The Cooper review's proposal to overhaul the back and front-office systems of superannuation in Australia is fast becoming one of the most awaited revolutions in the industry.
In May, Cooper review chair Jeremy Cooper announced a raft of initiatives to improve the efficiency of Australia's superannuation industry. These initiatives included a design to improve the quality of data in the industry, electronic funds transfer, straight-through processing and e-commerce solutions. The initiatives were received with thunderous applause.
"Everyone seems to agree that it's the right way to go forward and it is long overdue," SuperPartners manager of strategy and policy Hans van Daatselaar says.
SuperStream will impact on the front and back-office of superannuation, using tax file numbers (TFN) and technology to improve processing efficiency. In totality, it will be a complete overhaul of the superannuation system.
"We need to get rid of all the paper and drag ourselves out of the dark ages," Australian Institute of Superannuation Trustees (AIST) chief executive officer Fiona Reynolds says.
"Even though there is always a cost when you upgrade, superannuation is a big industry and it can't continue to operate in the way it has."
But such an enormous program has some significant implementation hurdles. There are legal and privacy considerations around using TFNs, the possibility of licensing administrators, and unresolved issues such as who will oversee the program and who will pay for it.
SwimEC
SwimEC was the most recent attempt to introduce straight-through processing to the superannuation industry and while administrators such as SuperPartners and some super funds adopted its principles, its failure as a complete industry solution came down to a lack of compulsion.
"Spending money on e-protocols is not really a high priority for all players as such," Reynolds says.
"Some form of compulsion is required to ensure that technological leaps are made."
At the top of most superannuation funds' list of desirable improvements is the quality of data they receive from employers.
"The biggest inefficiencies in the industry bar none is contributions come in all shapes and forms," Asset Super chief executive John Paul says.
Paul says the use of TFNs in this area will certainly help clean up the data received by superannuation funds. "Gee, it makes life easier for us," he says.
"No more 'super for Sue' written on contribution stubs."
The proposed greater use of TFNs to link contributions and rollovers to members' accounts and to then check with the Australian Taxation Office (ATO) that a supplied TFN is correct is an integral part of SuperStream.
It is no surprise then that the use of TFNs is regarded as the silver bullet, the enabler of much of the change.
"Broader use of the TFN is not possible without legislative change, hence historically it hasn't been possible," Reynolds says.
"With the recommendations calling for expanded use and the support of the privacy commissioner, we're pretty confident that this will be implemented."
But many of the solutions to the superannuation industry's inefficiencies woes already exist.
"There are lots of examples out there of good use of e-commerce solutions, just not in the superannuation space. We have to adopt that," van Daatselaar says.
For example, online accessibility and validation are two areas many other industries do better than superannuation. Electronic contributions via BPay are high on any wish list.
Paying for change
SuperStream comes at a time when superannuation funds are facing unprecedented levels of competition, consolidation and reform.
While improving the industry's efficiency has obvious benefits, fewer accounts thanks to a reduction in the number of lost members will also mean less revenue for funds. Meanwhile, projects like SuperStream require capital investment.
"I think the government will need to play a significant role in funding," van Daatselaar says.
In fact, by simply investing the funds from lost super, the government could help raise the funds to finance SuperStream.
Reynolds agrees the government will need to step up its involvement and financial support for SuperStream to work.
She says by using TFNs to make the system more efficient will involve the ATO and this means the government will also need to become more involved in the mechanics of the project.
But she also believes the not-for-profit sector will play its part.
"Funds in our sector will work together. A number of SuperStream facilities come through administration houses, but where there are a number of funds working together, the economies of scale will be shared," she says.
Sunsuper general manager of IT and operational capability Francis Cox says trustees will also have to step up and go into investment partnerships with administrators to enjoy the fruits of their investment.
Cox says 24 industry funds at an industry funds forum have already demonstrated their receptiveness to this.
"I am not seeing anyone pulling back and being secretive," he says.
Paul disagrees. "There is no doubt that super funds are all competing with each other head on. That's a shame," he says.
His fund has embarked on its own e-commerce project with its administrator, Mercer, to try and forge ahead in the area of electronic contributions. With between 5500-6000 employers on its books, Paul says 75 per cent of these have less than five staff.
The fund has found since the commencement of fund choice that many of these are single-member employers.
Paul is also not confident SuperStream will mean lower costs for funds and members. This is because funds are looking for lower cost administration, but administrators and funds are now going to have to make a capital investment to make the system more efficient.
Even in the medium term, competition will sustain this pressure on revenues, meanwhile cost bases will stay the same.
"People keep talking about SuperStream saving and reducing costs, but there will be a big initial outlay," Reynolds says.
"The review panel believes SuperStream has the potential to reduce administration costs by approximately 25 per cent. This is fine in theory, as long as the benefits are passed onto members and implementation and ongoing costs are not so excessive that they outweigh the potential benefits over time."
Skilled resources
Another implementation challenge is enlisting the required skilled resources to lay the foundations for the initiatives.
"The banks are currently working on significant technology upgrades," van Daatselaar says.
"We can't afford the same pay rates as their profits are different to ours."
The sorts of resources this project will require include payment specialists and professionals who can manage data in a secure way. Project management will play an important part.
Cox says in Queensland, sourcing skilled expertise will be a major challenge.
"Our ability to recruit resources is very constrained at the moment. It will create a skills shortage," he says.
Licensing of administration houses
The SuperStream panel has posed the question of whether administrators should be licensed going forward, given the significant role they play in facilitating the e-commerce solutions and the responsibility they hold in the superannuation industry.
Licensing would also ensure the capital adequacy of administrators as well as the adequacy of resources, proper standards and risk management.
"To us, we think it is commonsense," van Daatselaar says.
"The issue is one of administration. There is no APRA (Australian Prudential Regulation Authority) supervision over substantial entities that execute the strategy of a fund. Most administrators, because they are looking after the compliant super funds, already comply with APRA's licensing regime."
Cox disagrees. He says the problem with licensing administrators is that trustees feel absolved of their responsibilities because they have outsourced them to their administrators, but in APRA's eyes, they never lose responsibility.
"Licensing does not make clear whose responsibility [is what]. It creates the wrong dynamic. It also legitimises administrators to charge an extra margin," he says.
Overseeing the program
The ATO's increased involvement in the industry seems likely given the greater use of TFNs. And given APRA's existing role in the superannuation industry, these two bodies will no doubt work more closely together in the future.
"APRA regulates the main segment of funds, but the ATO is key to this," Cox says.
Reynolds says given the responsibilities of administrators, she would like to see the big administration houses working in conjunction with a formal government committee.
Moving forward
SuperStream at this stage is just a discussion paper and the way forward requires identifying clearly the key benefits and then building a case for them.
"This is not a very simple project," van Daatselaar says.
"This is a very, very substantial program with a need to isolate particular areas."
Selecting the right project first from a range of areas, including legal, systems, infrastructure, payment structures, employer/member issues and regulation issues, is crucial.
Van Daatselaar says a commitment from government is what is needed first.
"The individual bits will fit in there. The easier projects are making it possible to use TFNs and making appropriate changes to the SG (superannuation guarantee) legislation," he says.
"You can do these fairly quickly and it sets the scene that the government is serious about making the system more efficient."
