6 minute read
Super changes will undermine innovation, nation building and member returns
BY MATTHEW GRIFFITH
The Government’s proposed superannuation performance test could drive the market towards an oligopoly structure which could create AAustralia’s superannuation system has been reshaped over the past two decades by market forces and regulatory reform, will incentivise a focus on simply being average, rather than being great. This flies counter to my 20 years’ allocation and investment approaches based significantly on an index and peers, rather than investment opportunities that are diseconomies of scale and concentration risk. creating an industry that has significantly experience in the industry which has considered in the best interests of members. consolidated and is widely acknowledged witnessed diverse approaches to Secondly, trustees may become more globally as a strong system. objective attainment, including funds fee conscious, resulting in approaches We all want to strive for better member “bucking the trend” by early adoption of that limit access to high potential return outcomes and while the Government’s investments in unlisted infrastructure but higher cost investment opportunities superannuation budget initiatives and property, internalisation, backing that would be expected to improve returns are generally in the right direction, start-up managers and entrepreneurs and/or reduce risk (e.g. including nation one proposal, whilst well-meaning, through investing in private equity. building infrastructure, property, and appears interventionist and flawed. We take many of these innovations as support for entrepreneurs through private Subjecting super funds to an annual industry norms today, but at the time when equity and small public companies). performance test – creating a ‘league these were adopted, they were innovative Thirdly, we could see trustees being less table’ index and blocking underperformers and required courage to take a carefully prepared to adopt longer term investment from taking new members – is overly calculated risk. Many of these approaches approaches better suited to the long-term simplistic and will have potentially have been enormously beneficial to members. nature of superannuation for fear of failure significant, negative impacts on Instead, the Government’s proposed of not meeting the performance test. investment outcomes for members. benchmark test has potential for less Fourthly, market behaviour might I fear that the drive to be within 0.5% innovation, amongst other consequences actually continue to focus on shorter term of a simplistic portfolio benchmark detrimental to super fund members. measures, resulting in net cash outflows test as proposed by the Government, Firstly, trustees may become significantly from some very high quality, strong with harsh consequences for failure, more index aware, resulting in asset long-term performing funds that have
weaker shorter-term performance.
Fifth, the new benchmark regime assesses funds on only one criteria. In reality, the best fund for any member is a combination of risk alignment, performance objectives, investment approach, appropriate insurance, and service levels including advice.
Finally, this proposed change may drive the market towards an oligopoly structure. There seems to be a view amongst some policy makers that only eight to 10 mega funds (or less) is optimal.
Even with a hypothetical industry of only four mega funds, there will be one upper quartile and one in the lower quartile. There are limits to killing the bottom quartile, and you may create a system that achieves ‘mega scale’.
However, this comes with diseconomies of scale and concentration of risk with massive funds under management under the purview of a shrinking and smaller group of fiduciaries.
To highlight what this might look
like for super, consider the outcomes from the Banking Royal Commission. This highlighted the issues with a large, conglomerate sector with only subtle differentiation between participants, where the structure of that large industry has created other issues, including agency risk.
The Government’s approach ignores that natural market forces and regulatory changes over the last 20 years that have resulted in heightened competition, consolidation and pressure to maintain strong member outcomes – particularly since Stronger Super was introduced in 2013.
The annual performance test also undermines the evolution of recently developed regulatory initiatives which take a more holistic view of performance. The Australian Prudential Regulation Authority’s (APRA’s) member outcomes and heatmap evaluations have the capacity to highlight underperformance, across a broader range of measures.
The ink has barely dried on recent regulatory innovations such as member outcomes. The industry at large should be focusing on further development of existing regulatory approaches aimed at developing a wider range of aspirational targets and benchmarks for members retirement outcomes.
We, as an industry, can do better than what the Government has proposed.
Digging, digging, always digging for dirt
It is November and so Rollover has noted the manner in which football fields have miraculously been turned into cricket grounds and so suspects that those who attended the first-ever AFL Grand Final to be held in Brisbane are now safely back in Melbourne.
What is more, Rollover notes that those who were lucky enough to travel to Queensland, quarantine in affable resort digs on the Gold Coast and then join the AFL bubble ahead of the Grand Final have now returned to a Melbourne which Rollover recognised that there would be those inside TWUSuper who would like to hope that the events of the Trade Union Royal Commission are now in the past and gathering dust.
But not if Victorian Liberal backbencher and chair of the House of Representatives Standing Committee on Economics, Tim Wilson, has his way.
You see it might be over half a decade since the Royal Commission into Trade Union Governance and Corruption was finished, but Wilson reckons there’s still political mileage to be gained in the relationship between the Transport Workers Union and TWUSuper.
Which is why Wilson dredged up the evidence that TWU ‘Superannuation Liaison Officers’ were paid $150,000 a year to encourage members to sign up to TWUSuper.
But Wilson went further in asking the Australian Securities and Investments Commission (ASIC) whether those same Superannuation Liaison Officers might have also been providing unlicensed financial advice.
The answer from ASIC was that there was not enough evidence to suggest any advice was actually provided but it will probably satisfy Wilson that the regulator said it would consider whether it should make further enquiries.
WILL THOSE IN TIGER LAND BE ASKED TO ENTER THE LION’S DEN?
It would seem that there is many a fine tune played on an old fiddle. has been freed from lockdown and unshackled from its travelinhibiting ‘ring of steel’.
Rollover therefore wonders whether those superannuation fund executives who travelled to Queensland to check on their members’ sponsorship investments will be travelling to Canberra to discuss the matter with the House of Representatives Standing Committee on Economics.
It might prove to be a case of leaving ‘Tiger Land’ to enter a political lion’s den.
Smooth as Silk, the $1 million question
On the subject of Tim Wilson and tough questions for superannuation funds, Rollover also notes that his questions on notice have confirmed that the moustachioed chief executive of AustralianSuper trousered $1,111,234 last year.
And it seems that the objective of Wilson’s questioning was to determine how that compared to the “annual remuneration of the average worker who contributes to your fund”.
Sadly for Wilson, AustralianSuper said it was unaware of the remuneration of members but then detailed the annual superannuation contribution of members of its fund, which in the last financial year was $5,338.
To help Wilson, Rollover has conducted a quick calculation premised on $5,388 being 9.5% of a member’s total annual salary. That works out to just over $50,000 a year albeit that other sources suggest the average member account balance is $77,000 a year so, yes, Silk is taking home slightly more than 20 times that of the average member.
On the other hand, they are not overseeing a financial services organisation with over two million members and $172.4 billion in funds under management.
