ASIC Cancels the Registration of 133 SMSF Auditors

ASIC has cancelled the registration of 133 approved self-managed superannuation fund (SMSF) auditors who did not lodge their annual statements.

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On 28 July 2016, ASIC sent a final warning to 185 approved SMSF auditors with outstanding annual statements. ASIC had alerted these auditors on a number of occasions that their registration would be cancelled if their outstanding statements were not lodged with fees paid.

SMSF auditors have had ample time to come to grips with their responsibilities. Auditors who do not ensure that they are aware of and meet their obligations face the risk of losing their registration. An unregistered auditor is not permitted to audit an SMSF. Conducting an audit of an SMSF when not permitted to do so may have further serious consequences for the fund and the auditor.

Approved SMSF auditors can confirm if they have lodged annual statements or update their contact details by accessing their ASIC Connect account.

SMSF trustees and members can check whether their auditor is registered, or whether a person has been disqualified, by searching ASIC’s SMSF Auditor register.

Background

From 1 July 2013, the Superannuation Industry (Supervision) Act 1993 required all auditors of SMSFs to be registered with ASIC. This was to ensure that all SMSF auditors at least meet the base standards of competency and expertise.

ASIC and the ATO work closely together as co-regulators of SMSF auditors. The ATO monitors SMSF auditor conduct and may refer matters to ASIC for possible action such as disqualification or suspension of their registration.

Approved SMSF auditors need to lodge an annual statement with ASIC within 30 days of the annual anniversary of their registration. ASIC sends email notifications on anniversary dates advising that annual statements are ready for completion. If an extension of time to lodge the annual statement is required, a written request to ASIC must be made before the due date. An annual statement is not considered to be lodged until the required lodgement fee has been paid.

ASIC notified 811 approved SMSF auditors that they had not met their annual statement requirement and that ASIC may cancel their registration. This included 95 auditors that had lodged annual statements but had not paid their lodgement fee. 626 auditors subsequently lodged their annual statement or paid outstanding fees.

Changes to approved SMSF auditor contact details, including email and mailing addresses, must be provided to ASIC within 21 days of the change occurring. There is no fee to update these details.

Approved SMSF auditors seeking to cancel their registration voluntarily can do so by completing a cancellation request form, available on ASIC’s website.

Challenger 2016 Results Strong In Growing Market

Challenger released their 2016 results yesterday. It gives us a good view of momentum in the wealth management and annuity sector. They highlight the growing opportunities thanks to changes in regulation designed to enhance the superannuation retirement phase. These tailwinds support future growth.

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Challenger Limited (Challenger) is an investment management firm managing $60.0 billion in assets. It is focused on providing customers with financial security for retirement. Challenger operates two core investment businesses, a fiduciary Funds Management division and an APRA-regulated Life division. Challenger Life Company Limited (Challenger Life) is Australia’s largest provider of annuities.

Normalised profit after tax (NPAT) rose 8% to $362 million while statutory net profit after tax was up 10% to $328 million.

CHallenger-2 The Group reported record annuity sales, up 22% on the previous year, boosted by superannuation industry moves to include Challenger annuities on investment and administration platforms. Sales accelerated in the second half with annuity sales up 45% on the prior corresponding period (pcp).

Normalised earnings per share were up 6% to 64.6 cents per share (cps) with earnings from higher normalised NPAT partially offset by a higher share count.

Normalised return on equity (ROE) was 17.8% pre-tax, down slightly due to the impact of Brexit and market disruption affecting Fidante Partners Europe earnings.

Challenger’s sustained growth allowed the Board to declare a final dividend of 16.5 cents per share, contributing to a full year record dividend of 32.5 cents, up 8%. Dividends have doubled over the past five years.

Chief Executive Officer Brian Benari said: “We have leveraged our leadership position in a growing retirement incomes market to deliver record annuity sales and record normalised profit. We’ve rewarded our shareholders with record dividends.

“Challenger is generating superior shareholder returns through a highly efficient, profitable and sustainable model. In our Life business we have been able to maintain consistent margins for the past four years which means the growth opportunities we are capturing feed directly through to our earnings and higher shareholder dividends.

“A key feature of these results has been sales achieved through our expanded distribution capability. Building scale via platforms is an important part of Challenger’s strategy with both retail and industry fund partners.

