AustralianSuper's Ian Silk

Ian Silk and Bernie Dean have backed the prudential regulator’s new heat map appraisal system and reiterated their call to remove “dud” superannuation funds from the system.

Silk, the chief executive officer of AustralianSuper, told a parliamentary inquiry in Canberra that if APRA’s heat maps worked properly, it would have the “critical effect” of driving the worst performers out. Dean, who heads up the Industry Super Australia, said the new system would be a “real wake up” to members to help gauge how their funds are placed.

“Their removal from the industry is the challenge for regulators and policy makers,” Silk told the House of Representatives Standing Committee on Economics. “In a compulsory universal system, it should not be possible to be defaulted into a persistently underperforming fund. The heat maps are hopefully going to be an important mechanism to achieve that end.”

APRA deputy chair Helen Rowell said last week that that the regulator was ready to forcibly remove trustees of under-performing funds, thanks to the new heat map system that uses a graduating colour scheme to indicate how a fund fare across investment performance, fees and costs and member’s outcomes.

“Members need us to tackle chronic underperformance to help stop millions of them ending up in dud, underperfoming funds that leave them worse off at retirement,said Dean on the second day of the hearing. “Those funds need to sit down and then ask themselves what is in the best interest of members, regardless of whether they are an industry fund or not.”

AustralianSuper, as the country’s largest fund, was the first to appear before the committee as part of ongoing review of the four major banks and funds, following the Hayne royal commission that exposed misconduct throughout the financial services industry. Questions from MPs were wide-ranging from issues about fees to why some funds have such a large allocation to unlisted assets.

The committee’s chair, Liberal MP Tim Wilson, focused on the recent increase in the administration fees of AustralianSuper to $2.25 per week per member, from $1.50 which was set in 2009. Silk was quick to point out that the fund’s investment fees had fallen over time. “One of the key reasons for the internalisation strategy is to reduce costs,” he said, adding that the cost reduction would not have been possible without scale.

Last year, member assets rose by 19 per cent while investment costs grew by only 2 per cent and investment costs for the fund’s default ‘balanced’ option have fallen by 21 per cent over the decade, according to Silk. “Most of this decline is due to the 29 per cent reduction in total base fees paid to external investment managers,” he added.

The $180 billion super fund said that it would support the introduction of a standard that would enable a comparison of costs and fees, on a unitised basis, across the industry. “ASIC has done a lot of work in this area and finally settled on RG97,” Silk said. “Nevertheless, we would support a consistent transparent fee disclosure standard so that members are clear about what they are paying for.”

Liberal MP Andrew Leigh then asked why executives had decided against publishing the valuation of AustralianSuper’s unlisted assets. While AustralianSuper has published details of virtually all all of the asset in its portfolio, it stopped short of putting a dollar value on unlisted assets. Silk said his team wanted to avoid providing potential asset buyers with a market advantage.

Vicki Doyle, chief executive of REST, also appeared before the committee and assured MPs that the $51 billion super fund had “fixed all the issues” that led to the mistakes that were exposed in the Royal Commission.  When questioned on fees, Doyle said had been reduced and were lower than the industry average. On a $50,000 pension pot, REST’s fees came to $450 per year for both administration and investment, lower than the industry average of around $710, according to Doyle.

On performance,  interim chief investment officer George Zielinski said the fund had a “heightened level of risk” for market valuations. As a result, it had low exposure to listed investments and high cash balances which he conceded were “quite dilutive” to total returns. “We are interesting in protecting member’s capital and that is what we are endeavouring to do,” he said.

QSuper’s CEO Michael Pennisi, who also appeared before the committee, said their fund also had a much lower level of equity risk and a higher allocation to bonds and unlisted assets. He added that QSuper, which is in merger talks with Sunsuper, was likely in the bottom quartile for fees across the account balances. He said the administration fee had been reduced three times over the last five years and  the number of investment managers had been cut to 19.

As for QSuper’s potential merger with Sunsuper, Pennisi reiterated that talks were still at a “high level” stage. The Queensland-based chief executive said that while the discussions could still result in a merger, they were also weighing other arrangements such as joining together for operational efficiencies. “There is a broad spectrum,” he said.

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