Posted November 21, 2017 by Luke Nardella
The mandatory nature of Australia’s retirement savings model necessarily means that the superannuation sector is the subject of intense regulatory scrutiny. After all, the sector shoulders the responsibility of managing around $2 trillion of Australians’ retirement income – income that needs to sustain Australians for a longer, and more active, retirement.
Earlier this year, the Australian Federal Government proposed the introduction of the Treasury Legislation Amendment (Improving Accountability and Member Outcomes in Superannuation) Bill 2017, comprising wide-ranging new obligations on superannuation trustees to improve accountability and member outcomes. If successful, funds will come under increasing pressure to demonstrate that their MySuper products are meeting members’ best interests.
Outside of investment performance, the biggest area of opportunity for funds to improve member outcomes is to reduce operating costs and improve transparency around how members’ money is being spent.
In 2014, the Financial System Inquiry observed that the operating costs of Australia’s superannuation funds were among the highest in the OECD1, with The Grattan Institute also estimating at the time that fees had consumed more than 25% of returns since 20042.
Today, expenses make up around 0.6% of a fund’s total assets under management (0.3% for public sector funds)3.
The higher a fund’s expenses, the bigger the impact on their members’ retirement savings. In fact, the Super System Review found that a 40% reduction in fees for the average member could increase their superannuation balance at retirement by approximately $40,000 (or 7%)4.
With new introduction of the Member Outcomes Bill, trustees will now have to demonstrate the benefit to members of every dollar spent operating and managing the fund.
In a highly competitive and regulated environment, funds will need to find a way to reduce operating costs and risks, while continuing to differentiate and innovate to attract, retain, and grow members.
Complete our short poll and tell us how your fund is responding to improve member outcomes. The poll looks at:
The findings will contribute to a DST white paper, to be released in early 2018.
2 Minifie, J, Cameron, T and Savage, J 2014, Super sting: how to stop Australians paying too much for superannuation, Grattan Institute, Victoria, page 9.
3 KPMG Super Insights Interactive Dashboard, 2017 https://public.tableau.com/views/KPMGSuperInsights/Super?:embed=y&:display_count=yes&:showVizHome=no
4 Commonwealth of Australia 2010, Super System Review Final Report, Part One, Overview and Recommendations, Commonwealth of Australia, Canberra. Based on Treasury estimates, assuming 37 years in the workforce.
The views expressed in this publication are solely those of the author and do not necessarily reflect the position or policy of DST Systems, Inc. or its affiliates, subsidiaries, joint ventures, officers, directors, or management.