Re-envisioning superannuation and empowering members
Whether as financial experts or as superannuation members, pretty much everyone wants a fair and effective superannuation system.
A number of us from the Retirement Strategy Group (RSG) are currently working on applying the Actuaries Institute’s superannuation policy positions as part of an ongoing effort to contribute. In this article, I explore some novel possibilities arising from the ongoing revolution in data availability, and the implications for the governance of the system. Governance is important because additional data brings more power, which needs accountability, and I suggest here, should be dispersed more widely.
First, to the possibilities of using data better for the provision of financial advice and education. This is looking more promising with the preliminary proposals of Michelle Levy’s Quality of Advice review. She wants to facilitate a significant increase in the digital advice provided by superannuation funds and other financial institutions.
John De Ravin and I have made a couple of submissions to the government (here and here) as to how the data held by government agencies could be used to provide a snapshot of a household’s financial position. Government agencies – think ATO, Medicare, Services Australia, the “Personal Property Securities Register” and the state valuers-general – hold enough demographic and financial data to provide almost everything needed for a comprehensive financial plan.
Using a little AI creativity, it would be possible to project all the items through to retirement and beyond.
Historical information about earnings, education (for those on HECS), health, household status and investment returns would provide all the data required to project future earnings, likely retirement date and asset build-up – “for households like yours”. The data could be collated by MyGov, and provided in a format that allowed for use in a financial calculator.
Members would need to check the data for accuracy and could then explore the implications of changing their future earnings (including the retirement date) and spending patterns. The Institute has already developed Principles for Retirement Modelling, covering such items as the importance of considering the household as a whole and illustrating the potential impact of alternative investment strategies on future spending.
Garry Khemka, Adam Butt and I have conducted other research on how people might respond to such information in an online calculator. It will surprise no one that the response from the general public was muted, but I am not entirely discouraged. The point is that a competent financial advisor would be able to interpret the information in the calculator during a single interview. At a cost of a few hundred dollars, particularly at key times – such as buying a house, when children are born and then leaving the household, and after losing a partner – the cost could be covered by members’ superannuation funds. There would be no need for a “fact find” – just confirmation from the client that the data were reasonable. There would be no written statement of advice, as the recommendations from the calculator would not need to include product advice and would be self-documenting. There would be an explanation of the options offered by the fund and links to product providers.
It seems to me that the provision of this information with some interpretation would lead many more people to understand their financial lifecycles and the levers available to take control of their finances.
Empowerment does not require technical knowledge but the ability to know the consequences of actions they can control. The financial details can be available to those who want to look “under the hood”, but everyone needs to know how to use the controls “in the cab”.
So, is it really a good idea? When I presented the data proposal idea as part of an Institute Insight session in March 2021, the response from the audience was less than enthusiastic. The main reason – I think – is an antipathy to increasing centralised government power. Which brings us to questions of governance.
Could we devolve power, and better protect data, by making the agencies more independent and accountable – without compromising their functions or preventing the development of new ways for people to access their data?
On the accountability of the agencies, the Australian Privacy Principles already oblige an “entity that holds personal information about an individual” … “to give the individual access to that information on request.” It should not be too long before the various agencies are required to give people copies of their own data.
On the question of aggregating data, the roll-out of the Consumer Data Right (CDR) powers should eventually allow people to delegate their rights to access data to a “data recipient”, which should be able to feed into the financial calculators discussed above. Perhaps it would be better if MyGov was not involved and private developers create the market as more industries and agencies become “data providers”.
But perhaps we could go further? I frequently hear the sentiment expressed by Pamela Hanrahan that at least some decisions should be taken out of the hands of politicians and given to a “council of elders”. In spite of the ongoing increase in regulatory complexity, important issues continue to be left in the “too hard basket”. Some of the recommendations (on means tests for instance), which the RSG is working on, have been made repeatedly by the Institute over the last 3 decades.
I was a member of the Pensions Ministerial Advisory Committee in South Africa. It seemed to function well in providing expert industry insights directly to the regulator. But it is vain to hope that expertise will always be disinterested because the experts are often linked to vested interests. How else does one acquire expertise?
The proposal I would like to fly here, and in my paper to the International Congress in May, is that existing representative peak bodies – industry, professional, and consumer organisations – could take the initiative and create an overarching ‘parliament’ that includes the voices of all stakeholders.
Regulators would be invited. The interests of less articulate stakeholders can be represented by think tanks, university-based academics as well as ‘dissidents’ who do not feel represented by any of the peak bodies. A proportion of the seats could be set aside for such dissidents and a voting mechanism designed to allow them to fill these seats.
It would be a brave government not to comply with well-argued and widely supported proposals from such a ‘parliament of peaks and dissidents’ (PPD). Vested interests might well be obstructive in the deliberations of such a body, but their arguments would be subject to greater scrutiny, and there would be a reduced space for private lobbying of government.
We could even go further. A superannuation PPD could be recognised by the government and given the power to supervise a separate pensions regulator. A separate regulator, which they already have in the UK could pick up the superannuation responsibilities of APRA, ASIC and the ATO. Superannuation does not really fit into their central objectives. It seems to me that a super PPD might provide the impetus to speed up the initiatives discussed above – particularly if given the power to collect data. And if it was collecting data, the ATO would no longer need to know superannuation contributions and balances – so devolving data concentration.
In the meantime, however, it would be great if the ATO could make its data available under the CDR to data recipients, who could go about creating better financial calculators.
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