Peter Costello is Chairman of the Future Fund and former Federal Treasurer in the Howard Government. He spoke to 300 fund executives at the 2014 SuperRatings Day of Confrontation on 14 October 2014. Here are some extracts from his talk, where he gives industry executives advice on how to think about superannuation.
“Some of the spokesmen for the industry show all the self-awareness of spoilt brats. ‘Give us more money to manage.’ Well, who wouldn’t want more money to manage. That’s not going to cut it.”
“The superannuation industry is not about me, the provider. It’s not about me as a trustee. It’s not about me as a fund manager. It’s about the people for whom this industry exists. It’s not about me working in the industry. It’s about them.”
“They don’t care about you. In fact, they think you’re pretty privileged. You’re earning a lot more than them. And they think you’re there to make their life better.”
“Mostly, the returns in the industry follow the equity market. I don’t have time to argue this but we’ve had two good years of returns when the equity markets are up, we’ve had two bad years of returns when the equity markets were down.”
“It’s not just an argument about contributions anymore. It’s an argument about governance and it’s an argument about retirement benefits and why this should get preferential treatment in preference to something else.”
“This is a very competitive world. And governments which are short of money are looking everywhere.”
“What I find remarkable about the industry is that it doesn’t put nearly enough time into the benefits; what actually ends up in hands of people. Not just during the accumulation phase, there is a lot of interest there, but during the retirement phase. We kind of lose interest in people when they turn 60 or 65, when they are no longer accumulating. It is not our business anymore. For the people for whom this industry exists that is what really matters: what happens at 65? What product am I going into? What is my annuity going to be? What is my pension going to be? What is my clawback on the age pension? But from a person who is in the system, this is where superannuation really gets interesting: when they retire, not when they are still accumulating. The point is the benefits, contributions are only a means to an end.”
“If you are the treasurer in Australia, you are actually paid to be hated. Your job is really to make all of the tough decisions. Hated in the cabinet, hated in the party room, hated in the public: a measure of really how well you do is how well you are hated. I remember once going on TV and defending the budget against all sorts of attacks, ferocious journalists, I came off and felt really bad and said, ‘Nobody appreciates me.’ And one of our political advisers took me aside and said: ‘I never want to hear you say that again. You will create a massive political problem. It is not about you; it is about them.‘ Those people who are getting up from the outer suburbs and catching trains to work in the city and worry about the education of their kids and worrying about whether their parents can find an aged care home, wondering about whether the hospital is going to treat them. It is not about you. It was the best piece of political advice I’ve ever got. And I pass it on here.”
“What this industry has to do is speak from public interest and it has to convince the public that that is what it is really there for. The providers are just there for the end benefit. Many people in the industry will think 9% to 12%. Well, there are a lot of other issues I would be focussing on, such as tax. And one thing that I would also be worrying about is directed investment, because that will come again. I don’t like it, but I think it will.”
“The investment industry is about risk and reward. If the superannuation industry thinks the risk is commensurate with the reward, then it should do it. But I’ve got a feeling the government would like to push it into risks that haven’t got a commensurate reward. That is the problem. The members are being pushed into something that the government wouldn’t push them into as taxpayers. I’m not sure about that. That is what I would be saying to the government.”
(Parts of the above are extracted from The Insto Report, 16 October 2014).
Peter Costello speaking at the SuperRatings Day of Confrontation in 2009
To add context to the Cuffelinks article by Nick Sherry on the complexity of superannuation, here are more comments from Peter Costello.
“I’m beginning to hear noises out of Canberra and these reviews which are recurring about how the tax expenditure in superannuation is growing too fast and how there needs to be more equity put back into the system. There is no doubt that the surcharge (introduced and later abolished by Costello – Ed) aided equity, but it was the complexity which I think was seriously unfortunate. The complexity in relation to the funds, the complexity in relation to the account-keeping, and the complexity in the end which affects people’s confidence.
I come back to this point again and again. If you want people to have confidence in superannuation, don’t add to the complexity. Don’t change the rules. Set the rules, let people make their decisions, let them invest with an expectation that they know how it will be governed. This endless tinkering will undermine confidence. I warn those currently doing the reviews.
The Government is looking for money and it will be very open to arguments based on equity grounds to somehow even up the value of the contributions and tax concessions between high and low income-earners. But that equity will come at the cost of complexity. We have been down that path before. I was much happier abolishing the super surcharge than I was introducing it in the first place.”