Welcome to that super show, the podcast where we talk all things super from the inside. I'm Neil Benson, CEO of Superware.

And I'm Sarah Penn, CEO of Mayflower Consulting. Each week we unpack what's changing in the industry, what funds are wrestling with and how tech and regulation are shaping the landscape.

Sometimes we bring in expert guests, but mostly it's just us having a real conversation about how super is working and what could make it even better.

Let's get into. Hi Neil.

G' day Sarah. How's it going?

I am very good. How are you this sunny afternoon?

I am bombarded. Since we last recorded there's been heaps of stuff happening in the superannuation sector.Lots happening from the Was it the productivity summit that Jim Chalmers hosted down in Canberra a couple of weeks ago?

Lots of talking,.

Not a lot of legislation.

Hey, no, I mean it's this government's big chance. I saw Christopher Pyne speak recently. He said there is no way that the libs will get back in at the next election.So labor have a six year run at it and they have to do some good things or else a great.

Time to do big bold brave actions. But we haven't seen any yet. We'd love to see some tax reform, superannuation sector reform, but yeah, nothing. No sign of it yet?

No.

Maybe we just have to be patient.

Yeah, it's not really my thing Neil.

Speaking of impatience, I saw a really interesting article recently. Hester and I think Art are going to join them have taken ATO to court. You've got to be pretty brave to punch the regulator on the nose.This is to do with imputation credits on some securities that were held in short terms inside of derivatives that Hester think they are owed $11 million tax back on behalf of their members of course and Art on behalf of QSuper thinks they're owed some tens of millions of dollars as well. ATO disagrees and so they're off to the federal court to sort that one out.

Yeah, if I thought someone owed me 11 million bucks, I'd be going there too.

Have you heard of superannuation funds taking.

The regulators to court before it happens? Occasionally it does happen. Funnily enough though, the ATO is probably the easiest to deal with out of all the regulators.They're the most sort of commercial considered. We'll discuss things with you. Out of all the regulators.But yes, I have to say it would seriously be pushing the friendship if I thought the ATO owed $11 million to a bunch members. I think that would. That would definitely be enough to lawyer up and go there. I mean, they do appeal convictions and things pretty regularly.So if, like, ASIC sues them, they will generally appeal numerous times if required to try and try and overturn. It doesn't normally work. Occasionally does.

I think it's a brave move and I think good on them on behalf of their members. You know, $11 million back into the pool of investments. That's. It's worth a go.

Yeah, it is. It is, definitely.

I will watch that one with interest.

Yes.

What else has caught your eye over the last couple of weeks?

Oh, so the performance test. It's that time of the year again. I know. A lot less fanfare, though, than in previous years, which is because all the My supers have passed.In fact, nearly everything has passed. Only four trustee directed funds have failed. But interestingly, there are a lot that are borderline.I'm sort of in two minds about that, actually, because on the one hand, you know, it is being judged against very low fees and very stringent benchmarks. On the other hand, it's people's retirement savings. And if you're looking over 10 years, come on, team, you know, are you doing good things or not?

I'm delighted. 54. All of the My super products, there's 54 of them in the market. They all passed this time around, which suggests that. When were they introduced?About four years ago, Four or five years. We've weeded out a couple of subpar My super products and, you know, they catch a lot of members by default.So it's good that they're up to a reasonable standard now. So delighted to see that. I did notice a couple of A and P products failed.And they said, look, you're only testing about 3% of all the products that are available on our platform. And these ones represent a very small number of members or, you know, very small number of members are invested in them.So it's a complicated business when you get to testing choice products. And there can be lots of reasons why a particular investment option has high fees or some other thing that causes it to fail.So all in all, I think it's a good thing generally that we do these performance tests, but I can understand the level of criticism the tests keep facing every year, and everybody wants to change them and improve them.

