Mr Murray said the Financial System Inquiry (FSI) report “sets out a blueprint to guide policy making over the next 10 to 20 years,” in a speech to the Committee for Economic Development of Australia, CEDA.
The final report differs from the earlier Wallis Inquiry in two areas. Firstly the FSI panel “believe external shocks can and will occur.”
“As a result of the crisis, governments are now assumed to be the backstop the financial system,” said Mr Murray. However the financial system should be structured so that moral hazard is reduced and taxpayers are “highly unlikely to lose money.”
The second difference is that while the FSI panel “believe that effective disclosure and financial literacy are necessary”, more is needed to deliver “satisfactory consumer outcomes.”
“For this reason, we have highlighted the need for improved firm culture along with stronger obligations in some areas, especially in product manufacture and distribution,” Mr Murray said.
He went on to say that the Financial System Inquiry report shouldn’t be looked at “only through the narrow lens of the recent debate on FOFA.”
Mr Murray said the report identified three problems with advice and sale of financial products:
- Firms don’t take enough responsibility for “treating consumers fairly.”
- There is too much “reliance on disclosure and financial literacy”
- There is a need for a more “pro-active regulator”
However the report “recommendations are not meant to absolve consumers of responsibility for their choices or insulate them from market risk; rather they are intended to reduce the risk of consumers being sold poor quality or unsuitable products,” Mr Murray said.
The FSI report also identified two issues with the superannuation system:
- Fees are “too high in the accumulation stage”
- Superannuation is not being converted efficiently into retirement income
Referring to the superannuation system as “under-developed”, Mr Murray said that “members need more efficient retirement products that better meet their needs and increase their capacity to manage longevity risk.”
This would include the Comprehensive Income Product for Retirement (CIPR) recommended in the report. These CIPRs “combine an account based pension with a pooled longevity risk product.”
While retirees would have increased income and reduced risk from these products, the “trade-off would be that less money saved through superannuation would be available for bequests, reflecting our view that the system should be about retirement incomes.”
Related Financial System Inquiry posts:
- Ban SMSF borrowing: Financial System Inquiry final report
- Financial System Inquiry to reshape superannuation system
- Financial System Inquiry final report released
- FSI report a ‘ringing endorsement’ of SMSFs: SPAA
- Industry super funds reject FSI governance recommendations
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