“Over the past year Challenger has launched a number of distribution partnerships to make Challenger annuities more readily available to financial advisers and super fund members. These are already bearing fruit. Sales momentum is building through our Colonial First State (CFS) partnership with sales volume through CFS doubling in the first year that our annuities have been on their platform. Notably this includes an increased proportion of lifetime annuity sales. In 2H16, 40% of sales from platforms were lifetime annuities.

“We are launching five new annuity partnerships in 1H17 including teaming up with Suncorp to white-label Challenger term and lifetime annuities.

“The bottom line is that more retirees are buying Challenger annuities because they better understand retirement risk and seek guidance from advisers who rate us highly and can access our products much more easily from a growing range of platforms.

“Our Funds Management business is achieving double digit organic growth in FUM, benefiting from strong underlying flows of $2.4 billion in FY16. In Europe our boutique growth plan remains on track, however our listed fund capital raising business has been affected by uncertainty in the run up to Brexit. This has reduced Funds Management earnings.”

As at 30 June 2016, Challenger Life held substantially more capital than required by the Australian Prudential Regulatory Authority (APRA) capital standards comprising $1.1 billion of excess regulatory capital and group cash. Challenger Life’s prescribed capital amount ratio of 1.57 times is at the top end of its target range.

Looking at the segmental contributions:

CHallenger-11. Challenger Life had average assets under management (AUM) over the year of $13.2 billion, up 8%. Margins continued to be stable at 4.5% which meant AUM growth in the Life business fed directly through to higher cash operating earnings (COE) of $592 million, up 9%. Life’s COE margin has consistently been in the range of 4.4% to 4.5% since 1H13.

Annuity sales were supported by new distribution initiatives through investment and administration platforms. This contributed not only to volume but also to longer tenor of annuities. An increasing proportion of lifetime sales and longer tenor term annuity sales resulted in new business tenor for FY16 extending to 6.5 years and, for 2H16, 7.2 years.

Total annuity sales were up 22% to $3.4 billion. They comprised term sales of $2.8 billion, up 22%, with sales increasing in all quarters relative to the pcp, and lifetime sales of $0.6 billion, up 21%. Lifetime sales accounted for 21% of 2H16 annuity sales, up from 14% in 1H16.

FY16 total Life net book growth was 11.1%. Challenger’s annuity book grew by 8.5% and a Guaranteed Index Return mandate contributed a further 2.6% growth.

Sales of the CarePlus aged care product, which was launched in August 2015, accounted for $60 million, with $32 million of that being in Q416. CarePlus will be available on the CFS FirstChoice platform by September 2016.

2. Funds Management. Despite challenging markets, average funds under management (FUM) rose to $55.1 billion, up 11% once allowing for the derecognition of $5.4 billion of institutional client FUM from Kapstream Capital following our sale of that business in July 2015. The Funds Management business continued to generate strong organic net flows, amounting to $2.4 billion. This comprised $1.3 billion from pre-existing Fidante Partners boutiques, $1.0 billion from Fidante Partners Europe and $0.1 billion from Challenger Investment Partners.

Funds Management has a broad base of boutique fund managers and has a strong track record of growth. FUM has more than doubled from $24 billion five years ago at an annual growth rate of 19%, twice system growth during that period. Despite volatile markets, the business has achieved 11 consecutive quarters of positive organic flows.

In FY16 Challenger Investment Partners expanded its offshore client base, including $0.4 billion in new property and fixed income mandates from offshore investors which contributed to a 14% increase in third party FUM.

However, Funds Management earnings before interest and tax (EBIT) was down 15% to $37 million due to a loss in the Fidante Partners Europe business that was previously flagged to the market. This was impacted by capital markets uncertainty which stalled UK capital raising activity, including in the closed-end alternative investment trust segment in which the business specialises. This market is expected to normalise as uncertainty subsides. Excluding Fidante Partners Europe, Funds Management EBIT was up 7%.

3. Distribution, Marketing and Research. Challenger continues to entrench its leadership in the retirement income market through new distribution partnerships, leveraging the strength of the Challenger brand and investing in product and service capabilities.

Five new partnerships with superannuation funds and investment and administrative platforms have launched or are expected to launch in 1H17. From July 2016, Challenger annuities have been available to financial advisers through Clearview Wealth Solutions, which utilises a CFS private label platform.

