Sunsuper is one of a few industry superannuation funds declaring itself unafraid of a liberalisation of the default awards system. Graham Heilbronn tells BRENDAN SWIFT why he is confident.
Sunsuper director Graham Heilbronn doesn’t want to rail against other sectors of the superannuation industry like some of his colleagues. Instead, he’s more than willing – in fact, eager – to pit his fund against them, even as Sunsuper faces the prospect of losing its key place as a default fund in modern awards.
“I’m not frightened about it or concerned at all – it’s fair, and I think in our fund we will well and truly survive,” he says. “We should be able to hold the members we’ve got through default arrangements and on performance. We can go further than that in other areas, having other funds join us…mergers or whatever, based on performance. I don’t really want legislation setting us up for a big fall down the track.”
Industry funds dominate modern awards, accounting for more than two-thirds of the 66 active default funds under current legislation, according to an October 2012 report by the Productivity Commission (PC).
Their privileged position led to at least $6 billion, and potentially more than $9 billion, in super inflows during 2010 – a position which is in the cross hairs as part of a review by the recently-elected Coalition government.
Sunsuper’s assets under management lifted from $19.7 billion to $23.9 billion over the 12 months ended June 30, 2013, while inflows rose by 6 per cent to $3.2 billion. Without modern award default fund inflows – “low hanging fruit”, which Heilbronn says can foster complacency – the fund will need to focus more on its members and employers.
“We’re in a particularly strong situation – we’ve bedded down a new CEO at the moment who’s commercially savvy and he’s certainly of the same view,” he says.
The appointment of former National Australia Bank executive Scott Hartley as chief executive last November – an outsider to the sector – is just one of many signs that Sunsuper is not a typical industry fund. Sunsuper offers a higher-than-usual 21 investment options for members and pays its executives more-commercial rates of remuneration (former chief executive Tony Lally’s $811,000 remuneration was more than double the average fund chief executive’s $333,087).
“That’s not by accident,” Heilbronn says of the fund’s approach. “I guess we could see this [commercialisation of the industry] coming a long way out.”
Heilbronn’s background is also unique. Industry funds aren’t typically chaired by asuccessful businessman who sat on the board of the Australian Chamber of Commerce and Industry and also served as a trustee of the Liberal National Party.
“I’m an anti-legislation man,” he says. “I don’t like excessive governance – if I’ve got any criticism of superannuation at the moment, I think we’re over-governed. I’ve never seen where governance, as such, leads to higher returns for anybody.”
Heilbronn spent 30 years managing and marketing Queensland’s largest surveying and town planning consultancy, The Heilbronn Group (now THG Resource Strategists) and, unusually for the chairperson of a large fund, supports the government’s decision to freeze plans for further super guarantee increases in the short term. “I’m not saying that contributions can’t grow in the future, but we don’t want to be so dogmatic in that area so we lose a lot of people and/or put employers under a whole lot of strain in these difficult times,” he says.
In recent years, the industry has also endured difficult times, through the global financial crisis and, more recently, absorbing a glut of legislation through Stronger Super, including the low-cost default MySuper product and back-office SuperStream reforms.
However, many of those changes were introduced due to a failure of competition. Since choice of fund was introduced in 2005, all funds’ costs have risen while only 1.5 per cent of members voluntarily exercised choice, according to a recent report by academics Jack Gray (a former chief investment officer of Sunsuper) and Ron Bird. The introduction of MySuper has since reduced fees by about one-third, according to SuperRatings.
A staunch believer in the benefits of competition, he says the onus remains on funds to improve their communication and education efforts with members.
“I don’t share the view that people aren’t smart enough to make their own decisions,” Heilbronn says. “They’ll make some wrong ones, but they’ll make some right ones too.”
Sunsuper will place a greater focus on different segments of its membership, such as pre-retirement or post-retirement, rather than the balanced option, as the fund’s membership ages.
“Our KPIs should also reflect that, so we can look at the end game and work back, not just at what we see in front of us at the moment,” he says.
Heilbronn remains concerned that members across the industry are not engaged enough with their super – many not even knowing how much their super is worth. Sunsuper is prepared to communicate with members through whatever medium they demand.
“Young people just won’t accept that there’s a dollop of money sitting there that they can forget about till their retirement age,” Heilbronn says. “People will get a lot more engaged just because of the digital age more than anything else.”
Investors may have navigated most of the major changes to super legislation – before it won last year’s election, the Coalition pledged to not make any “unexpected detrimental changes” to super – the composition of boards remains a key area ripe for reform in their eyes.
Three of Sunsuper’s six-member board are appointed by the Queensland Chamber of Commerce and Industry while two are appointed by the Queensland Council of Unions and one by the Australian Workers’ Union of Employees, Queensland.
Heilbronn says there is no need to change the current structure at the fund and he is confident that the three Queensland Chamber of Commerce and Industry appointees would meet the industry definition of “independent” because they were not recently employed by the business organisation. Sunsuper has also appointed outsiders on various committees to bolster its decision-making.
“There’s no reason why you can’t employ on those committees an expert or experts in those areas if you feel that’s needed. We’ve done that many years ago in the audit area and we’ve done that now,” he says. “We’ve got two on the investment committee externally.”
The Cooper review of the super system recommended that one-third of boards consist of independent directors. Gray and Bird’s report also recommended that boards, rather than sponsoring organisations, appoint directors, following its survey which found the majority of fund CEOs see trustees as having no (or a negative) effect on members’ benefits, partially due to a lack of time and inadequate skills or temperament.
“I don’t think we need it so much with Sunsuper – I think we’ve got the expertise we need, but that varies [across the industry],” Heilbronn says.
The ultimate test is performance, and Sunsuper has been a strong performer: its balanced option delivered 15.9 per cent over the year ended June 30, 2013, outperforming the median fund by 1.2 percentage points. It has also outperformed over the five- and 10-year periods and matched the median fund over three years.
It is performance that Heilbronn is keen for the fund to continue focusing on, rather than administration and governance, which he says won’t deliver returns and could lead to higher fees for members. Sunsuper’s balanced option charged an investment fee of 0.65 per cent last financial year. (Its new MySuper Lifecycle product shifts investors from the balanced option after age 55 to more conservative options.) Heilbronn is confident that it will stack up against rivals.
“I welcome the idea of competition being opened up to all,” he says. “There’ll be winners and losers in that and it’ll go across all the sectors.”
Chant West statistics for Sunsuper
Returns to June 2013 for the Balanced Option
1 year 15.9 %
3 years 8.0 %
5 years 4.1 %
10 years 7.1 %
Members June 2013 1,038,000
Assets June 2013 $23,926m
Proportion of assets in super default 73%
Net contribution flows 2012/13 $1,649m