LGIAsuper leadership team to take 10% pay cut

BY JASSMYN GOH

LGIAsuper’s directors and executives have committed to a 10% pay cut until at least 30 June, 2020, as a response to the COVID-19 pandemic.

The Queensland superannuation fund’s chair, John Smith, said the remuneration cut decision was because its core membership came from the local government sector and they would be hard hit by the virus as ratepayers experienced financial hardship.

The fund’s chief executive, Kate Farrar, said the pay cut would be through sacrificing annual leave entitlements.

“Many of our members are directly impacted by COVID-19, and it is important they know we are standing with them, while working tirelessly to protect them and their savings,” Farrar said.

“We know our fund will be impacted by COVID-19, but our members can rest assured that we are determined to keep investing in services for members even through the fallout from this pandemic.”

Farrar noted that the board and leadership team would not ask employees to make the same sacrifices.

Dividend reinvestment plans needed for retirees reliant on dividend income

Plato Investment Management has urged the big four banks to utilise underwritten dividend re-investment plans (DRPs) to keep paying dividends as they are a major income stream for Australians.

Plato’s managing director, Dom Hamson, encouraged the banks to take on the suggestion from the Australian Prudential and Regulation Authority (APRA) as it was a solution that could help address concerns about the ability of lenders to maintain capacity while paying dividends.

“We know many of Australia’s traditional income stocks have DRPs. These companies can choose to underwrite those plans, which effectively means that new shares will be issued matching the dollar value of all the dividends that they pay,” Hamson said.

“For all those investors electing cash rather than the DRP, the company will still issue new shares which a broker will sell on market during the DRP pricing period. This allows the company to completely preserve its capital as well as paying dividends to those who rely on the income to make ends meet.”

Banks have already been named as a sector where dividends were at risk, particularly the smaller players. This would be caused by the knock-on effect of the rent and mortgage deferments which would mean less cash and the need for banks to keep capital to service their own debt loads.

He said he expected Australia would fall into a ‘deep recession’ in the June quarter of 2020.

Hamson noted that the DRP would ensure Australian retirees and other investors who relied on dividend income from the big four banks were not “hung out to dry”.

Plato estimated that the big four banks paid 30% of gross dividends (cash dividends plus franking) of the entire S&P ASX 200 index in 2019.

Super members need long-term view

BY CHRIS DASTOOR

Superannuation fund members need to stop worrying over their current account balances and maintain a bigger picture view as the investment is designed as a long-term solution, according to research house SuperRatings.

The advice from SuperRatings comes as members check their account balances to see the effect the sell-off had on their retirement savings and it warned against making decisions based on an emotional reaction to the current environment.

Kirby Rappell, SuperRatings executive director, said super members far away from retirement need to stay invested.

“Knee-jerk changes to your portfolio could have a negative effect on your retirement,” Rappell said.

“Switching to cash will lock in losses and mean you miss out on the upside when the market eventually recovers.

“We suggest members talk to their fund or financial adviser to help ensure any decision is aligned with a long-term strategy.”

The firm reminded investors that for those in the 20 to 40 age bracket, you still had another 30 to 50 years before retirement, and older investors closer to retirement should be in conservative options to mitigate losses in market downturns.

According to estimates from SuperRatings, the median balanced option fell 8.9% in March and was down 10% for the quarter.

The median growth option, which was generally more exposed to shares, fell 12.5% in March and 14.1% over the quarter; the median capital stable option fell only 4.1% in March and 3.8% for the quarter.

For pension returns, the median balanced option fell 10.2% over the quarter, while the median growth option fell 14.4% and the median capital stable option fell 3.8%.

Superannuation funds want consistency on advice fee consents

BY MIKE TAYLOR

Superannuation fund members should only have to deal with one document when dealing with the costs of financial advice provided via their fund, according to the Association of Superannuation Funds of Australia (ASFA).

In a submission responding to the Australian Securities and Investment Commission (ASIC) on advice fee consents, ASFA said it considered that the fee disclosure statement (FDS) and consent should be together when considered by the account holder.

“This will ensure that the account holder has the required information about the services they are entitled to receive under the arrangement,” it said. “Some additional information that could also be included is if services had been provided by the fee recipient previously, the consent form should provide confirmation that services had been provided to the account holder for that period.”

The submission also backed a prescriptive approach for financial advisers receiving a fee via superannuation funds.

“ASFA notes that ASIC is striving for a balance between prescriptive standards and providing flexibility for fee recipients. Superannuation funds, as account providers, need to build systems and processes to ensure that the consent received from the fee recipient meets all the requirements,” it said.

“If the form of these consents differs between each fee recipient, this could create significant compliance and administrative costs for superannuation funds. ASFA recommends a more prescriptive approach be used to determine exactly what must be included in a consent to ensure it is as consistent as possible between fee recipients, creating administrative and compliance efficiencies for account providers when processing these forms.”

“Consistency between consent forms is likely to decrease the need for manual interventions and contact with the fee recipient, increasing administrative efficiency for the fee recipient as well. Part of the prescriptive approach could include, for example, a prescribed list of services that will be provided by the fee recipient.”

COVID-19 could be nail in income protection insurance coffin

BY JASSMYN GOH

The COVID-19 pandemic could be the final catalyst to cease long-term income protection in its current form, both in retail and group markets, according to Rice Warner.

The research house’s latest analysis pointed to Australian Prudential and Regulation Authority (APRA) data on profit margins pre-pandemic that showed insurers, and reinsurers, were experiencing greater losses than ever.

In December, 2019, individual disability income insurance sum posted a net loss after tax of $1.5 billion – the largest loss compared to individual lump sum, group lump sum, and group disability income insurance.

“For the 12 months to December 2019, risk products reported a combined after-tax loss of $1.3 billion. All risk products deteriorated with the only exception being the individual lump sum product,” Rice Warner said.

“In particular, individual disability income insurance (also known as income protection insurance) reported a substantial loss, primarily driven by the persistence of adverse claims experience.

“COVID-19 will deliver a further hard blow.”

It said there would be death disability claims directly from the virus, but the impact of a sudden spike in unemployment and a general economic downturn would swamp that impact. It noted that disability claim rates were directly correlated to unemployment.

“In addition, workers compensation claims in Australia are also closely correlated to unemployment. This arises from elevated stress around work performance and business continuity, existing conditions that were previously manageable becoming unmanageable, and a rise in mental health claims,” the analysis said.

“Insurers are also in a position where, due to COVID-19 and physical distancing requirements, they will have less ability to manage existing claims as they will need to relax requirements for existing claimants to prove their on-going incapacity to work.

“…There are of course fewer jobs for claimants to return to, which inevitably impacts the duration of claims and worsens experience.”

Rice Warner noted that when investments markets drop, advisers often turned their client conversations to insurance cover and while this was a positive in addressing underinsurance levels, customers would have questions around whether they will be covered specifically for pandemics.

“So far, insurers have strong messaging reassuring the community that any existing cover that has pandemic exclusions will not have them applied. It may be more difficult to promise no pandemic exclusions on new cover given the potential for anti-selection,” it said.

“There would be also seem to be inevitable premium increases required across both retail and group markets, prompting the need to accelerate and perhaps scale up further product design changes.”