Yes, there were some fairly significant changes considered maybe 18 months ago, two years ago, and it kind of came down to, do you want to get a test that is highly, highly accurate but basically unexplainable, or do you want something that is a bit of a blunt stick, but at least basically makes sense to your average punter if you explain it. And it. And it fell into the second category, which I think is right, especially for my super. I mean, my super should be middle of the road.It's not supposed to knock the lights out, it's supposed to make sure it does what it says on the tin. So I'm absolutely fine with that, I have to say. So sorry, everyone who doesn't like it for choice products? I don't know.It's still people's retirement savings. And Even if only 3% of AMP's customers are in this one product, it's a bit rubbish, team. It's failed multiple years running.Either drop the fees or sort the performance. And in fact, because the performance is tested over the long term, but the fees are tested using the current fees.So you can game it in inverted commas in a lot of cases by absolutely dropping the fees, which will in a lot of cases push it back over the required numbers.

Can you drop the fees while the test is going on and then raise them again the next day?

No, because I think it's over the full year. But I like your thinking. Please don't do that.No, it is the fees from the previous year versus the returns over the longer term, people's retirement savings. And I guess the corollary to amps. Well, we have lots of options on our platform is. Well, why do you need these ones, then?

Yeah, fair enough. I got a communication from my industry super fund that they're closing down a couple of their investment options.Not quite sure why, they didn't explain why. But you've got to find something else to invest your money in and I think that that's a difficult communication for a fund.I was quite happy set and forget, that's my preferred asset allocation and now I've got to rethink it and find other ways to invest my money, maybe change my strategy or find other investment options that meet my strategy. It's just a bit of work that it didn't want to have to do. I wish they hadn't sent that communication.Maybe that's why Amp doesn't like closing down options. It just forces members to have to do some work and make some changes.

Well, interestingly, it is a bit of a process to close a managed fund. There's lots of rules about last man standing and all kinds of complicated stuff, but it's not impossible. It's just. It is a pain in the neck.But having Said that if you have lots of products then portfolio management is a part of that. And I think it is an area that is starting. Funnily enough, great segue, Neil.Funnily enough, really starting to become more and more prescient because of DDO and requirements around product governance frameworks and all the rest of it.I had lunch with some interesting people last week and one of them was suggesting that product management should sit in operations because it is very BAU focused. It's like end of month testing and end of quarter testing and end of year testing and all those sort of ideas that are much more operational.Well, that's what ops are used to. Right. Where's your monthly report?

Frequent recurring processes.

Yes, exactly. Recurring processes where there's often not been a side of product management.And I think you see that when you see products don't get closed often enough. I would say well, I will look.

Up my super fund writing to be able to more fun investment closures over the coming years. Thanks.

You can just stick it in the My super option and be done with it.

Take a little bit more valuation than that. So speaking of these performance tests, Jim Chalmers announced not quite an overhaul, but maybe a little review was in order.In particular he wanted to carve out performance tests on investment options that involved investments in housing, I think decarbonisation or the green economy, whatever we look at it in order to encourage superannuation funds to invest in those types of assets without fear of recrimination, certainly through the upper performance tests. I'm not sure. Paul Schroeder from Ausuper had a really interesting article about superannuations.Not the government's Piggy bank was the headline in the afr.And I've got to agree with him that I think it could be the government's job to invest in big risky capital intensive projects with taxpayer money and once those assets are built, find a buyer for them.And that could be a superannuation fund because it de risks it for members and there's long term income from the rent or whatever fees they draw out of that asset.And that seemed to be a much more sensible way about thinking about investing in some of these big housing schemes or infrastructure projects or wind farms and let the government do it, but then take on all the capital risk because they can write legislation to force things to happen and let super funds come in as a secondary investor.

Oh Neil, that's taking all the fun out of it. How do you think companies like Macquarie make all their money? The people who are in Earliest you take the most risk, you get the biggest rewards.That is if it all works. But with these massive sort of infrastructure style projects, that actually is what a lot of super funds do invest in.And I actually would put, you know, serious quantities of housing kind of into the infrastructure bucket, actually. Social infrastructure we might call it.There are, there are some reasons at the moment why investing in large scale residential complexes and things are difficult. One of them actually, interestingly, here's an interesting side side note.Tip is we treat all international investors the same way in Australia into residential housing.So it doesn't matter if you are an overseas national trying to hide some money in Australia or if you are the Canadian sovereign wealth fund, we treat you the same way.

