Electronic Binding Death Benefit Nomination

This is to suggest the Australian Government permit and require superannuation funds to accept an electronic binding death benefit nomination, secured with two factor authentication, which do not lapse. I just asked two people to witness my form. They both commented that they should get around to doing this. But it requires filling out a paper form, getting two people to witness it, and then sending the paper form in. So I suspect few do, resulting in suffering and cost for their dependents. This could be changed to a simply click of a mouse on the fund's website.

Retirement Income Calculator

AustralianSuper provide an on-line Retirement Income Calculator. Unfortunately this is implemented using "Flash", making it slow and hard to use. The text is tiny and it can take several seconds to respond to clicking a button. At one point I got a warning from the web browser that a script was taking too long to respond. At this point the text went blurry and then I noticed a pop-up box down the bottom of the page, with a button I had to click on to continue. At this point I gave up on the calculator. Given that it is likely to be used by older people, closer to retirement, it needs to be designed with accessibility in mind, ideally using HTML5.

Confusion Over Insurance for Superannuation Members

Australian Ethical Investment (AEI) is informing its superannuation members that legislation requires them to provide members with with Death & TPD insurance on an opt-out basis. AEI will sign up the members for insurance and deduct the premium from their superannuation account, unless the member contacts the superannuation company to say they do not want the insurance. However, the requirement for the opt out insurance only applies to some categories of members, whereas AEI is writing to all members. I suggest that the Australian Prudential Regulation Authority (APRA) should clarify the situation of the opt-out insurance in general, not just for AEI. Any commissions paid by the insurance companies should be disclosed and any interests directors or other staff of the superannuation companies have in the insurance companies should be disclosed.

A worker may have superannuation accounts at different funds. If each fund takes out an insurance policy for them, this could result in a large drain on the member's superannuation, for little or no benefit to the member. The member may not receive benefits from all, or any of the policies, as insurance policies often have clauses which exclude duplicate policies. Also the premiums may drain all the funds from a small superannuation account, at which point the insurance would be canceled.

Superannuation Standard Risk Measure

After the global finance crisis, the Association of Superannuation Funds of Australia, in conjunction with other industry bodies, has issued a Standard Risk Measure Guidance Paper For Trustees (July 2011). This proposes a seven point scale indicating the estimated risk of negative annual returns over a 20 year period, from 1 being the lowest to 7 the highest. There is a standard phrase to describe each level and a standard set of words describing the measure.

The use of numerals for both the bands and the descriptions is confusing, as an example "5" being described as "3 to less than 4" is confusing. Letter could have been used for the band ("E" rather than "5"), or the numbers in the description replaced with words ("three to less than four"). Displaying the maximum estimated number of negative annual returns would also make the table simpler, with "3 to less than 4" replaced with just "four".

A seven level scale is probably too complex for the average investor and one having five or three levels would have been more usable. Also I suggest the industry could add a standard set of colors and symbols for the levels.

Risk Band	Risk Label	Estimated number of negative annual returns over any 20 year period
1	Very Low	Less than 0.5
2	Low	0.5 to less than 1
3	Low to medium	1 to less than 2
4	Medium	2 to less than 3
5	Medium to high	3 to less than 4
6	High	4 to less than 6
7	Very high	6 or Greater

There is a standard description of the measure:

The Standard Risk Measure is based on industry guidance to allow members to compare investment options that are expected to deliver a similar number of negative annual returns over any 20 year period.

The Standard Risk Measure is not a complete assessment of all forms of investment risk, for instance it does not detail what the size of a negative return could be or the potential for a positive return to be less than a member may require to meet their objectives. Further, it does not take into account the impact of
administration fees and tax on the likelihood of a negative return.

Members should still ensure they are comfortable with the risks and potential losses associated with their chosen investment option/s.

Data standards for superannuation

The Super System Review Panel delivered its final report to the Government on 30 June 2010. It recommended "electronic transmission of linked financial and member data using standardised formats" (Super System Review Final Report, Chapter 9). This generated little interest in the media, but in a speech yesterday review chairman Jeremy Cooperis reported to have called for the government to enforce a standard as the superannuation industry has failed to implement one voluntarily.

The review recommendations, including data formats, are estimated to cost $1 billion to implement, but will then save $1 billion per year (The $20 billion prize: An industry blueprint to implement SuperStream, Joint Financial Services Council and Ernst & Young research, August 2010).

From Super System Review Final Report, Chapter 9:

5.2 Standardising data transmission

While some submissions argued that it is enough for the data to be provided, a clear majority favoured mandating a uniform standard format for delivery; that is, prescribing exactly the manner in which data is required to be provided. While this would promote confidence and clarity, the Panel is mindful of the cost involved in updating IT systems and existing member details to comply with any proposed changes.

Recommendation 9.4

APRA should convene a stakeholder group including at least the ATO, employers, payroll providers, super administrators and trustee representatives to devise online forms covering all the common processes between:

(a) the employer and the fund;
(b) the fund and the member; and
(c) different funds, such as occurs with ‘rollovers’.

The Panel considers that such forms should be adopted by all APRA-regulated funds, including for transactions involving rollovers to or from SMSFs, by January 2012.

There would also need to be standards applying to the wholesale (peer-to-peer) transactions that occur from fund to clearing house, clearing house to clearing house and clearing house to fund. ...

6.2 Achieving e-commerce as the norm in superannuation

The Panel is convinced that major cost savings are available in the superannuation industry through a shift from the fragmented and largely manual processing of member accounts, contributions and rollovers to a standardised electronic approach.

While attempts have been made to devise industry standards to facilitate this, they have been voluntary and to date have failed due to excessive complexity and low take up. The Panel notes the recent announcement by three major fund administrators of agreement on a set of principles to govern the electronic processing of rollovers between participating funds. These are to be further developed consistently with standards to be adopted by the Medicare Australia clearing house and using an open governance structure along the lines of that provided by the Australian Payments Clearing Association for banking.

Many administrators and clearing houses already engage with payroll providers to partially automate employer to fund transactions but, due to the lack of common standards across the industry, these
processes often require funds to provide specific software to large employers and/or the application of proprietary middleware solutions to convert the output from payroll providers into a format useable by the fund administrator.

The Panel believes that a key pre-condition to fully effective e-commerce in super is the availability of a data base containing accurate and secure details of all funds other than SMSFs. Details to be incorporated would include, as a minimum, fund name, SPIN and bank account details including name, BSB and account number. To avoid the extraction of monopoly profits, this data base needs to be governed and administered on a cost recovery basis, either by a collaborative industry enterprise or by a government agency. Given that most of the required data is already held by APRA, and that APRA already has mechanisms for secure electronic communication with funds and the SBR hub, the Panel considers that APRA is best placed to develop and administer the data base.

Recommendation 9.8

Treasury should convene a working group comprising representatives of relevant segments of the financial sector to devise the process for development of SBR-compatible standards that provide for linked personal and financial data transmission and facilitate related software development. The standards should address transactions between employer and fund, fund and member, and between funds.

Development work should be financed through an industry levy.

All administrators and clearing houses should be required to adopt these standards as a licence
condition. ...

From: Super System Review Final Report, Chapter 9, Super System Review Panel , 30 June 2010