In August 2016, Challenger formed a strategic relationship with Suncorp. From December, Suncorp’s financial advisers are scheduled to sell a Suncorp-branded annuity, backed by Challenger, through its national branch network.

In the industry fund sector, a previously announced strategic partnership with Link Group, which services 10 million fund members, has led to Challenger annuities being made available to members of Local Government Super and legalsuper from Q117 while caresuper is to launch Challenger annuities in Q217. These three funds combined have more than 400,000 members.

We strengthened our position as a retirement income leader through our life expectancy brand campaign, launched in 2H16, which addresses customer concerns of outliving their savings. In May 2016 Hall & Partners research found that 52% of 55 to 64 year olds would now ask their financial planner about buying annuities.

A key competitive advantage for Challenger is its distribution capability which rates highly with financial advisers. Challenger was ranked first of 20 fund managers, including the leading wealth brands, for overall adviser satisfaction in the 2016 Wealth Insights Fund Manager Service Level Report. This comprised number one ratings for five key categories, including: our business development team, for the fifth straight year; technical services and contact centre teams; and, image and reputation.

‘Reliable’ equities not a replacement for bonds

InvestorDaily says income-seeking investors should be wary of buying Australian equities despite their strong dividend payouts over recent years, says State Street Global Advisors (SSGA).

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In a note to investors, SSGA said Australia’s equity market is one of the highest yielding in the developed world, and its “perceived reliability” could mistakenly cause some investors “to think of the market as almost bond-like”.

“This is a potentially dangerous misunderstanding: the capital value of an equity security is far more at risk than a bond, furthermore, unlike bond coupon payments, dividend payments are not fixed,” SSGA said.

The firm cautioned that data from the past five years shows that payout ratios in aggregate have climbed, while dividend yields held steady.

“This reflects a period during which resource companies and, to a lesser extent, banks held their dividends unchanged while experiencing a fall in earnings,” SSGA said.

For Australian market dividend yields to be maintained at the current level, SSGA warned, earnings need to improve since current payout ratios “cannot increase much further, and probably need to come down”.

“There is no guarantee that last year’s dividend payment will be repeated this year, or even that forecast dividends from sell-side analysts will be paid this year,” SSGA said.

“A strategy of blindly buying companies with the highest reported dividend yield could expose investors to some high-risk securities.”

SSGA added that while investing for dividends “may have long-term merit”, a different approach was needed by investors looking for short-term capital stability.

Super funds return three per cent

According to Financial Standard, superannuation funds have returned an average of 2.9% for the 12 months to 30 June as measured by the SelectingSuper workplace default option MySuper Index, thanks to relatively high returns from property and fixed income investments. Equity and cash dragged overall performance down.

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The SelectingSuper workplace default option MySuper Index showed a negative 0.9% monthly return in June. However combined with the positive return in the period March to May, the rolling 12 month performance for the 2015-16 financial year was a positive 2.9%.

The monthly fall in superannuation performance in June was driven by a fall in both Australian and international equities. The negative return for super funds in the latest month comes at the end of a period of relatively volatile returns in the first six months of the 2016 calendar year.

The positive 2.9% performance for funds in the 2015-16 financial year, although lower than prior years, was nearly 2% above inflation for the period.

The performance over multi-year time periods benefits from the positive impact of high returns in the years 2013-15. Reflecting this, three-year rolling MySuper returns are 8.3% pa and five-year returns are 8.1% pa. The longer term 10-year return is a more modest 5.2% pa although this period incorporates the full effect of the GFC and is overlaid by a lower inflation environment.

On an annual basis, Australian equities, often the largest asset class in many balanced funds, positively contributed with 0.6% return as the market has progressively drifted down since early 2015. The contribution of international equities has been a positive 0.4%, although this impact has been muted by many funds through hedging in-built within their portfolios.

Property has continued to provide a significant positive impact on fund investment outcomes with the listed property sector having a positive 24.5% return in the 12 months to end June. To further highlight the positive impact buffering that property has had on superannuation returns, the three year average return to June 2016 from listed property is 18.5%.

Over the year ended June 2016, the fixed interest index return was a strong 7%, although, on average, fixed income portfolios within superannuation funds underperformed this index. Meanwhile cash returned a modest 2.3% over the same period.

In net terms this means funds with relatively high exposure to Australian equities and international equities underperformed in the 12 months to end April. Similarly funds with relatively larger holdings in property and potentially fixed interest, outperformed in the period.