You gotta go through the foreign investment review board before you can buy that house.

Yep, all of that crap. And so because we treat all international investment into resi the same way, it really puts off the really big international, international players.And there's things around tax to do with that as well that I cannot remember. But part of that, the treatment makes it less attractive.And the thing is, when you're doing one of these very large projects, you might want the government to pay the other half or someone else's government to, you know, whether it's Canada or Singapore or you know, Holland or somewhere, somewhere that's got lots of money and wants to invest it. People do want to and those big businesses do want to invest into residential housing. But in Australia we make it incredibly difficult.So it's very unusual for us. Super funds do want to invest in those sort of things, but they don't want to invest, they don't want to be the sole investor.So they want a couple of other big investors to be in it as well. And from a system stability perspective, they don't. It's generally not going to be other super funds.So they're looking overseas for other sovereign wealth funds which is the sort of equivalent to invest in. And yeah, we make it real hard.

A few years ago I did a lot of work with a US company called American Homes for Rent. We ended up buying 30, 40, 50,000 single family homes, corporate landlord renovating these homes and then renting them out to private individuals.In Australia we don't really have this corporate landlord kind of market.

No we don't.

And we're very used to having mum and dad investors, having a couple of investment properties and being a private landlord and that's very common here. Are we really ready for Australian super to be my landlord? I'm not quite so sure. And the economics of it are really tough.Those residential REITs in the US, few of them are listed. American homes who rent is listed on the stock market. They're not wildly profitable.It's a very tough market and they take a lot of grief from people who are upset about licky taps and, you know, the length of the lawn and things like that. So it's a pretty tough business to operate. It'd be interesting to see if Australia is ready for big corporate landlords.

Well, I think it's what we need though. That's the.That's the issue is we need to like, if we keep going down the path we're going, which is houses get built one at a time in brick, slowly the problem will just get worse and worse and worse.I remember that the chief economist at Macquarie bank telling me many years ago that every year in Australia we're short about 20 to 30,000 new dwellings. And it just gets worse because it compounds. So every year we're making the problem worse and worse and worse.So to fix it, we need to look at this very, very differently.Things like fixing housing crisis by rezoning some areas and allowing people to build three storeys instead of two just aren't going to fix it anywhere near the speed that we need.And like, Super Funds are like, on a financial standpoint, they are well placed to be early investors in these projects, not to do the long term running because they would be rubbish at it. And as you say, the margins are very skinny. But in terms of standing these things up, they are absolutely the right sorts of people to be doing it.But, yeah, at the moment, nothing.

Andrew Fraser from Art Zig, the chairperson at Art, he's put it really nicely. He said there's a massive difference between the idea of a toll road and a toll road that is actually operating.So I think what he's saying, Sarah, is he's happy to buy that toll road off you once you've built it, then he doesn't want to go and build a toll road. Maybe we'll let Macquarie build the actual toll road and then folks like Art can come in and swoop in and buy it after as a secondary investor.

Oh, what else have we got? Here's one back on Super.Super treasury have put out guidance, draft guidance on super retirement income solutions and they would like to see, they think best practice. It's out for discussion at the moment. Discussion will be finished by the time this podcast goes to air.It's quite fascinating to see what they're thinking. They talk about they'd like to see three cohorts, at least three cohorts within each sort of fund. Retirement retirees, retired members.A friend of mine, Stephen Huppert, who do you know? Stephen. Yes.

Hello, Stephen.

Hello, Stephen. Shout out to Stephen.He did an excellent article on, on LinkedIn, actually, where he talked about the fact that process, which is what these guidelines are all about, does not equal outcomes. And I think that is incredibly important to focus on that. We end up looking at how things work and we don't look at how things end up.And I do think there's this thing in superannuation, it's a bit like. Because super funds can only see people, super. They can't see what else they've got. They can't even see if they're married. They don't know.

They don't know if they live in their own home.

