The past couple of weeks has seen the publication of the Senate Economic Legislation Committee’s report on the Your Future, Your Super bill before parliament, as well as the Bill’s regulations.
This column is the second in a series of contributions and picks up on the intersection of a fund’s fiduciary obligations and new challenges introduced by the proposed Your Future, Your Super legislation. Read the first in the series here.
While it is necessary for commercial in-confidence reasons that investment decisions about our super savings are made behind closed doors, there should at some point, be visibility of proof of member benefit to the wider community.
It can also be reasonably questioned whether our super money is being well spent on advertising, industry associations, ESG (environmental, social, governance) matters and regulatory fees if there is no direct evidence provided that the spend is improving members’ retirement outcomes.
A decision may be made by a trustee who is focused on environmental or social change, to invest members’ money in clean technology, third world vaccines, or more affordable community housing, all noble causes.
However, one would think there would be at least some quantified evidence of a desire to ensure that the return gained for members’ retirement outcomes is the highest achievable at that time, given the risk taken. That onus of proof lies with the trustee, and always has been. The trustee, in this example, may believe there are additional benefits to specific investments, such as attracting new members or retaining members. But that motivation differs from the sole fiduciary purpose of improving existing members’ retirement balances. It may also conflict with the legislated covenant of always putting the members interests before that of the fund or its trustee.
Funds’ member attraction strategies are set to become more important given the Bill’s proposed stapling of members to their first fund joined as the default. As a result, many funds that relied on the industrial award default methodology will now be pressured to spend for the purpose of attracting and retaining new members which would be paid for by existing members at a substantial cost – perhaps more than $200 marketing spend per new member gained. One could surmise that fees at those funds would rise, leading to the question: why it is in existing members’ retirement interests to pay the $200 fee increase?
As fiduciaries, trustees should be aspiring to both minimise fees and maximise retirement balances for members as well as providing full visibility. That is, the ratio of member fees to retirement outcomes gained should be declared and be as low as possible. It is not just about the raw fee percentage charged.
It would seem the Bill’s proposed regulations don’t fix this accountability issue. Surely, it should be the case that members be given ready access to both the expenditure and the future retirement benefit impact, displayed in a straightforward way.
Members need to see a per member figure and the resultant retirement balance impact amount. For example, suppose $10 million was spent on sport sponsorship paid for by 10 million MySuper members. The current $1 cost per member, would lead to a retirement impact amount of circa $7 for members aged 20 or $1 for members aged 67. This should also be declared as a $50 million retirement balance reduction across the whole Fund. Members, and the media, could then run their own materiality test and consider if it was worth it.
As Xavier O’Halloran (Choice/Super Consumers Australia) outlined to the recent Senate committee hearing, “for too long, trustees have been left alone in the dark with our money”. In short, there needs to be greater accountability for these decisions. Post-fact public disclosure or relying on disinterested members to pressure change or switch Funds, haven’t been effective tools in driving exemplary fiduciary conduct. The Bill requires trustees to maintain and archive documentary evidence of their expenditure discussions and decisions. If they cannot prove they have acted in good faith for their existing members’ retirement, they should not be making fiduciary decisions.
Currently best financial retirement interests are not measured or tested – surely, they should be.
Currently, the Bill’s so-called bright line investment performance test does not measure the fundamental issue of what is in members’ best financial retirement interests, despite that Funds can be banned from taking on new members for failing it.
Having two tests is acceptable, but what if evidence shows (using the standardised measurement techniques in the regulations) that while they failed the investment performance test, they have acted to increase their members retirement balances more than another Fund that didn’t fail the test would have? One could conclude that APRA can’t stop them taking on new members, as that would be in breach of other laws.
Despite the best intentions of the Bill and accompanying regulations, there remains no definitive test to demonstrate that trustees are acting in the best interests of their members, especially MySuper fund members.