OPINION | Amid speculation about potential economic progression in 2017, there are five big challenges on the horizon that threaten to reshape the superannuation landscape.
In 2016, the super industry had to grapple with world-changing events ranging from Brexit, to a surprise market rally following Donald Trump winning the presidency in the US, to an ongoing equity market surge.
Closer to home, the federal government pushed ahead with a range of new regulatory policies that will have an impact on many retirees.
The year just gone was an eventful one for the sector, to say the least. And all that action has set up five important battles super funds must plan to win in 2017.
Find new ways to fill the hole in the return bucket
Investment conditions will be tough for the foreseeable future, characterised by low growth, low yields and volatility. If funds can’t find innovative ways to add to market returns, they are left with the uncomfortable choice between revising their investment objectives downwards (and communicating those lower return expectations to members) or chasing returns from riskier asset classes to fill the gap.
Secure cradle-to-grave trust from members
The clock is now ticking for funds to create purpose-built solutions for members in retirement. This will be spurred on by the government’s Comprehensive Income Products for Retirement (CIPR) paper, released in December 2016, as well as the dramatically changing demographics of their own funds.
A fund that does not properly solve the retirement problem faces the prospect of significant cash outflows, whether to rival super funds, self-managed super funds or into retirees’ pockets through lump-sum withdrawals.
Win the battle for default flows
MySuper account balances now total more than $492 billion, having grown 13.6 per cent over the last year. Similar growth this year would create another $67 billion in default inflows – a sizeable prize that all of the big super funds – industry, retail, public sector and corporate – have been eyeing off.
Industry funds will feel the pressure of retail funds upping the ante as they compete for these default flows.
Get a ‘hands-off super’ commitment from Canberra
Super has become increasingly politicised in the face of regulatory scrutiny and federal budget pressures. Funds will need to fight the good fight to convince both sides of government that continual tweaks to the superannuation rules not only work against the industry’s drive towards fee savings and efficiency, but also erode the community’s trust in the system.
Deliver based on value to members, not lowest costs
Increased demands for transparency around fees and costs (think RG 97) have led funds to a fork in the road. Some are pursuing lowering fees (potentially with lower returns and reduced benefits), while others are focusing on net returns and value to members.
The year ahead will begin to show the wisdom – or otherwise – of each fund’s choice. All battles need good leaders, and a sign of good leadership will be funds having the courage to escalate the debate on whether members who pay lower fees to receive lower returns (and forgo other benefits) are better off.
Raewyn Williams is managing director of research at Parametric Australia, a subsidiary of the Seattle-based funds management and portfolio services firm Parametric Portfolio Associates.