They own their own home if they're getting the age pension.And when we talk about if you're going to be OK in retirement or not, it comes down essentially to whether or not you own your own home and whether or not you're single, neither of which whether or not you'll be OK on the age pension, neither of which the super fund knows. So how is the super fund supposed to be the crowd that we look to to determine whether or not people are retiring?Well, anyway, okay, so treasury guidance, super retirement process doesn't equal outcomes.

I think there's more work to be done when it comes to retirement solutions. We were talking off air about annuities and whether those are fit for purpose and in demand in Australia, it seems like. Not really, I think.Well, I think there's new annuities. Modern annuities are great. Very interesting. As I approach retirement, I go, oh my God, should I have a look at some of those?But I think the general public, no.You know, annuities have a bad rap from many, many years ago when they were miss sold and there were lots of commissions involved and they weren't very, very useful. Maybe they just need a new name.But yeah, we've got a lot of work to do when it comes to retirement solutions and it'll be the next stretch over the next 10 years. I think there'll a lot of focus on that and some innovation and some products. But you think it's going to be harder than that?

Yes, I think, as you say, people don't buy annuities. They are only. They are only sold them.Financial planners generally don't sell annuities because they sort of act as the annuity themselves in a way, by helping the clients manage their money year on year on year, people don't ring up super funds wanting to buy annuities. Most of the annuities that are sold in Australia are not lifetime annuities. They're actually short term, like four or five years.And people just treat them as glorified term deposits with better returns. My actual issue, if you look at the research, people who are in annuities are generally happier. They end up with more money.They, you know, it's all good except that if you can't flog the damn things, it doesn't matter.And my concern is that while super funds are being hammered by APRA and ASIC about best financial interest duty and where they're spending their money and all the rest of it, on the other hand, there's this expectation that they will spend inordinate amounts of money and there is no cheap way to just offer an annuity that no one's ever going to take up. And so then you're adding in a whole lot of cost complexity.People mess opportunity cost into super funds because the government has decided that this is what everybody needs. But if you can't flog them to anyone, it just doesn't matter anyway.

I'm more optimistic than that. I think if you take a step back and look at annuities and a defined benefit fund to the, the, the outcome to the member is very similar.

Yes.

No risk, fixed income, peace of mind.

Yes.

If you tried to take away a defined benefit from a member who, you know, I've been working their entire lives, super's been invested for them and you try to prize that out of their, their hands, they would fight you for it.

Yes, they will.

It's a really brilliant benefit. If you think of an annuity, it's very similar, but we can't get anybody to take them up. And yet they're almost the same thing.

Yes, I completely agree.Sadly, this has got nothing to do with what's actually in best people's interests and everything to do with marketing and perceptions and all the rest of it.The problem is we have a DC system and we tell people repeatedly that it's their super and their money and they should be taking more, more care of it.And we bang on about financial literacy, which is another one of my bugbears, and about how people should be taking more notice and being interested in doing things and taking control of their super.And then we're going to keep pushing that barrow and then when people retire, we're going to go, oh, no, no, don't you worry, don't you worry your little heart. I've got this all sorted out for you and you're just going to take up this product and I'll manage it for you for the rest of your life.It just doesn't work and I don't know, I have not seen anything that has had a sliver of hope that someone might be able to overcome that.

Well, let's, let's fix it.Let's see if we can invite somebody on from some of the big annuity product manufacturers and come in and explain annuities and the future of them and where they're headed, because I am a lot more optimistic than you. What are we going to call them? If we call them defined benefit accounts, put some lipstick on it and it'll be fun.

Yes, but then you're sort of suggesting that it's a pig and we don't. Oh, dear me.And while I'm on, while I'm on my rant about such things, the other thing that I would like to rant about is Treasury's retirement reporting framework and the fact that they do want super funds to tell them whether or not people are retiring properly, but the problem is they are missing. The super funds don't have access to the Centrelink data, so they don't know who is getting what other benefits.And I don't know what the corollary is.It's a bit like, I guess, asking Dr. That you see once every three year old, every three years, you know, whether or not all their clients are in good nick?It just, it just doesn't, doesn't work and they, they have more information, they can get blood tests and things, you know, to be able to see people's overall physical health. Yeah, I just don't know how to.

