Australia is the land where the market never crashes. It is a nation of double digit compulsory pension contributors , of universal pension engagement and an example to us all.
Well some of this is true, but if recent reports coming out of the Royal Commission hearings are accurate, there’s something rotten in the state of Super.
David Harris, who is our most trusted Aussie watcher, has sent me a series of articles in the Australian press that make my hair stand on end. The sheer front of some of the large organisations involved (AMP especially) and the barefaced cheek of some of the advisers smacks of complacency. Is Australia beginning to believe its own hype?
As David points out , this case might as well be called “BSPS in the sunshine“. Top financial advisers get celebrity status in Oz, Sam Henderson is such an adviser. Like certain souls we could mention in South Wales, Henderson is clearly oblivious to his misdemeanours, he’s happy to get a rap on the knuckles just so long as stays on the media A-list.
In March this year, Sam Henderson proposed a deal with the FPA that would see him admit to multiple failings in the financial advice her provided to Ms McKenna and agree to implement staff training, a review of current practices and the appointment of an independent expert to review those changes.
It would have also required the FPA to agree to be restrained from publishing Mr Henderson’s name in relation to the proceedings.
The FPA wanted an additional provision that would prevent Mr Henderson appearing in the media for a year. That proposal was not acceptable to Mr Henderson.
Behind this is a feisty woman called Donna McKenna who paid Henderson for celebrity advice, double checked it and found she’d be losing $500,000 Aussie dollars if she took it.
The advice would have involved transferring her DB rights into Sam’s own funds. Ring any bells?
But it seems Sam is bigger than his trade association or the Australian Regulator. He even had one of his own staff impersonating McKenna (caught on record) to get the money moving.
This is Crocodile Dundee stuff with a financial adviser as the crocodile. It seems some providers are no better
Relevant to UK
As with the Cooper report, the Royal Commission is showing that just because you throw a lot of money at retirement, doesn’t mean you get a lot of value. Cooper showed that value for money in Super is not that great and that the Australian obsession with strutting their Super balances, hides an insecurity in the system , about how long these balances will last.
As in the UK , there’s evidence of “double dipping”, where feckless older-folk spend their savings and fall back on the state. There’s also evidence of people hanging on to their balances too scared to spend them. There is very little evidence of Australians buying annuities and no move yet to create some kind of collective decumulation vehicle (as is happening over here at Royal Mail).
All of which gets me thinking that we should be very wary of blindly following the free collective bargaining that led to these high super contributions and that we should put infrastructure in place, before cranking the AE lever beyond 8%.
Pot follows member
Deep in the heart of Bermondsey, I attended a very weird event last night – hosted by Share Action. It was supposed to be for millennials but was packed out with people in their fifties (and a few millennials from Share Action). Lesson, don’t put on an event on the night of Liverpool v Roma?
Share Action are going to campaign for an aussie-style pot follows member workplace pension system and claim they’ve been speaking to civil servants who see the clearing house system in Aus as “inevitable”.
They had an Aussie millennial in, who seemed a bit confused – they should have had David Harris to hold his hand! We talked about how we could replicate the Aussie System where members not employers choose where these compulsory contributions go.
I’m of the view that given a few million of development capital, PensionSync could probably offer a payroll clearing system within three years acting as a hub between the major payrolls and the diminishing number of workplace pension providers. This would at least mean that you, rather than your employer, determined which provider got your money.
Such a system would be a nail in the coffin of the company pension , companies would now be paying into pensions with little control over the pensions themselves. Some would argue that the days of employers acting as fiduciaries of their employee’s money should be long over. Others point to companies who do this well and argue the opposite.
This is a conversation that will run and run, the Pensions Minister is showing absolutely no interest in getting involved, I suspect he finds overseas comparisons as confusing as everyone else. That’s certainly the conclusion of this article in IPE. Who knows the truth?
The truth is as all over the place as pensions scheme governance. It is very hard to work out whether your employer’s workplace pension scheme is up to much as the Government has resolutely refused to promote comparison services (such as http://www.pensionplaypen.com) and there is no incentive or onus on employers to help staff understand their pension.
Share Action are trying to change that by ranking workplace pensions. I’m pleased they are bringing the matter to the public’s attention but fear they will get precious little support from IGCs (who for the most part are against benchmarks and league tables), consultants (who need you to pay for these things) and Government, who would rather everything went to NEST.
Pot will only follow member when “gravity” is introduced.
Water flows with gravity downhill to the sea, money flows towards a single destination when financial gravity is applied.
Financial gravity comes from giving people trusted pathways. If you want to see it at work – go on sites like Go Compare, Compare the Market and Money Supermarket. Where there is trust and a simple user journey, people will follow pathways and do things.
People could consolidate pensions using financial gravity, but that would require the sluices and dams and levies in place to be replaced by easy ways for money to flow. As with the workplace , legacy pensions could flow from pot to pot without impediment, provided the gravity is restored.
Pulling it all together
We’re all vaguely in the same place. Share Action knows that if people can see all their money in one place and spend it from one pot, that engagement in pensions will increase and so the quality of the investment process.
Australia knows that by giving people a “pot for life” that they can hand to each new employer to fill each pay period, engagement in Super will increase…
Government knows that if it can get a workable pension dashboard in place, much of what they want to happen in terms of engagement and governance – will also happen.
But the trouble is making all this happen!
We really need champions who can make things happen. Australia needs less crocodiles and more crocodile Dundees, we need less talking and more action, Government needs to see the private sector coming up with solutions that can allow it to legislate for change.
A few champions, can create the financial gravity to make things happen. Catherine Howarth and her team at Share Action can be champions, but they’ll need more support from the industry – than they got last night in Bermondsey!
Case study one
Donna McKenna is a Fair Work commissioner giving evidence about financial advice given to her by Henderson Maxwell. Despite Donna McKenna’s insistence that she didn’t want a self-managed super fund, the four paragraphs of instructions from Sam Henderson to his paraplanner were focused on establishing a self-managed super fund.
Mr Henderson admitted that, given Ms McKenna would have lost half-a-million dollars in deferred benefit if her super had been shifted out of SASS, that the advice was not in her best interests. However, he said this was due to research errors that failed to identify the nature of the deferred benefit super scheme.
Henderson Maxwell charged an upfront preparation fee of $4,950 and would have charged a establishment fee for Henderson Maxwell managed account of $1,980, plus brokerage fees of $4,105 and ongoing fee of $14,642 for investment management services. That fee would have been materially higher than her existing superannuation accounts.
Mr Henderson admitted that the statement of advice did not contain any information on the question that Ms McKenna went to see an adviser to find out about, which was how the changes to superannuation rules taking effect on July 1, 2017 might affect her.
Case Study 2
We have to do better than this! Whether in Australia or the UK, people need to properly understand what they’ve got, what their options are and what it’s going to cost them .
