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“Superannuation is a component of the social contract between government and the community… A requirement that superannuation changes be placed on notice, explained and costed will allow for informed feedback and analysis and encourage greater engagement on superannuation and related issues.” – Industry Super Network response to discussion paper: Charter of Superannuation Adequacy and Sustainability and Council of Superannuation Custodians.
The last 24 hours at the FSC’s annual conference covered a lot of ground, but one thing stood out - government (note the lowercase ‘g’) and industry are both partly responsible for more than one broken promise to Australians.
Chief among these broken promises is the implied social contract between government and the Australian people about super, which, if not broken, is at the very least badly cracked. And my fear is that it’s going to take more than industry self-regulation and stable super rules to fix it.
Let’s take the recent Federal election. We know it was partly fought on the back of the proposed changes to super. Yet this was despite the fact that, according to the Government’s own figures, the proposed changes would affect only 4% of Australians.
Only time will tell just how much damage was done.
Maybe it’s simply a case of super becoming an election issue like any other - a lightning rod for discontent. Commentators across political and national lines have been suggesting for some time that issues like income inequality and other complex social problems without easy answers are what really lie at the heart of otherwise inexplicable events. The resurgence of Pauline Hanson for example, or the economically disastrous Brexit vote. And maybe super has simply become a symbol of more than just retirement outcomes.
The problem is that election campaigns, like winning any form of public support, require a deceptively simple narrative. And simple narratives often rely on joining unrelated issues to create a story people can follow. A story they can believe in, and vote for.
And it’s fair to say that right now, a cohesive narrative about super doesn’t exist.
What does exist is discontent with the economy, uncertainty about the future and, I suspect, fear about individual retirement savings adequacy. That discontent was used, and with great success, to burn the Government’s proposed super changes.
Has it also burned super and the sustainability of the retirement savings system?
Probably.
Understanding that is central to delivering on our own implied social contract as an industry.
Behavioural science tells us that, contrary to the economic doctrine of the rational man making rational choices, most of us will NOT in fact act in enlightened self-interest. We won’t delay gratification by saving now in order to shore up our future. At the same time the national coffers can’t pay pensions the way they used to. Which is why we have forced savings - super - to solve the problem.
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The problem is that most people don’t really understand how super works. They just trust - to a point - that everything will be okay. Until it’s not.
So while the vast majority of Australians are not affected by the proposed super changes (notably the lifetime contribution cap of 500k and tax-free retirement accounts capped at the $1.6m balance mark), broad sections of the electorate and media are hopping mad about the changes.
Yet these are changes that for the most part will actually make the system sustainable. And that’s the ‘why’ which was never clearly communicated. One simple reason is that the Government went straight from Budget to election campaigning, so there wasn’t time, as a policy-wise client tells me, to consult on the changes.
Nor was there time to build a case for them with the public, and therefore build confidence in the story.
So instead the Government lost seats and reputational equity over super. And the investing public, mostly unaffected by the changes, are madder than hell.
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There are merits to the various for and against arguments, and it’s not for me to weigh in on policy. But the outcry has implications for the financial services industry broadly. And we have to keep central to our thinking the fact that we too are parties to a clear social contract.
So what is our social contract? For me, it boils down to doing the right thing - not to follow the law, or to implement ASIC guidelines, or to clean up after another EU - but to go beyond minimum standards to do the right thing in ways our clients may probably never know.
In an environment of profound information asymmetry, where we typically have so much more knowledge than our clients, this can be a thankless task. But we will have the satisfaction of knowing it’s right.
Having said that, it is certainly incumbent on us as an industry to implement sensible pro-consumer self-regulation that helps restore confidence in financial services products, institutions and people.
Restoring confidence will take more than industry self-regulation. Certainly, the task isn’t one ASIC can be charged with given the scale of the industry and the limitations of the regulator.
But it is key to re-building confidence in superannuation, our banks and the financial planning profession.
As it is to shoring up the social contract to which we are all (willing or otherwise) signatories.