Regarding the market segments, the gap between not-for-profit (NFP) funds and retail funds within the Workplace sector continues. The 12 month return gap is now at 120 basis points in favour of NFP funds. The long term five-year segment gap is 30 basis points in favour of NFP funds.

The Superannuation Maze Exposed

The Productivity Commission has released its draft report on the Superannuation Industry, which outlines a framework for a review over the next few years. The report says that information about funds are confusing and incomplete. As a result, even the most literate households in the community have difficulty in choosing between funds.  Many put off making decisions about super until close to retirement.

However, the review process as outlined in the report is long-winded, and as a result, little will change for several years.

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This study is stage 1 of a 3 stage process, and stems from the Australian Government’s response to recommendations made in the 2014 Financial System Inquiry (FSI). Stage 1 involves developing criteria to assess the efficiency and competitiveness of the system.

Many recent reviews, including the FSI, have made observations relating to perceived shortcomings in the system. The criteria developed in this study will provide a useful and enduring framework for any future assessments (including by regulators) and reforms.

Currently, there is about $2 trillion in funds under management held by over 250 institutional funds and over 556 000 self-managed superannuation funds. The average account balance is just over $67 000. But averages can be misleading, given the distribution of account balances.

This study stems from the recommendations of the 2014 Financial Services Inquiry (FSI), which considered some of the issues in the superannuation system as part of a broader review of the performance of the Australian financial system. The FSI suggested a Productivity Commission inquiry into the efficiency and competitiveness of the superannuation system should occur by 2020.

In response, the Government tasked the Commission to develop and release criteria to assess the efficiency and competitiveness of the superannuation system (stage 1). These criteria will then be used to inform a review of the system following the full implementation of the MySuper reforms by mid-2017 (stage 3). While aspects of the Australian superannuation system have been reviewed in the past, stage 3 will be the first comprehensive review specifically assessing the efficiency and competitiveness of the entire system.

The Commission has also been tasked with examining alternative models for a formal competitive process for allocating default fund members to products (stage 2). The Commission will begin work on stage 2 in late September. Indicative timelines for the three stage process are outlined in figure 1.1.

PC-Review-Timeline

 

The super industry has evolved to the point where around 20% of household assets are in the sector, worth more than $2 trillion. The number of accounts peaked at about 32 million in 2009-10, and is now down to just under 30 million. The number of small funds has been driven by the increasing popularity of SMSFs. In 2001, there were about 210 000 SMSFs, but this had more than doubled to over 550 000 by June 2015.

PC-Review-MapThe level of funds under management and average account balances should continue to increase at substantial pace over the next few decades. Most projections forecast continued strong growth until the mid-2030s with between $5 trillion and $6.3 trillion under management, representing between 130 to 180 per cent of GDP, depending on the assumptions employed.  Despite the projected growth in absolute size, there is still some uncertainty about whether a mature system in the 2030s will actually provide adequate retirement incomes, although sometimes it can be difficult to distinguish substance from self interest in such claims.

They highlight that the super market is unique, as demand is driven by government policy around compulsory contributions and concessional tax treatment. Many participants though are constrained from making an active choice, the system uses a default model and there are “cognitive constraints and behavioural biases”. Moreover, there are more than 40,000 investment products offered by funds. However, as a defined contribution scheme, risks fall to the members.

The system is highly regulated, and principal-agent relationships abound.

They conclude “The design, size, diversity and complexity of the superannuation system distinguish it from typical markets. Therefore the assessment framework has a focus on incentives and drivers (inputs or processes) of particular outcomes, as well as the outcomes themselves. Importantly, no single criterion or indicator can be used to adequately assess its competitiveness and/or efficiency. In some cases, the assessment will focus on a particular element of the system and in other cases, the system as a whole. Finally, the assessment framework will need to be sufficiently flexible to accommodate the dynamic and segmented nature of the system and policy-induced constraints on the system’s competitiveness and efficiency.”

The report then describes the Commission’s approach to the assessment of the system.

PC-Review-FrameBeyond that, they also describe some of the mechanics within the system which will also be investigated though the review along with governance and regulation.

The deadline for making a written submission to the Productivity Commission on the framework in the report is Friday 9 September 2016.

SMSF trustees ditch equities in favour of property and cash

SMSF trustees have diversified away from international and domestic equities, instead favouring property investments and opting to hold more in cash reserves, according to the SuperConcepts SMSF Investment Patterns Survey.

