Superannuation industry pioneer Garry Weaven has called for the creation of a singular regulator for the A$4.2 trillion (US$2.7 trillion) industry.
The man considered the Godfather of the industry fund movement also said rules regarding self-managed super funds (SMSFs) needed to be reviewed, the annual performance test should be changed, and trustee terms should not be limited.
He was speaking to Azzet in a wide-ranging interview in the wake of growing opposition to the Government’s plans to increase the tax on super accounts above $3 million, which includes unrealised capital gains.
Weaven, the founder and retired Chair of IFM Investors, said much of the commentary about the tax was hysterical and based on a misunderstanding of how it would work. However, the Government should index it to inflation to get it passed through Parliament.
Super tax
“The fundamental issue is just how minor relatively the actual effect is when you understand it's only applied to the proportion of holding that is above $3 million,” he said.
“So the… average tax rate for (these people) it’s still going to be highly concessional.”
Weaven, who has admitted he would be affected by the tax, was the founding chair of a number of the industry funds that now dominate the super landscape when he was Australian Council of Trade Unions (ACTU) Assistant Secretary in the 1980s.
Although taxing unrealised profits was “not a good principle”, this already happened inside large super funds regulated by the Australian Prudential Regulation Authority (APRA), which accounted for 70% of all super funds under management.
He said many of the “hardship stories” about the tax impact may be from SMSFs that were not meeting their requirements around asset diversification, liquidity and related party transactions or their sole purpose of providing for retirement.
Critics of the planned tax have claimed farms or small businesses held inside super may also be sold if the business owners did not have sufficient cash to pay the tax.
SMSF rules
The rules covering SMSFs needed to be reviewed to ensure these funds did not provide “cheap funding of enterprises, farming or otherwise” or allow trustees to do “stupid things with money that's supposed to be for retirement”.
“I think there should be a review of the rules around self-managed funds to bring them more into line with the APRA regulated funds,” Weaven said.
“No-one knows really what the situation is in the self-managed fund sector. And that's where most of the noise is coming from.”
Single regulator, trustee tenure
He also said the superannuation regulatory responsibilities of APRA, the Australian Securities and Investment Commission (ASIC) and the Australian Taxation Office (ATO), except for super collections, should be rolled into a new regulator.
“I would probably have a single regulator for the whole of the system,” he said.
Weaven said the annual performance test needed to be based on eight to 10 year rolling periods, allowing funds to take the risks needed to optimise returns result.
“The focus has to be on balanced risk taking so that over time you get the optimal result, over time you hit the efficient frontier of investing. The last thing that should happen is for super funds to be forced into a risk averse position,” he said.
He said a 1% reduction in annual returns could be costly to members.
“It’s absurd that the regulator (that is) concerned about people’s retirement income ends up having the effect of taking a couple of trillion (dollars) out of the system over 40 years,” Weaven said.
He also argued against fixed limits for super fund trustees, saying experience was important.
“In some cases it’s good if people go and in some cases it’s not. My own experience was that it takes quite a long while to really come to grips with a lot of the issues around investment, administration, and all of the issues and to be really knowledgeable,” he said.
“I think APRA needs to have a good look at itself and stop listening to noisy politicians and ASIC and APRA need to stop leaks to the media which cause people to be ambushed.”