Is there a future then, where members could check a box, give permission for their Centrelink data to flow to the super fund to roll up to some kind of financial health dashboard for the member with their superannuation?The member can even add in other outside super assets into it and Centrelink data so that the super fund or their financial advisor get a more holistic impression of their retirement health?

Yeah, yeah, absolutely. There are some legislative issues in the way. There's a couple.There's an opportunity which is the consumer data riot which started off with banking and then utilities. Super was supposed to be next, but I think. I'm not sure where that's actually up to. Through my work with the fsc.We did actually lobby the government hard to change the next suite of data to be Centrelink data. Because actually the ATO and Centrelink data is needed to reduce the cost of advice as well.Because I don't know if you know, Neil, I'm sure you and everyone who's listening to this has had this experience. You go to the accountant to do your tax return. The accountant says, what's your tax file number?You tell them and they type it in and then they go, right, so I can see here you've got, this is how much you earned and this is your super. And these are your bank accounts and do you have an investment property? And you say yes or no. And it's all pretty quick and easy.If you go and see a financial planner, you walk in the door, there's no tappity, tappity tax file number. There is a 30 page fact find to fill in.

Yes, I still have.I went through the financial advice recently and I was showing my friend of mine the process we went through and the OneDrive folder that I was sharing with the financial advisor with 30 or 40 documents in it, investment statements, superannuation statements, and he had to compile all of that manually. It's awful.

It is awful.

And so let's get CDR on the case.

There's legislation that allows accountants, licensed accountants to access the Atos databases via various systems and things. But it's specifically for accountants, not for financial advisors.So if we want to reduce the cost of advice and get better outcomes in financial in retirement. There you go. Let's start with that one. Team, anyone?

Bill, Is there a petition that our listeners can sign?

Oh, I can get one together.

Great.

Yes, but that, that is the thing that would, that would make a huge difference to being able to report effectively on all those things. I've got an idea to discuss as well, which has been, which has been making me think about.I've been thinking about this a lot in my own business, but this thing of we want to help customers or members all the time, whether they're B2B or you know, individual members in a super fund.But I think we missed the bit before that, which is, and I'm trying to do, well, I'm trying to, I'm doing work with this, with my team is how can we help customers to help us so we can help them.

That's pretty meta.

It is.

Can we tick it?

It is, isn't it?

Step through that one at a time.

So for a super fund, for instance, we want to Help people retire better. So what information do we need from members to be able to do that and how can we help them to give us that information, for instance?So how can we help customers Help us to be able to provide what they really wanted in the first place, especially for these sort of things? Because super is big and complicated. And also we sell. It's enterprise sales. And your business is the same.You can't just go and ask people what they want because they often don't actually know what they want. They know they have a problem and they'd like it solved.But then if you ask them specifically the problem, often people aren't 100% clear on exactly what the problem is either. Or they tell you a symptom rather than the actual problem.

Yes.

And I think this is the same with consumers as well. Our approach to it has been to bang on about financial literacy.But again, that's, that's trying to get them to the point so they can tell us what the problem is and we can help them fix it. Whereas I think, I think there's a big opportunity for us to think about how we can help customers. Help us to help them. And if you work.

So is this about more collection of member information? Are you married? What's your income? Where do you live? Do you own your own home?And then we can provide some tailored digital advice solutions, zip overhead.

Yep, yep. Often those sort of things. Sometimes we do it a little bit. Although it does drive people bonkers.Like when you ring a, when you ring an IVR and the message says, you know, if you're just after your balance, you can get it by logging into member online.I mean, most people aren't just ringing for their balance and they do want to kill you at that point if you start mentioning that over and over again.But it's that idea of helping people to give us what we need so that we can help them achieve their goals, whether it's a business or people's personal goals.And thinking back through those steps, okay, well, if we want to help people, because quite often what happens is we ask people questions they don't know the answer to, like in financial planning. I don't know if your advisor did this. So what are your goals, Neil? And often people have no idea what their goals are.So we ask them that and then we sit there and stare at them and people make things up. I remember doing this with my own advisor many years ago. What are your goals?Oh, you know, we wanted to be a million dollars in the clear and we wanted to retire at 60. We just made it up.