An analysis of SMSF investment trends across the 2016 financial year shows investments in Australian shares reduced from 37.1 to 34.5 per cent of portfolios, while international shares decreased from 14.1 to 13.1 per cent.

Pen-and-CHartSuperConcepts Executive Manager Technical & Strategic Solutions, Phil La Greca said the continued volatile markets could be driving the more cautious approach SMSF trustees are adopting.

“Over the financial year, we’ve seen a large number of SMSF trustees diversify away from international and domestic equities. At the same time, there’s been an increasing number of investors moving into property and cash, suggesting they are looking to reduce their exposure to the stock market, which experienced periods of higher volatility during the period.

“Despite the reduction in equity investments, there remains an opportunity for SMSF trustees to further improve diversification with a large number of portfolios still heavily weighted in Australian shares, particularly the ASX top 20 stocks. The major banks were the most commonly held investments at 30 June 2016,” he said.

The move to more conservative asset classes saw cash holdings increase from 17 to 18 per cent of portfolios over the financial year, despite cash interest rates continuing to decline.

“We’ve seen trustees increase the amount of cash they have invested in short-term term deposits, climbing from 4.7 to 5.5 per cent over the year. With current interest rates on term deposits providing little returns, the move to cash could mean investors are feeling less confident in the stock market,” Mr La Greca said.

Property, both direct and listed, has continued to prove a popular investment for SMSF trustees, increasing from 18.3 per cent of investments to 21.7 per cent at the end of the financial year.

Proposed changes to superannuation has appeared to impact confidence with a significant reduction in average contributions to an SMSF, dropping 38 per cent from the June quarter in 2015 to the June quarter in 2016.

“Average contributions to SMSFs declined over the financial year, particularly in the December, March and June quarters compared to previous corresponding periods, a likely result of the uncertainty around potential superannuation changes before the May budget. Contributions declined from $17,320 in June quarter 2015 to $10,748 in June quarter 2016,” Mr La Greca said.

The SuperConcepts SMSF Investment Patterns Survey covers approximately 3,300 funds, a sample of SMSFs administered by Multiport (part of the SuperConcepts group) and the investments they held at 30 June 2016. The assets of the funds surveyed represent approximately $3.1 billion.

Retirees choosing income streams over super lump sums

Retirees are increasingly choosing to access their superannuation through income streams rather than withdrawing lump sums, according to new analysis released today by the Australian Bureau of Statistics (ABS).

OldiesBjorn Jarvis, the Program Manager of the ABS’ Labour and Income Branch reported that almost 1.2 million people were receiving an income stream from their superannuation in 2013-14, at an average of $502 per week.

“Of that 1.2 million, about three quarters were aged 65 years or over and one quarter were between 55 and 64 (876,000 and 307,000, respectively),” said Mr Jarvis.

“This means just over one in four people aged 65 years and over (excluding those in nursing homes and retirement villages) were receiving a superannuation income stream in 2013-14, up from one in five in 2003-04.”

Mr Jarvis also said that in 2013-14, 420,000 people reported they had withdrawn a lump sum from their superannuation in the previous two years. Half were for amounts less than $25,000.

“Three quarters of people used the lump sum to invest in their home, make other investments, buy or pay off a vehicle, or to pay off outstanding debts. For the other one quarter, the most commonly cited reasons were for holidays, followed by general living and medical expenses,” said Mr Jarvis.

The number of people with some superannuation and the average value of their accounts have both grown in the 10 years to 2013-14.

In 2003-04, around twothirds (64 per cent) of people aged 15 years and over, had superannuation. By 2013-14, this had risen to 71 per cent, with about 85 per cent of people aged 25 to 54 years having superannuation. For people with superannuation, the average value of their accounts increased in real terms from $68,000 to $110,000.

SuperConcepts acquires software funds in strategic alliance with Reckon

SuperConcepts has announced the acquisition of Reckon’s Desktop Super platform, which will see the transition of approximately 16,000 SMSF software clients to the SuperConcepts business.

The acquisition continues SuperConcepts’ growth as a provider of SMSF software services to accountants and specialist SMSF advisers, increasing its market share across both administration and software services from 6.8 to 9.7 per cent.

