A view from the top
Four years on from chairing the federal government’s review of superannuation, Jeremy Cooper tells Katarina Taurian where the SMSF sector has got it right, and where there’s room for improvement
Do you think the issue of longevity is being addressed, particularly in light of this year’s federal Budget?
I think the message conveyed to Australians from the Budget and the surrounding rhetoric is the pension is not going to go away, it’s always going to be there, but it’s possibly going to be more of a safety net than it was before. In other words, less of a retirement strategy … and more of an absolute safety net. You won’t be on the streets or anything.
So I think the big ideological message coming out of it was … people are going to actually have to fend a little bit more for themselves rather than relying on the generosity of the taxpayer to help them in retirement.
So I suppose to the extent which longevity risk was a problem before all that, it’s even more of an issue now than it was before.
Do you think that risk is being recognised and addressed within the superannuation industry?
I think David Murray certainly mentioned longevity risk and the apparent lack of products and so on in the marketplace. I think [it’s been] mentioned more than you would’ve expected in a broad financial system inquiry … not only in his rhetoric but in a lot of the submissions as well. So it certainly seems to be at least one of the very important issues floating around in the Financial System Inquiry (FSI).
There’s been another delay to the SuperStream start date, what are your thoughts on this?
The fact is, a lot of money has already been spent on this, the legislation has passed, it is happening, it is just going to be a year later than otherwise would’ve been the case. My understanding is that this delay has been at the large fund end of things; there were certain funds that were just not ready.
But look, it does tend to be a bit of a slow industry because all of these things involve system changes and lots of little details and things that you just don’t think of until you have to start implementing.
I sometimes wonder whether the solution to all this is to have what you might call a 'soft opening'. We tend to [think] ‘well no, that would be a catastrophe, let’s just delay the whole thing by a year’. But look, [it’s] not a train smash.
Approximately 18 months ago now, you suggested that the SMSF sector could become too popular to effectively manage. Does that view still stand? Do you have any concerns about the growth in the sector?
I suppose what I said was that if it becomes too large… statistically it ceases to be a bunch of wealthier [people] and people who are towards retirement, and it would just become the general population. Then you’d have to ask yourself, ‘well, who could manage this?’ I think the ATO is currently doing a very good job here.
It remains an issue because, look, we have to be honest, there’s no other country in the world that’s got 10 per cent of its population doing its own retirement in vehicles like this – that is an absolute fact. So we have to be a little bit reflective at times: how come we can do it so differently like this and other countries don’t? I don’t think that means that we’re wrong, I actually think that means that we’re right, but we do have to be careful.
I think I’ve made this clear: I don’t like … that the genie has pretty much got out of the bottle in terms of people being able to structure leveraged investments in SMSFs, so that has to be watched.
When you see someone being recommended to set up an SMSF to make this one investment and it turns out to be leveraged residential property investment, you think, ‘well, that doesn’t look like a good retirement vehicle’ in the sense that it’s undiversified leveraged, not liquid. So that causes me some concern.
Some submissions to the FSI have suggested the ATO is not an appropriate regulator of SMSFs and that APRA should take over. What are your thoughts on this?
I think it’s just an unfortunate aspect of the history of the way superannuation has been built that you have one part of superannuation wanting to cut another part’s lunch.
You might wonder what the ATO is doing regulating SMSFs. At first, it might look a little bit odd. But really, SMSFs are first and foremost really a tax vehicle. And the philosophy is that you take responsibility for building up your retirement savings yourself. They’re primarily tax rules that you’ve got to comply with in order to have that privilege, and it’s really the ATO that ought to administer that.
To think that going back to APRA is somehow a solution is just not sensible. So, I strongly disagree with that.
I think [the ATO is] doing a very good job. They understand the SMSF sector, they understand where the problems are and I’m really impressed with the job that they’re doing. I don’t think people understand that the ATO is not in the habit of blowing its own trumpet a lot. I think they’re doing a really good job. The number of SMSF applications that they actually reject and the number of SMSFs that they’re closing down is actually quite dramatic.
When I went into the super review, the rhetoric around ‘oh, the SMSFs are terrible’ and they’re doing this and they’re doing that... All a whole lot of unsubstantiated rhetoric I’m afraid.