When we quizzed a group of leading figures and funds to pick their biggest causes for celebration in 2015, the special outcomes from the growing scale and sophistication of the very largest superannuation funds stood out. Where the industry has pulled together on investment fees and product innovation there have been further triumphs.
The triumphs of scale
For Danielle Press, chief executive of Equip, this was about the investment and partnership with robo-advice firm Clover. “The development of an automated investment service will be a powerful engagement tool and add to the reach and breadth of our financial advice services,” she said. “Education and advice will continue to be a cornerstone of the value we deliver to members in the future.”
Shawn Blackmore, group executive, member experience and advice, AustralianSuper, picked both member loyalty and his fund’s purchasing power in real assets. “Our key cause for celebration is the ongoing trust placed in us by our more than two million members,” he said. “Their confidence in our ability to wisely and profitably invest their money has led to the continuing growth of the fund, which now exceeds $91 billion in members’ assets.”
He added: “AustralianSuper’s continuing expansion into global property markets, with major purchases of a share of a shopping mall in Honolulu; a parcel of office buildings in Washington DC and Boston; and a share of the King’s Cross redevelopment in central London. All of these investments are only available to our members because of the size and scale of their fund.”
Progress towards better investment outcomes and better products
Kim Bowater, senior consultant, Frontier Advisors, singled out the progress being made on fund manager fees. “While it is not yet time to pop the champagne, increased recognition and discussion around the topic of fees and the principle that benefits of scale should accrue to members is a positive for the industry,” she said. “Value for money and contribution to overall returns are key assessments when considering an investment proposition versus its fees impost. This year we’ve seen an increase in focus and consideration, both at the manager and investor level, of applying value-for-money tests.”
For Damien Mu, chief executive, AIA Australia, it was all about the progress and results on return to work outcomes, rehabilitation and early intervention in group insurance claims. “With this capability insurers and funds can play a more fundamental role in helping people get back to work, which helps them and their families but also has a positive impact on claims experience and, therefore, premiums charged to members,” he said.
Edging closer to common-sense regulation
Michael Rice, chief executive, RiceWarner, sees hope for more logical tax breaks in super. “The appointment of Malcolm Turnbull means that the tax white paper task force will be better structured; previously too much was left off the agenda,” he said. “We need tax reform and will probably face short-term tax increases. It is clear that superannuation concessions are poorly targeted so there will probably be an adjustment here.”
Robert Nunez, head of industry funds segment, CommInsure, saw hope in the recent APRA thematic review of group insurance in superannuation. “Whilst the industry has made considerable progress in bedding down the core requirements of Prudential Standard SPS 250, a key call-out is that there is still more work to be done,” he said.
There are topics that most of the industry agrees on and has talked through at length, but for which there is frustratingly little action. One of the longest waits has been for a super fund to create a pension default product that sets down a benchmark for the rest of the industry to follow. When we asked a group of industry leaders to pick their biggest disappointment of 2015, this theme was high, as were the issues of regulation and tax breaks.
When will superannuation see the first real, smart and aspirational CIPR?
The Financial System Inquiry set out the concept of comprehensive income products in retirement (CIPR), akin to MySuper; but one year on, Michael Rice, chief executive, RiceWarner, said no product yet addresses the need for liquidity (for pension payments), growth (to protect against longevity and inflation) and some sort of efficient mortality pooling.
Kim Bowater, senior consultant, Frontier Advisors, said: “Superannuation is whole of life, and a better integration of accumulation and retirement phases, as well as a better effort on the issues of longevity risk and tailoring of solutions to members in retirement are key.”
The lack of progress in moving to a bipartisan approach to super
Russell Mason, partner, Deloitte, said: “We need a bipartisan approach so that fund members can save for retirement in the knowledge that the rules won’t be changed multiple times before they retire. Too often I hear intelligent people say that they won’t invest in super because of the lack of certainty with the rules. Defining the purpose of superannuation will be a good start but we need strong commitment from both sides of politics.”
The lack of progress in allocating tax breaks in a fairer way
Shawn Blackmore, group executive, member experience and advice, AustralianSuper, said:
“There has been disappointingly slow progress from both government and industry on measures to address the salary/super gender gap. We remain hopeful of a positive outcome from the Senate committee inquiry into retirement adequacy for women.”
He added: “We continue to advocate for the retention of the low income super contribution (LISC), which benefits groups including the lowest-paid people with broken work patterns, and many women, beyond its scheduled end date of July 2016. Additionally, the urgent need to lift the super guarantee rate to 12 per cent remains.”
The compliance burden
Maree Pallisco, superannuation leader, EY, spoke of the continued pressure to make ends meet in superannuation. “Running a super fund is more complicated than ever,” she said. “The regulatory burden alone is a significant but, ultimately, a worthwhile cost. Managing costs and investing in strategic initiatives continues to be a delicate balancing act for many Australian super funds.”
