Speaking at an FSC conference yesterday, FSC senior policy manager for superannuation Blake Briggs said research conducted by the FSC indicates there are around 2.5 million members with assets in legacy products which could be rationalised into modern platforms.
Mr Briggs said the size of these legacy books is leading to significant costs within the system.
The FSC stated in its submission to the interim report of the Financial System Inquiry (FSI) that these legacy products “suffer from a higher cost basis and carry operational risk from outdated technology that is difficult to support”.
As a result, Mr Briggs said, the FSC is calling on the government to provide a mechanism to rationalise these legacy books.
“We’ve gone down this path [before] and been stopped at various times, but we think there is something different this time: there is a government that wants to deal with the red tape in the system, and there is an FSI looking to strip costs out of the system,” he said.
“We’re very hopeful that there may be movement under this government.”
Mr Briggs said the FSC has estimated the removal of red tape from product rationalisation will result in a cost reduction of around $100 million.
“If the system allows rationalisation to go into perpetuity, the savings over the longer term would be much, much larger,” he said.
The FSC estimated in its submission that an effective product rationalisation regime could see the closure of 38 individual IT systems, 79 legacy IT systems, 286 life products and 77 managed investment schemes.
Mr Briggs said that while the FSC is not pushing a particular strategy or solution for product rationalisation, it is important the rationalisation regime includes a test to ensure “anyone moved from one product to another will be better off as a result of that move”.
“It will be a civil threshold test that people need to be able to cross in order to be able to go down this path,” he said.
