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The future of superannuation

By Jeanette Stephen

More than 450 formal submissions – including 7300 pages of opinions, ideas and data – could hold the future of Australia’s superannuation system in the Cooper Review.

Among 174 recommendations, the Cooper Review proposes a ban from July 2012 on all commissions made on superannuation insurance products, as paid by fund managers to financial advisers. The recommendation proposes clients, instead, will pay an upfront service fee.

The Cooper Review is the third phase of unprecedented reforms to the national superannuation system, which has been in place for 35 years. But an ageing population demands comprehensive change.

"Every dollar we save in unnecessary fees and costs will help Australians' retirement savings go further," says Financial Services Minister Chris Bowen.

MLC, the wealth management arm of the National Australia Bank, has been transferring to a fee-for-service model since 2006, launching a commission-free range of super, pension and investment products.

Richard Nunn from MLC described the transition as extremely complicated with numerous pitfalls for businesses that rush the process and miscalculate pricing models.

“But we have assisted hundreds of advice businesses to transition to fees and not one has converted back to commissions,” he says.

“We are pleased to see many of our competitors now moving in this direction. The sooner our industry makes the transition, the quicker we can start to build greater trust in our industry.”

However, Financial Planning Association CEO Jo-Anne Bloch says the cost of advice for life insurance under a fee-for-service system will prove too high for many consumers.

“Until we are able to deduct the costs of upfront fees as a tax deduction, then commission-based advice remains the most cost effective manner by which the widest range of consumers can secure insurance cover,” she said.

“We are very concerned about the potential impact of any sudden changes in commissions models when they do work well for Australians in delivering life insurance and they are efficient,” says Tower Australia’s Managing Director Jim Minto.

“Life commissions can’t be removed without practical alternatives like tax deductibility of fees being announced by government and funding of fees having been resolved. There would also be major systems issues to be addressed for the wider life industry.”

AMP meanwhile has welcomed the Cooper Report, with CEO Craig Dunn applauding the Government on a “highly constructive and forward thinking approach to public policy.”

On 1 July, AMP began removing commissions on new investment and superannuation products sold by its financial advisers – two years ahead of the Federal Government’s proposed timeframe.

“The recommendations outlined in the Cooper Report aim to strengthen the efficiency and effectiveness of the superannuation system and boost retirement adequacy for low to middle income earners,” said Mr Dunn.