SHare-GrapghSuperConcepts and Reckon have also formed a strategic alliance to leverage each other’s expertise and industry relationships to provide customers with a leading SMSF software service.

Natasha Fenech, CEO SuperConcepts said the acquisition and strategic alliance is another step forward ingrowing the SuperConcepts business as a leading end-to-end service provider in the SMSF market.

“Reckon is a highly-regarded provider of accounting software services. We’re excited to form an alliance that will help us to enhance the level of service and technology available to SMSF trustees and their advisers.

“SMSF software continues to be a key part of our strategy and we will continue to invest in the technology as we expand our service to become a market leader in SMSF software solutions and partner of choice forthe SMSF industry,” she said.

In-line with its strategy, SuperConcepts has continued to build scale in the SMSF market as an end-to-end provider of administration, software and education services to SMSF trustees, accountants and financial advisers.

Sam Allert, Managing Director Reckon for Australia and New Zealand said: “Our strategic alliance with SuperConcepts ensures Reckon is providing the best value SMSF software solution to our clients going forward. We’re thrilled to be to working with a leading brand in the SMSF administration market and this is just the start of a powerful partnership.”

Desktop Super customers will not notice any immediate change to the way they access their funds.

About SuperConceptsSuperConcepts is a leading provider of self-managed superannuation fund (SMSF) administration, software and education services to SMSF trustees, accountants and financial advisers, servicing more than 40,000 funds.SuperConcepts comprises a number of sub-brands including AMP SMSF, Ascend, Cavendish, Multiport, Justsuper, SuperConcepts, SuperIQ, superMate, yourSMSF and a part ownership of Class Ltd. Find out more at www.superconcepts.com.au.

About ReckonReckon is an ASX listed and Australian owned company with over 25 years’ experience delivering market leading solutions to accountants and bookkeepers, legal professionals and small to medium sized businesses. Reckon’s software solutions are designed to make accounting faster, easier and more productive. Find out more at www.reckon.com.

 

Wealth inequality shows superannuation changes are overdue

From The Conversation.

The government is still consulting on superannuation after concerns raised by backbenchers over changes made in the budget. However these changes are more important than ever, as evidenced by the 2016 HILDA statistics on wealth and superannuation.

The statistics highlighted changes in the distribution of wealth of Australians since the survey commenced in 2001. The most significant assets held by most Australians continue to be their family residence and superannuation, but policy changes over the time of decade the survey have changed the balance of those investments.

More concerning is the finding that wealth inequality has increased. The data adds strength to the argument that superannuation reforms are overdue, with a small number of wealthy people able to accumulate wealth in superannuation and investment property.

In Chapter 5 of the report, which discusses household wealth, the authors note that superannuation will soon overtake the family home as the major asset owned by Australians. This is the result of two separate trends: increases in superannuation balances and lower net wealth in housing.

HILDA-COnv1Looking at the HILDA data, it’s not unexpected to see that younger age cohorts have experienced the strongest growth in superannuation assets.

Prior to 1993 superannuation was very different to the current system. According to Treasury data in 1986 53.5% of Australian full time employees did not have superannuation coverage, and over 80% of those who did, were members of a defined benefit scheme, which would not generally be reported as an asset. By 2000, 96.9% of full time employees had superannuation coverage, with 86% of those employees in accumulation type funds.

The superannuation guarantee has been a significant contributing factor in the importance of superannuation as a household asset. Notably, the phasing in of the rate of the superannuation guarantee shows in account balances. As can be seen from the HILDA report the increased rate of superannuation guarantee after 2002 has resulted in higher superannuation balances for people at the same age in successive surveys.

The increase in housing values is the second trend which has altered the mix of assets. Over this time residential house prices rose significantly, with ABS data showing an increase in the Residential Property Price Index across eight capital cities from 69.0 in September 2003 to 120.2 in Dec 2014.

Given that in the 2002 data the major asset of Australians was the family home, homeowners benefited disproportionately from the increased value of housing. Even with the significant increases in superannuation, for older Australians the proportion of wealth held in housing has been maintained as their total wealth has increased.

However for younger age groups the story is not as positive. The rate of home ownership is declining as it is becoming more difficult to enter the housing market and home equity is declining among younger age groups as the value of loans has increased.

The HILDA data shows that most age cohorts, including all except the oldest retirees, have seen increases in their superannuation accounts over time. Policy changes effective from 2007 have supported superannuants through tax exemptions and high contribution levels.

