Push for move to super unit pricing ‘unfair’

Pressure on super funds to move to full daily unit pricing as a means of distributing investment earnings to members is “unfair on the many funds that have well constructed crediting rate policies”, according to consulting actuaries Buttler Walker.

In the November issue of its Analysis newsletter, the Melbourne and Perth-based consultancy says, “Public discussion seems to suggest that funds should move to full daily unit pricing, without paying due consideration to the dangers and alternatives”.

Director Bill Buttler says that in fact both unit pricing and crediting rates are widely used in Australia, and both methods “can be designed to work well and to deliver fair and equitable outcomes to members”.

The key to the success of both methods is to “develop rigorous systems to reflect tax, expenses and valuations of assets — especially those illiquid assets where there is not a public market value”, Buttler said.

On the other hand, he said, both methods can fail if “poorly designed or if the processes that underpin them admit error”.

“Some recent high profile cases have shown that daily unit pricing is costly and difficult to set up properly, and that it is easy to get unit pricing wrong, and that the cost of rectification can be massive.

“However, if it is done well, unit pricing can produce savings in ongoing operating costs by reducing the amount of manual intervention and rework in day-to-day administration.”

The push for unit pricing has been “partially fuelled by widespread criticism of crediting and interim rate methods as a concept”, he said.

“Much of the criticism harks back to the days when interest rate policies were intertwined with reserving, rebalancing, expense recovery and where there could be significant drift between interim rates and the actual return on assets through the year.

“While we are sure this still occurs, it is also true that the industry has moved strongly forward over recent years. It is also fair to say that unit pricing methodologies can also be used as a means to capture expenses, fees and other costs.

“Essentially, we believe that carefully constructed and managed crediting rate policies can deliver outcomes that satisfy the trustee’s obligations and duties to deliver equitable and fair outcomes to members,” he said.