Superannuation performance figures that add up

The combination of superannuation fund choice and the first prolonged downturn since the advent of compulsory super has fragmented the industry, writes Pauline Vamos.

The latest Australian Prudential Regulation Authority (APRA) league tables have stirred up robust debate throughout the superannuation industry.

The combination of fund choice and the first prolonged downturn since the advent of compulsory super has fragmented the industry. Different sectors are using the regulator’s figures, as well as those by the various ratings agencies, to score points and promote agendas.

As the only peak body to represent the entire superannuation industry, the Association of Superannuation Funds of Australia (ASFA) does not buy into sectoral issues but focuses on fund members and their interests.

We encourage and support performance measures, but for them to have any real value we need to ask some serious questions. What does success look like? What are we measuring and why?

Given the myriad structures, member groups and products within Australia’s trillion-dollar superannuation industry, it is very hard for the average fund member to make informed choices about their retirement savings and evaluate the relative performance of funds.

The most common benchmark is the ‘balanced’ option — but there is no standard definition of investment portfolio or asset class across the industry.

So how can the performance of superannuation funds truly be measured and have any real meaning? For fund members the holy grail is the ability to compare like with like.

Fund performance needs to be based on two objectives:

• measuring the fund and, therefore, the performance of its trustees; and
• measuring investment performance against a set investment strategy.

Neither is simple and, at the moment, cannot be achieved given the way the data is collected.

Australian superannuation is not homogenous. There is a lack of benchmarks, agreed indices and standard terms.

We would be foolish to assume all fund members want the same thing. If they did, super funds wouldn’t need different investment options, products or strategies.

We need to examine the purpose of measuring performance. It should be so fund members or other stakeholders can clearly see if they’re getting what they want out of their current super holdings, or whether another fund, product or portfolio can provide better for them.

The challenge for the superannuation industry is to provide data so our members know they are getting what they need and want, at the agreed level of risk. This would be a key member engagement tool for the industry.

We need to ensure our members have confidence that the people operating their fund are acting in their best interests, and possess the right knowledge and skills. This is the focus of the first phase of the Cooper Review into the industry.

But they also want to know that their money is in the right investment option for their time horizon.

Funds may need to provide for members who are just starting out, for others in a significant accumulation phase and still others who are approaching or already in retirement.

Equally, people at any stage along the super timeline may have different appetites for risk.

As a result, trustees must think and plan long-term to fulfil their fiduciary duty. The industry needs to demonstrate to its members that the people running their funds are providing, among other things, efficient investment of assets, liquidity management and that risk is aligned with return.

These are the true indicators of success for a fund trustee.

Taking all these factors into account, the current broad league tables that attempt to cover investment return outcomes do not yet provide fund members, the industry, or the regulator with a true measure of performance.

It is absolutely vital for APRA to obtain data from the industry that allows it to appropriately measure, at a minimum, trustee performance, and we believe APRA is trying to go down that track.

This is all about making sure the trust that members have in the people looking after their retirement savings is warranted.

Measuring investment option performance and whether an option is true to label is, arguably, the role of ASIC. This is where we will be able to compare investment performance.

In an era where the minus sign on the bottom line of member statements has focused attention on superannuation as never before, ASFA fears that trustees of funds may feel compelled to make decisions based on a desire to be at the top of the league tables.

This may put them at odds with their fiduciary responsibilities — that is, trustees could allocate assets to achieve a ranking on this particular scale, rather than what is in the best interests of their members.

We must guard against applying a straight funds management scenario to superannuation. Investing as a fiduciary brings with it much broader responsibilities. These are very different concepts.

In essence, we need real figures that bear some relationship to what members actually get. There is a range within each sector; some are more expensive as they pay for advice, some have complex structures and some have large numbers of employers. But as a whole, the industry performs well and continues to offer real choice for members.

The industry is ready and willing to stand up and be counted. We just need to make sure the numbers are transparent and that they add up.

Pauline Vamos is chief executive of ASFA.