UniSuper is in the planning stage of building several retirement products for its members rather than rely on off-the-shelf solutions from providers.
The $45 billion fund wants to use its scale to create products such as a pooled longevity product with a mortality bonus for those that live longest, similar to Mercer’s group self- annuity, Lifetime Plus.
Kevin O’Sullivan, chief executive of UniSuper, has revealed that among four potential solutions, it is also scoping a collective defined contribution (CDC) plan, which would pool the investment balances of members in such a way that would lessen sequencing risk for members, but also reduce costs considerably and thereby boost returns to members.
This has been a pet project of fund chairman, Chris Cuffe for more than five years and he recently discussed the tax barriers to creating a CDC plan with David Murray, the chair of the Financial System Inquiry.
O’Sullivan said for this reason his biggest hope from the government consultation on the inquiry’s recommendations was that tax barriers to the creation of new retirement product would be removed.
“Assuming that one product is going to do it is naive. It should be up to the trustees to develop those products rather than by dictating on high. Each fund should be able to say for our membership basis ‘this is right for us’.”
O’Sullivan said a decision is likely on the products in 2015, but that the fund was not rushing into a decision, partly due to the large increase in intra-fund advice it was offering.
Over the last year the fund has hired new members in its advice team, including Jack McCartney as executive manager, advice and employer relationships, formerly of CBA, Colonial First State and BT.
This has led to the number of UniSuper members who have received limited advice to grow by 67 per cent in the last year, while the numbers who received overall advice grew from 1600 in 2013, to 2250 in 2014.
O’Sullivan is working towards getting all 38 Australian universities to have an on campus consultant who can help members in filling in forms, being directed around a PDS and their investment choices. At present only 18 universities are covered.
“These people have been a god send to a lot of members. I would like all campuses covered,” said O’Sullivan.
With a standard contribution rate of 22 per cent, O’Sullivan says adequacy is not an issue for members, hence the importance of ensuring that those with large balances or entitlements receive good advice. The uniqueness of the rules around the defined benefit element of the UniSuper scheme, which include reversionary benefits for the family of members, also mean that he believes intra-fund advice is best for members.
“The danger is if I am a UniSuper member who goes to external adviser, is that they might not necessarily understand my benefits as well and they could get me to do something that takes me away from getting a pension that might be in my best interests,” said O’Sullivan. “They might move me into a product with higher fees than UniSuper because it is in their financial interests to do that. There is a risk of that.”