Super needs structural reforms now

Similarly loose and unfulfilled ideas have been trotted out by several previous regimes anyone (want to) remember the multi-function polis?

There are many reasons why becoming a regional hub is achievable, even though Australia is not geographically central for the rest of Asia unless the financial community moves to Darwin. Australia's high levels of financial literacy, low rates of corruption and highly evolved legal, financial and democratic systems stand out as good reasons.

On the other side of the scorecard is a tendency to procrastinate over, or avoid, difficult decisions when sectoral interests wail loudly enough particularly when it comes to adopting the up-to-date practices and technologies needed to rank Australia as world class.

Consider how you would explain, to someone looking in from the outside, our capacity and commitment to be a leader in 21st century finance and technology if they have seen how the superannuation system runs (and hopefully not noticed the national broadband network brawl).

Jeremy Cooper's well-telegraphed review is not just (as some in the super industry feared it might be) an election year "jihad" on financial advisers' fees, but also aspires to two fundamental structural reforms: that payments by employers are compulsorily automated, and that fund managers should be able to sort their account holders by tax file number.

Yep, more than a third of employers (ie, thousands) are still dipping their quills in the inkwell and writing cheques (OK, some print them off on a computer) mailing them to fund managers and trustees in a nation that prides itself on being sophisticated and where consumers have shown huge appetite for adapting to, and buying, cutting-edge technology.

While some blame their sticking to the cheque on the costs of converting to electronic funds transfer (EFT) systems, and what they are charged for access to clearing systems, there are many who both resent super payments as a tithe on their business profits and use the timing of the payments as a cash-flow management tool. When money is tight in their businesses, the cheques take just a little longer to be mailed. That is one reason why there are so many thousands of complaints by employees rattling around the system over unpaid, or underpaid, super contributions after companies go broke.

As for super funds using tax file numbers to confirm the identity of clients, and when those people have multiple accounts you would have thought that fits into the no-brainer category somewhat counter-intuitively, the Federal Privacy Commissioner seems to have no objections to the concept, but the Tax Office does.

Consider the case of part-time worker and university student young "Kevin R", who this week received two account statements from the same fund. Even though both accounts had identical TFNs, because his surname had a single letter misspelled at some point by his employer, he had two lots of charges for having his money managed. Because Kevin earned so little, the fees had chewed up more than 25 per cent of one account. Had TFNs been able to be used to identify him, that should not have happened.

Neither of those reforms ought to be exceptional, and certainly don't fall into the "radical" category that Cooper's responsible minister, Chris Bowen, reportedly wants. That in 2010, close to 20 years since super was made compulsory, these are only now on the table for implementation is, frankly, embarrassing.

Submissions to Cooper's review from Ernst & Young and SuperChoice estimated that administration costs in the $1 trillion-plus industry could be cut by about $1 billion a year (costs at the moment run at between $3.5 billion and $4 billion a year) through creating a specialised clearing house and forcing everyone to submit payments electronically.

It is not, as they say, rocket science. Yes, there will be upfront costs for creating and installing such systems, but the long-term gain will be the ability to more closely supervise contributions and, more importantly for fund members, defaults. Eventually, it will also be cheaper for employers to participate.

You would get little argument these days from the average person about the benefits of electronic processing, except perhaps those who have inquired of banks why and where their money goes for three days after authorising a payment.

One example is the speed with which Australians have accepted EFT use by probably one of the largest cheque-issuing institutions in the country, Medicare. In two years its cheque payments to practitioners and claimants have dropped from 17.5 million to 15 million, and the rate of drop is accelerating. Correspondingly, claims processing times have dropped more than 20 per cent to fewer than three days.

Coincidentally, Medicare's improvement program is also under Bowen, and Cooper is considering whether the healthcare provider's system, which already handles about 300 million payments a year, should also become a clearing house for super payments.

imcilwraith@theage.com.au

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