Australia needs an increase to the preservation age to boost retirement savings: FSC.

The Financial Services Council will be calling on the Commission of Audit to recommend raising the preservation age for superannuation to relieve the increasing strain on the economy as the Australian population ages.

“The Commission of Audit is the right vehicle for considering changes to the preservation age and the Productivity Commission’s recommendations on dealing with the pressures of an ageing population,” Martin Codina, FSC Director of Policy and International Markets said.

“It would be appropriate for the new Government to commission and publish a new Intergenerational Report as a priority to inform policy decisions in relation to Australia’s ageing population.” Mr Codina said.

“The superannuation system’s ability to generate adequate retirement incomes for Australians can be significantly bolstered by increasing the preservation age.”

Research conducted by Rice Warner Actuaries for the FSC shows that increasing the time spent in the workforce for every Australian by just one year reduces the superannuation savings gap by $200 billion.

“Australia currently has a superannuation savings gap of $1,063 billion. That is, the difference between what is actually being saved through superannuation and what is needed to sustain a comfortable lifestyle after retirement,” Mr Codina said.

“This significant retirement savings gap makes increasing the labour force participation of older workers in Australia a policy imperative.”

Australia has a lower proportion of 55 to 64-year-olds in the workplace than the United States, the United Kingdom, Canada and New Zealand. In fact, New Zealand is 15 percentage points higher than Australia for the employment of this age group.

The FSC has advocated for a phased increase to the preservation age from 60 to 62 years of age to boost retirement savings and reduce pension outlays. In 2009, the age pension eligibility was increased to 67.

“It’s now time to start closing the seven year gap between the preservation age for superannuation and the age pension. The gap will accelerate consumption of superannuation before retirees become eligible for the age pension,” Mr Codina said.

“To achieve the dual aim of reducing longevity risk in superannuation and increasing labour force participation of older workers to drive economic growth Australia needs to debate the appropriate preservation age for superannuation,” he said.

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