Sort out super performance before stapling says AIST

Australia’s financial services regulators need to deal with superannuation fund underperformance before members find themselves stapled to particular funds, according to industry funds body, the Australian Institute of Superannuation Trustees (AIST).

As the superannuation industry began digesting the Government’s Budget announcement which would see people stapled to a fund throughout their working lives, AIST chief executive, Eva Scheerlinck said the question of underperformance needed to be dealt with as a priority.

Her comments came as senior superannuation industry executives suggested that particular superannuation funds stood to be advantaged by stapling, particularly those which covered young people entering their first jobs even before leaving school such as REST and HostPlus.

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Scheerlinck said her organisation was concerned “that millions of members could be stapled to an underperforming fund with the scheme relying on disclosure to get people to switch to a better fund”.

“We know from research – including that produced recently by the Australian Securities and Investments Commission (ASIC) – that mandated disclosure and warnings have been proven to ineffective in influencing consumer behaviour. Moreover, relying on disclosure only to influence behaviour puts the onus on consumers, rather than the regulators, to deal with underperformance,” Scheerlinck said.

“We have seen how poorly disclosure works in the electricity market, where consumers remain for years on uncompetitive pricing plans, despite being warned that there are better deals elsewhere.”

Scheerlinck also pointed that not all superannuation funds were the same, and that some were specifically tailored to cover high-risk workplaces such as the electricity industry.

“The stapling proposed does not address the risk of changing industries and having insurance that is no longer appropriate,” she said

“Moreover, stapling to one fund for life will provide even greater structural incentives for marketing super to young, disengaged Australians where they could be sold into potentially underperforming funds. And if you are stapled to a dud fund, it won’t matter how many workplaces you go to, you will still be in a dud fund, whereas under the existing default system, most disengaged workers will be automatically placed into a default fund, which on average outperforms.

“In a compulsory super system, good disclosure is essential, and this includes providing simple, accessible tools for consumers to make informed decisions about their super. But for all the shortcomings of disclosure described above, naming and shaming won’t go anywhere near to fixing systemic underperformance in our super system, which is a job for the regulators.

“So there is a real danger when you are stapling people to a product and relying only on disclosure alone to protect their interests.”




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Comments

Comments

Before any of this happens they need to clarify what is a growth asset and what is not. You can't leave it up to the super funds to classify assets as they see fit and allow overly aggressive options to be labelled Balanced and compared to other funds that might have 20% less in growth assets. That's got nothing to do with performance but risk.

Some kind of mandated valuation methodology for unlisted assets might be nice as well. Rather than us having to put up with Hostplus writing down the value of their unlisted assets one month and revaluing them back up a month later to improve their EOFY results. Ridiculous that this scenario has not been investigated by ASIC.

I think the main purpose of this agenda is not just about Super Funds performance It is in my “ alleged” opinion aimed at the Industry funds and the costs and payments made between them and the Unions along with the outrageous amount spent on advertising ! Does that fit the sole purpose test ?
Just thinking put loud ?

Agreed

Does this mean that we will get regulation on what a Balanced fund looks like and how much of Growth and Defensive assets apply? There are some really good performing balanced funds out there that look like High Growth funds due to the amount of Growth assets it has, compared to defensive assets. Will we get regulation about what a defensive asset is, as some super funds believe that some Property is deemed to be classed as a defensive asset. Is cash, that is lent to a builder to build a property, actually a defensive asset, given is is secured by a growth asset? We cant commence "comparing the pair" when one is an apple and the other is a watermelon.

Perhaps, but it may be difficult to define well. is private equity defensive because it does not see the price fluctuations of small publicly listed companies? Are mortgages allowed to be put in with fixed interest investments? Who knows how alternative assets will be classified. Would you trust APRA to do the classification???

I'm not sure APRA currently understands asset classes even exist.

If they do, there understanding would not exceed beyond that. "we know asset classes exist, but we have no idea what they are and how to categorise them". Good luck consumers.

Perhaps they could avoid asset definitions and use a "Risk" measure instead. Basically the risk of a 10% fall or a 20% fall in value is what scares people. It would be beter than that current statements that many funds have of "your investment may see a fall in value every x years" This does not tell people anything about the potential size of the fall.

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