As Australia is one of the world’s largest defined contribution (DC) markets, the recent government-backed inquiry into financial services deserves a closer look, and it could provide important lessons for systems in Europe.
Although the focus of the Royal Commission was Australia’s banking sector, the AUD2.7trn (€1.7trn) superannuation industry was also scrutinised by retired judge Kenneth Hayne’s inquiry. See Florence Chong’s report on p14 for the details.
What struck me from reading the relevant parts of the final report was the onus placed on trustees to ensure compliance with new and existing rules. There was no shiny new regulatory body, as some Australians had called for; nor was there a forced separation of banks from their superannuation funds.
Instead, commissioner Hayne’s report laid out a series of recommendations aimed at managing trustees’ conflicts of interest. The trustees of pension funds run by banks have obvious conflicts between the members’ best interests and making money for the owner, whether it is selection of investment or administration providers, or setting fee levels. Current regulations, Hayne said, had “not led to sufficient rigour” when selecting service providers.
Anyone involved in DC provision in Europe would do well to read the Royal Commission report’s sections on trustee responsibilities, as well as the case studies, which detail how failures in communicating issues to trustee boards resulted in customer losses, regulatory action and large fines.
Data from Willis Towers Watson published last month revealed that the value of DC assets had overtaken defined benefit scheme assets across the top seven pension markets in the world. While Australia and the US dominated this dataset, growing DC sectors in the UK and the Netherlands should pay heed to the lessons learned down under.
Nick Reeve, News Editor