The Investment and Financial Services Association has called for the Government to introduce uniform unit pricing standards for all public offer APRA-regulated super funds.
Unit pricing is the most equitable allocation method as investors are credited with the actual returns earned on their investments from the day they invest, IFSA says in its submission to the super review by Jeremy Cooper.
“Transparent and timely pricing of assets ensures integrity in pricing and gives super fund members the information they need to plan their retirement savings,” John Brogden, IFSA chief executive, said.
Several funds still use monthly crediting rates to allocate investment earnings to members, but they are mainly single-industry or craft funds. They cite cost reasons for preferring crediting rates and to allow for smoothing of returns to members.
IFSA says: “The crediting rate applied is always an estimate of the investment earnings over the period and inequities can result. Individuals will always be better or worse off in a given period under this structure.”
The Australian Institute of Superannuation Trustees has argued that funds should be able to choose the method that suits their membership requirements as unit pricing and crediting rates are both legitimate methods.
“Forcing funds to adopt unit pricing could increase costs to members without delivering them any tangible benefit,” said Fiona Reynolds, AIST chief executive, noting that the Cooper Review was examining ways to improve cost efficiencies across the industry.
“We don’t believe there is compelling evidence to suggest that daily unit pricing produces a better outcome for members than monthly crediting rates,” she said. “Each pricing method has its pros and cons.”
According to IFSA, misallocation of investment earnings in any particular period could occur where daily unit pricing is not used, which poses a problem for investors looking to invest a large lump sum or rollover.
IFSA also said in its submission last week that the current capital and liquidity requirements on super funds were inadequate. “The minimum capital requirement for a super fund was set in 1993 at $5 million. This is ludicrous for a savings pool of over $1 trillion in 2009,” Brogden said. “The requirements under SIS must be amended to align payment, portability and asset valuation requirements.”
Brogden said that illiquid assets should be valued at least yearly and illiquid funds for investment options should be defined as those holding 20 per cent or more in illiquid assets.
AIST also argued against the need to raise minimum capital requirements.