What goals are reasonable from where I'm sitting? You know, help me visualize my potential future rather than just, you know, pluck ideas out of thin air.

Yeah, yeah.So if I was an advisor, it's that thing of, okay, so I get all your information and then I can look at it and then I can say to you, well, at the moment, you're on track to retire at 65 with X or at 70 with Y. If that's not what you're hoping for, or that's not the retirement that you'd like, then let's talk about how we can make some changes to that.And I'm pretty sure most financial advisors would do that these days. This is 20 years ago that I had that conversation.But I think for super funds, we want to help customers in lots of different ways, and we want to make it as we want to get the information back from them in a way that helps us. Actually, when you were talking about a couple of episodes ago about your wife being able to fill in a form and put 100.00 on a form.Yes, that's actually a good example in that if that form didn't have any space to put the.00, maybe it just had three boxes. So you could put 1,00, or you could put 64, or whatever the percentage was that you wanted, but there was no spaces to put 00.That would have been them helping your wife to give them the information that they needed in the format that they needed so that they could implement it.

Well, I've been doing some work recently. Somebody asked me if I could digitize the process of reading a bunch of forms.I chose an early release of Superannuation based on compassionate grounds and change of member details and some others.Could we get an AI to read the form, digitize the information, enter it into the computer screen, and begin the business process of approving it or handling it? And it struck me that we're still starting the process with a PDF.Instead of saying, why can't we go into an online portal and enter the information directly? Instead of asking the member to print something out, handwrite it or fill it in, and then print it out and then scan it back in.So I'm going to demonstrate how we can't really quickly process a form with AI and digitize the process. But please don't start with a PDF form or a paper form. Yes, let's start with an online form.

And yes, yes, I'm still. When I started Working at Asgard in the year 2000.At that point, they had already had online applications and online forms for financial advisors and their clients to use. They were so early to the piece that they had to provide modems for the financial planners to use.And many, many financial advisors for years had Advisor, advisor. Net email addresses. And that's like. It was 30 years ago that they first had online forms. Because that was before I started.Why, why are we still here? Talking about PDFs. Kill me.

So it's coming. It's coming. Yes. We're doing our best to help funds digitize everything from start to finish.There's no fill in your member number, then fill in your name, then fill in your address, then fill in all the information we already have about you because you filled it in so many times before. Whereas if I just put in, I'm already logged in. So you know my member number, you know everything else.I can just start to do the early release process, please, and tell you how much the ATO has approved me for. And off we go.

Yes, he's so true.

We'll get there.

We will.

So thanks for that. Big idea. That's. Yeah, it's inspired me to find more ways of streamlining it with the member in mind. So, yes, help them. Help us.

Yeah, help them. Help us so we can help them. Which is the point we're trying to get to.Someone did say to me once that I worked with, I was looking after market research and I said, oh, just tell me the question you're trying to answer and I'll, you know, and I'll help you figure out how to, you know, how to get an answer. And I said, sarah, if I knew the question, I'd know everything. I went, oh, right, okay. I've learned since then. That was quite some time ago.

Have you got any events coming up in the calendar, Sarah?

Oh, we've got heaps. There are some good ones coming up. The FSC has a retirement one day conference coming up, which I'm going to.They did one recently on Advice which was excellent. It's not very expensive and it's a full day. So I would definitely go to the retirement one.If you're considering that there's some IBRC ones coming up as well around member engagement. Then of course there's the big S for One Asphalt Conference, which is on the Gold coast this year in my backyard.

Thank you very much.

Excellent. Appreciate that. See you there. At an FSC event.

So that's the FSC Innovation and retirement event. That's 16th of October. Yes, in Sydney at the Four Seasons Hotel. With that, everybody, we'll see you soon. Thanks for listening.

Thanks.

Catch you next time. See you.

Bye.

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