Doug McBirnie is a consulting actuary with Bendzulla Actuarial, a role he has held for just over a year. He shares with Darin Tyson-Chan his surprise at how quickly change has occurred during this period as well as his concern about lump sum withdrawals.
How did your involvement in the SMSF sector come about?
I’m a qualified actuary and did my training over in the UK, but I didn’t like the way the retirement benefits sector was looking there. The successive governments have hacked away at the pension system in the UK and left it not really fit for purpose. In Australia, you only have to look at the pool of assets that has been accrued by people here. I mean, there’s $1.6 trillion in superannuation assets here now, which shows the system is working to some extent and there’s a buffer of assets there to protect against the ageing population, I think. So I saw that as a real opportunity. I particularly like the fact that people have control over what they do with their retirement savings, which was what drew me to the SMSF area specifically. If you’ve got an environment like Australia where you have compulsory contributions, the least they can do is give you some say in how they’re invested and what you do with them, so that’s what drew me to the SMSF sector.
So how long have you been working in the Australian SMSF space?
Not too long. I moved to Hobart with my wife in winter last year, so it’s been just over a year now. It’s been a steep learning curve, but there is a lot of crossover between the different jurisdictions and the end goal is the same.
In that time has the activity within the sector been everything you expected?
I’ve been surprised how quickly things change. There’s been less consultation than I thought from the government before they make changes, but I think that’s the same anywhere you go. You can be quite cynical about it when you have such a large pool of assets present that the government is going to be looking to balance their budgets by getting their hands on some of it.
What’s your role at Bendzulla?
I’m a consulting actuary. So in the SMSF space one of the key services is providing actuarial certificates. I have a team of actuaries and analysts who provide those certificates.
So what exactly is a consulting actuary?
An actuary is a finance professional who generally works in superannuation and insurance. There’s quite a lot of training involved in order to qualify as an actuary. I think generally you’re looking at about four to six years of postgraduate training. Essentially the role involves a lot of financial modelling to help
Have the changes to super announced earlier this year had any effect on actuarial services?
I think so, particularly the ATO’s (Australian Taxation Office) recent announcement that it is going to be concentrating quite hard on current pension income calculations and the exemption from income tax for pension assets. I see our role as actuaries in that space as one of the gatekeepers for the self-assessment system, along with accountants and auditors. Our job is really to help trustees make sure they are applying the current pension incomes correctly. I think it was good recently the ATO clarified in its ruling, TR 2013/5, as to what it considers a pension to be and when a pension starts and stops, because I think there were still a few question marks out there about these definitions. In terms of whether trustees choose to segregate pension assets or not, I think that should be more of an investment decision rather than necessarily be about purely the best tax position. Tax is an important part of the investment, but that decision should be taken more along the lines of what’s best in terms of the investment choices for trustees.
Has it surprised you it has taken this long to formulate these pension definitions?
It has to be honest, but I think the system is very flexible and the legislation is quite flexible and it’s been designed that way to give people maximum flexibility with their retirement savings, and that’s a good thing. However, clearly when you do make things that flexible there are always going to be blurred edges on the definition of certain elements. Even the term and concept of a pension doesn’t quite chime with what an account-based pension in practical terms is because it’s more like an account used to withdraw from, in the SMSF space anyway, which is slightly different to the concept of a series of fixed annual payments, which is what you would more traditionally think of as a pension. So I think those kind of linguistic differences made it more difficult for the ATO to lock down exactly how you define a pension.
How important is it to forge partnerships with other professionals in the SMSF space?
I think it’s vital, particularly for Bendzulla. Most of our clients are actually the accountants and the administrators of SMSFs rather than the trustees themselves. So forming close relationships with those other stakeholders is vital for us. I think it’s also very important to work with the other gatekeepers in the industry to drive standards up and make sure we’re all giving the best service we can to trustees.
How well is it understood when an actuarial certificate or service is needed?
There’s quite a range of knowledge regarding this across the industry. I see some very knowledgeable practitioners out there, ranging right through to some people who aren’t quite sure when they do need an actuarial certificate. We do field a lot questions about whether a fund does need an actuarial certificate and actually in some cases it’s not always clear because what we hear from the ATO and what’s in the legislation is not always clear cut. So it’s not surprising there is some confusion. We often get clients ringing up trying to apply for an actuarial certificate when it’s not strictly necessary.
So is more education needed?
Probably, but I think standards are improving across the industry. Certainly in the short time I’ve been involved I’ve seen improvement in general knowledge and understanding of the actuarial process and there has been a big push by lots of different organisations to try to improve standards. It’s in all of our interests to drive standards up, particularly given the scrutiny SMSFs are getting in the press at the moment.
How important is the role of technology in actuarial businesses?
It’s vital. Almost all of the work we do is computer based. The more powerful the programs are and the computing is the better. In terms of actuarial certificates, inevitably there has been automation in some of the processes to improve the experience for clients. This includes interfaces with software providers the administrators and accountants use. For example, Bendzulla has link-ups with providers such as BGL, Supermate and Class Super, whereby the fund information is sent directly into our system to allow us to perform our calculations, review the data and provide certificates that way. The certificates are distributed electronically too. It cuts out a lot of manual data entry and that for clients is obviously good in the long run, for trustees as well, because it reduces cost.
What’s the most significant change you’ve seen in the SMSF sector?
Probably the thing that will have the most impact on the most people in Australia is whether the new coalition government goes ahead with delaying the increases in the superannuation guarantee. Those compulsory contributions are the mainstay of the system and if there is no increase to them to ensure people do have enough retirement savings, it will have more impact on more people than anything else.
For me, looking at the superannuation industry as whole and not just the SMSF sector, I think the ability of people who reach retirement age to withdraw their entire superannuation balance in one go is going to cause difficulties in the long run. Obviously having as much flexibility as possible is good, particularly when contributions are compulsory, but I think this ability means in the long run there will be a greater strain on the aged pension. I think an annuity or income stream arrangement would actually better meet the needs of individuals, but there are a lot of ways to go about it. In the UK, for example, there’s compulsory annuitisation, where you have to buy an annuity with the bulk of your pension savings. I don’t think that’s the way to go here, but I do think there needs to be some thought about how we make retirement benefits more of an income stream.
What’s the greatest challenge facing the sector in the coming year?
I think it’s the squeeze on fees. There’s a lot of competition trying to drive down costs and I think the danger there is that standards also slip, and I think we have to try and resist as much as possible to prevent those changes that could impact on standards. There is a danger with too much automation, particularly with areas such as audit and even in what we do, where the reliance on technology becomes too great and there’s not enough checking of what’s going on. It could cause problems.
