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Raewyn Williams

Five forks in the road for super funds

By Raewyn Williams
4 minute read

The superannuation industry may never see a year like 2020 again – at least, that is the hope. But there is little time to reflect and much to be done this year with super funds facing “five forks in the road” – strategic turns that will have dramatic ramifications for their members and the industry.

To merge or not to merge?
Each fund must decide to either join forces with fund peers or successfully mount the case that they can go it alone. The planned merger of Sunsuper and QSuper shows this path is not just for smaller funds to achieve scale, but for large funds to become mega funds. As rationalisation sweeps the industry, all eyes will be on whether the expected “scale dividends” and other touted benefits happen. At the recent ASFA conference, the chief executives of MTAA Super and Aware Super queried whether bigger equals better, with some smaller funds outperforming larger funds with lower fees. It will be equally fascinating to see how well members and APRA support the “niche” identity and value proposition of smaller funds determined to go it alone.

Responsible investing (RI): Default or choice?
November’s historic REST legal settlement with a fund member is a warning for all funds that decisions about climate change and other RI (ESG) matters can no longer wait. APRA’s plan to roll out climate change governance rules this year is also (forgive the pun) turning up the heat on funds. As they consider how to embed RI thinking into their investments, a critical question is: should RI be part of their standard “MySuper” approach or a “choice” option for members? 

Retirement product design: Annuity or no annuity?
As the industry awaits final details of prescribed Comprehensive Income Products for Retirement (CIPRs), some funds will baulk at being told how to design their retirement solutions while others will welcome the “safe harbour” that government clarity provides. Query how the Retirement Income Review Report’s support for the age pension (effectively, a government-funded annuity for lower-income/asset member cohorts) will affect the final decision. If annuities become a compulsory component of a CIPR, what kind of annuities will become preferred (term v lifetime, immediate v deferred)? And how much of the super business of cash and fixed income (“defensive asset”) managers will move to sit behind the shallow pool of annuity providers?


To increase SG or not to increase? 
This “fork” shows just how much the important mission of super has been (harmfully) politicised, with the architect of super (the irrepressible former prime minister Paul Keating) now joining the strident defence of the planned legislative increase of super guarantee contributions to 12 per cent. Perhaps this is a three-way fork in the road, given the controversial idea that workers could elect whether to receive the legislated SG increase instead of extra wages. 

Hug the APRA performance benchmark or get behind investment convictions?

Our final 2021 “fork” turns on the fate of the controversial “Your Future, Your Super” performance benchmarking proposals. If legislated, funds may redefine “investment risk” as a departure from this notional benchmark portfolio. They will need a clear-eyed view, and steadfast conviction, to justify taking such risks. If more and more funds choose the “minimum risk” path, investment portfolios could become homogenous, raising the spectre of systemic risk to the industry. The unhappiest outcome would be this: funds become regulator and peer-centric, despite their best efforts to focus on super’s most important stakeholders, fund members. Surely, that is an outcome to be avoided at all costs.

Raewyn Williams, director, research, Parametric