Super funds and providers that fail to prepare for Stronger Super early risk getting caught short once the legislation comes into effect, Mercer argues in a new discussion paper.
The paper, Stronger Super: What will it mean for superannuation funds and members?, outlines the key reforms and highlights Mercer’s point of view on the proposed changes while posing a number of questions that funds and providers should now be considering.
Mercer points out that Stronger Super will arguably be the most significant reform the industry has seen since the introduction of compulsory superannuation in 1992 and will bring both opportunities and challenges for all the players in the industry because it will affect the strategic decisions and day-to-day operation of every superannuation fund.
Mercer’s Managing Director & Market Leader for Australia/New Zealand, David Anderson, said, “Fundamental reform is ahead. Incumbencies will be challenged and opportunities will emerge. Early action will mean the difference between recognising opportunity, only scrapping through to meet the regulatory requirements or loosing market share.”
“The Stronger Super reforms will be complex and will likely come with a large implementation cost for funds and providers. An early understanding and preparation will provide an advantage in implementing the changes well before restrictions or limitations on cross-subsidies come into effect.
“Funds and providers need to ensure they are not caught on the back foot. Early action could result in significant savings,” said Mr Anderson.
Since the Superannuation System Review was completed in July last year, Mercer has been closely involved in the subsequent consultation between industry and Government. Mercer has also taken the pulse of the industry through roundtable events with retail, corporate and industry funds.
“We’re seeing many funds and providers keen to start the planning process. They realise that despite some small risk around the precise legislation that will emerge from Parliament, it’s not enough to justify doing nothing. In fact, there are definite steps they can take now which will benefit the fund regardless of the final outcome,” Mr Anderson said.
At this stage, Mercer says funds need to consider strategic, operational and member engagement issues.
“From a strategy perspective, funds and providers should be asking what the gaps are between where they are now and where they’ll need to be post Stronger Super
“They need to consider the potential and likely impact of the proposed changes. How will they differentiate under MySuper and how can they demonstrate a fair and reasonable allocation of costs between the MySuper and Choice products?
“Operationally, issues range from how and when to apply for APRA approval, through to managing auto-consolidation, and reviewing and transitioning insurance arrangements,” Mr Anderson said.
He adds that member engagement will also be crucial in the MySuper and Choice environment.
“Super funds and providers should already be considering how to retain existing members and attract new ones and how they might need to do this the same way or differently for MySuper and Choice products” Mr Anderson said.
Mercer has developed a process for funds and providers grappling with these issues. The Mercer Stronger Super Gap Analysis provides a summary of a fund’s readiness to meet looming changes, and gives trustee boards and fund executives a basis for discussion, investigation and strategy formulation.
“As with all major reforms, there will be risks and opportunities. Stronger Super will be no different. We believe the superannuation industry can manage both effectively, given sufficient time and planning,” Mr Anderson said.
Mercer is a global leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. Follow Mercer on Twitter @MercerAU @MercerInsights