Another trend contibuting to this is that people are retiring later. The change in the pension age to 67 has been accompanied by a trend for people to work longer. Not only are they deferring withdrawals from their superannuation fund, but they are also continuing to contribute during this time.

As noted in the Productivity Commission report last year there is some evidence of withdrawals at the time of retirement, but these are generally used to pay outstanding debts, including mortgages against the family home.

Others convert their superannuation at retirement into other financial investments. This cements the family home as the most significant asset held by retirees.

The more concerning finding for policy makers is that wealth inequality has increased, and that superannuation holdings and investment properties are factors in this inequality. HILDA data shows that in 2014 the mean superannuation balance of the top 10% of people aged 50 to 69 was $991,268, up from $650,619 in 2002, compared to $210,798 in 2014 for the sixth to ninth decile and $13,719 for the bottom 50% (although a significant number of retirees in this age group do not have any superannuation balance).

There is a strong correlation between high superannuation balances, income and non-superannuation wealth. People in the top decile have access to higher levels of income to make higher levels of concessional contributions, and the ability to find the funds to make non-concessional contributions into a tax preferred investment environment.

As has been noted previously, the current superannuation system allows high income and high wealth individuals to over-accumulate in tax preferred superannuation, which increases wealth inequality as well as intergenerational inequality.

The Government proposals to restrict the level of contributions and to reduce the amount that can be retained in a tax free environment are important tools to address increasing levels of wealth inequality in our community.

Author: Helen Hodgson, Associate Professor, Curtin Law School and Curtin Business School, Curtin University

NAB creates Australia’s largest retail super fund

NAB has announced that it has streamlined its superannuation business, merging five of its super funds into one – and, in doing so, creating Australia’s largest retail super fund. The fund is named the MLC Super Fund. This follows the October 2015 announcement it had entered into an agreement to sell 80% of NAB’s life insurance manufacturing business to Nippon Life Insurance Company (Nippon Life), while NAB will retain the remaining 20%.

In October 2015, NAB announced that it is entering into a long term partnership with Nippon Life to create a stand-alone life insurance business. The establishment of this business requires the life business to be structurally separated from the superannuation and investments business, which NAB is retaining. As part of this process, NAB is also simplifying the structure of its superannuation business.

NAB Wealth Group Executive and CEO of MLC, Andrew Hagger explained that one of the key benefits to simplifying our superannuation fund structure is to improve the customer experience.

NAB Superannuation and Investment Platforms, Executive General Manager, Paul Carter, explained the MLC Super Fund will manage superannuation and retirement needs for more than a million Australians, and will have approximately $70 billion in funds under management. The fund includes NAB’s two main super offerings, being the MLC MasterKey and Plum superannuation and pension offerings.

“This $300 million investment will help us deliver an even better customer and adviser experience through digital innovation, product and platform enhancement, and making it simple to navigate our products,” Mr Carter said.

NAB has written to approximately 1.3 million members informing them of the move and explaining the changes.

The merger process was subject to various trustee and regulatory approvals.

On 28 October 2015, NAB announced it had entered into an agreement to sell 80% of NAB’s life insurance manufacturing business to Nippon Life Insurance Company (Nippon Life), while NAB will retain the remaining 20%. NAB retains our existing ownership of our investments businesses, including super, platforms, advice and asset management. NAB will continue to own and use the MLC brand in providing super, investments, advice and life insurance to customers. Nippon Life will have a 10 year license agreement to use the MLC brand for life insurance. The transaction is expected to be completed by the second half of calendar 2016 subject to certain conditions including regulatory approvals.

The sale of the life insurance manufacturing business requires the structural separation of the life insurance manufacturing business from our superannuation and investments business to create a standalone life insurance business. Before the consolidation of the super funds announced today, within the NAB Group there were eight superannuation funds under three Trustees. As part of this consolidation, two Trustees moved their members from their existing funds into one new fund called the MLC Super Fund, under the governance of the remaining Trustee, NULIS Nominees (Australia) Limited.

Based on APRA’s most recent publicly available statistics issued on 10 February 2016, the new MLC Super Fund is Australia’s largest retail super fund, and the second largest fund in Australia’s superannuation sector.

Also on 28 October 2015, NAB announced that it would invest at least $300 million in NAB Wealth in our superannuation, platforms, advice and asset management business.