The year started with super funds waging very public campaigns targeting corporate Australia’s boardrooms. The $90 billion HESTA attracted attention as it tried to push more climate-friendly directors onto the Woodside board – and the activism sparked arguments both for and against the role super funds have in pushing for greater corporate accountability.
It might not have been entirely obvious then, but the hunters would soon become the hunted. Even before the hangovers from Cbus’ splashy 40th anniversary celebrations had lifted, a media investigation sounded the alarm on the fund’s board, focusing on its connections to the disgraced CFMEU, and putting the equal representation model of the profit-to-member sector under the magnifying glass.
Governance was one of the biggest stories of the year (and at the time of writing there are still two more calendar weeks to go, of course), but was far from the only complexity super funds dealt with during 2024.
As more members approach retirement and as services are further digitised, the effects of seemingly disparate issues in super funds’ member engagement strategies and processes are starting to compound. Surveys conducted by Conexus Financial, publisher of Investment Magazine, in partnership with CoreData, suggest member experience is one area where a number of funds could do significantly better.
On the investment operations front, asset owners faced a reckoning over how the thinning margins of asset managers would impact external manager strategies. During the year, First Sentier handed back $14 billion of institutional money due to a lack of growth in several strategies, and T. Rowe Price closed its Australian equities strategy due to a lack of scale. Australian institutional business is becoming less lucrative for asset managers compared to retail or wholesale channels.
After years of complaining about how the Your Future Your Super performance test drives benchmark-hugging and limits investment innovation, funds proved that they had adapted to its requirements, to the extent that it is now unlikely any fund will ever fail the test again. Unsurprisingly, some funds came out strongly in favour of retaining the existing test after the Treasury released a consultation paper in March canvassing options to overhaul how fund performance is assessed.
The top news themes of 2024 offer some insights into what’s been keeping superannuation executives up at night, and where things might be heading in 2025.
‘Super is easy, retirement is hard’
If governance was the most significant story, then retirement was the issue that just kept on giving.
More than two years after the Retirement Income Covenant (RIC) came into effect, APRA and ASIC delivered a scathing review in July saying there was still an overall lack of progress in the development of retirement income strategies (RIS) – often because funds found it difficult to access the right member data, or to work with regulations that are still up in the air, including financial advice law reform.
So when AustralianSuper said it had finalised plans for a guaranteed income solution, you best believe the industry sat up and paid attention. The fund’s first chief retirement officer Shawn Blackmore departed the fund before the end of the year, but had led the development of its longevity risk solution in partnership with TAL, which could be unveiled as early as the first half of next year.
In his foreword to Investment Magazine newly launched sister print publication, Retirement Magazine, launched by Conexus Financial in November, Treasurer Jim Chalmers outlined his ambition to make the superannuation system more suitable for retirees as Australians live longer, healthier lives. Chalmers announced five sweeping retirement policy measures shortly afterwards, including one that will allow funds to provide new product features such as money-back guarantees.
Sitting at the nexus of member service, demographic trends and policy focus, retirement is an issue that funds cannot afford to ignore.
Getting tech and service right
As super funds rapidly mature as financial services providers, and want to be seen as such, many of their tech stacks and customer services systems are simply not keeping up with that ambition, especially when compared to sophisticated consumer-facing organisations such as banks.
The root of the problem is partially funds’ long-time arrangements with their incumbent administrators and tech providers. At the beginning of 2024, Investment Magazine published an extensive piece that detailed the “perfect storm” set to break in super administration.
And everything came pouring down. The biggest incumbent administrator, Link Group, was delisted from the ASX in May after being acquired by MUFG, and the industry was hopeful that the deep-pocketed Japanese finance giant would reinvest and develop Link Group’s aging technology over time.
But challengers including Grow Inc were already snatching mandates, including HESTA and NGS Super. Big global players like SS&C Technologies also smelled opportunities and during December took on 1300 Insignia employees to secure the retail super giant as a beachhead client in Australia.
Some funds, including Aware Super, opted instead to internalise administration. But regardless of the approach, the regulators have made clear that funds cannot outsource responsibilities, not to mention the fact that members will vote with their feet in the face of significant service failures.
And when tech goes wrong, it can go really wrong – just ask UniSuper.
Global influence
The superannuation sector surged past $4 trillion this year, thanks to more than three decades of contributions inflow from the Superannuation Guarantee. The significance and success of the Australian system are recognised both domestically and internationally.
BlackRock CEO and chair Larry Fink praised it as “a good model for American policymakers to study and build on”, while the UK chancellor of the exchequer Rachel Reeves has begun modelling the nation’s pension reform on “Australian-style mega-funds”.
Funds strengthened their brands and presence overseas during the past year, too. AustralianSuper moved into a bigger office in midtown Manhattan and now has 60 professionals in New York; Australian Retirement Trust created a London presence that houses a team of three; and Aware Super has plans to hire at least one more person in the UK during the 2025 financial year.
Guarding against complacency
Rarely has a conference speech about superannuation been delivered this year without being prefaced by saying that the system is “the envy of the world”, but it is critical that the industry does not become complacent as a result.
Individuals in the workforce today are likely to have enjoyed compulsory contributions through most or all of their working lives, making super one of the most significant financial assets for the average modern Australian.
And soon, super funds’ role won’t be just delivering investment returns. Those that are truly at the top of their game will also look after members’ emotional and physical well-being.
There is room for funds to get creative to produce a better, fairer retirement system for everyone. But for now, they still need to focus on getting the basics right.
Investment Magazine will return in January.
Most-read operations stories (click on headline to read)
- ‘Retirement is hard’: AusSuper finalises plans for guaranteed income
- ‘Perfect storm’ for super funds as administrators feel squeeze
- Why the whole world is suddenly paying attention to Aussie super
- UniSuper hit with service disruptions
- ‘Force to be reckoned with’: AustralianSuper expands NYC footprint
- Cbus faces SIS Act breach if CFMEU board seats remain vacant
- Compare the pair: How AusSuper and UniSuper stack up on internalisation
Most-read investment stories (click on headline to read)
- Asset owners affected as First Sentier dumps $14 billion in funds
- ‘Insane behaviour’ plagues external manager selection process: ART
- Cost savings not the top driver for internalisation: AustralianSuper
- Super funds and experts at odds over heavily gamed YFYS performance test
- ESG firmly in defence sector’s sights
- Private credit opportunities shine amid macro-factor minefields
- Pluralsight loss ‘humbling’, says AustralianSuper
Most-read profiles (click on headline to read)
- Industry farewells legendary journalist and publisher
- Why ART’s top investment strategist is optimistic about markets
- ‘New member every minute’: AustralianSuper’s growth strategy
- Hostplus admits global fundie woes pose risk to external manager strategy
- Asset management pain will be an ‘ongoing reality’, says ART CIO
- Aware Super COO to unleash efficiency after admin in-housing
- ‘An implausible planning scenario’: Inside the UniSuper outage
