Superannuation transparency

The Stronger Super regime is intended to deliver more transparency in reporting but, as Hyperion Asset Management’s Tim Samway writes, it also needs to deliver more transparency with respect to investment decisions. 

Changes to the rules governing superannuation may seem constant, but the far-reaching overhaul of the industry envisaged by the Stronger Super reforms is posing more than the usual challenges. And there is a strong sense in the industry that some groups may not be as prepared as they would like to be. 

With compliance dates now upon us, and with them the necessity to act, options and ramifications are still being weighed up at fever pitch. 

There is no question, however, that the imperative for change has focused the minds of superannuation trustees and investment managers on the bigger picture.

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Not only the reforms themselves, but issues of communication, the increasing need for transparency and disclosure and the more profound questions of investment practices, are now top of mind. 

And this can only be a good thing. 

According to the Government, the aim of the Stronger Super reforms is to make the superannuation system stronger and more efficient.

To this end, reforms such as more cost efficient and streamlined processing, as well as a strengthening of the rules surrounding governance, are high on the agenda.  

But arguably the most far reaching changes are those that cover the creation of MySuper, a ‘simple, low-cost default superannuation product’ designed to provide the 80 per cent of superannuation members – whose compulsory superannuation contributions end up in a default fund – with a better and more transparent investment. 

These are the changes that will, in the large part, mean increased transparency for members. 

For example, prior to MySuper, there were no rules governing the specific investment strategies of default funds.

Now, the MySuper fund must provide ‘a diversified investment strategy suitable for the majority of members’, along with standardised reporting, a uniform set of fees, and mandatory provision of minimum levels of life insurance and total and permanent disability insurance. 

In terms of fees and charges, new bans apply to various fee types, including commissions, and there are new standards for performance fees. 

The same goes for reporting. MySuper funds are now required to disclose certain key information, including a ‘product dashboard’.

The dashboard is a summary for members of the MySuper fund as well as any other ‘choice’ funds on offer. Bi-annual reporting of full portfolio holdings is required, as is full disclosure of the remuneration of executive officers and trustees on the fund website. 

This kind of transparency will have far-reaching consequences and will benefit all Australians with compulsory superannuation.

For the first time, members will be able to compare apples with apples – and make decisions about the suitability or otherwise of different funds – based on an ability to properly compare. This was seldom possible in the past. 

But transparency shouldn’t stop there. Better reporting and the ability to compare like with like is a great first step, but the ultimate aim must surely be to allow a greater focus on the fundamentals of investment practice.

In other words, if better and clearer communication leads to better and clearer understanding of investment fundamentals and decisions, then the Stronger Super reforms will really be judged a success. 

For it is only through a clear alignment of the interests of super investors with the investment decisions of fund managers that we will really improve retirement outcomes. 

To achieve this, super funds and investment managers will need to work together. Indeed, the chief executive officer of AustralianSuper, Ian Silk, recently alluded to the same issue, saying that the timing of investment horizons for individuals should be a focus for the industry. And super funds need to work together with investment managers to do it. 

In the same way that superannuation funds will be obliged to provide clear information to members, so too should investment managers become better at differentiating their offerings and explaining their investment philosophy.

For example, very large funds, by their nature, are likely to make different investment decisions than smaller, boutique funds. 

Different portfolios have different investment horizons, which should be clearly spelled out to investors. Active investment managers differ from passive or benchmark driven investors; again, these nuances need to be clearly explained. 

In the end, one investment manager isn’t necessarily always better than another, and large funds are not intrinsically better or worse than smaller ones; they’re simply different. But so too are investors. 

And that’s the point; if the differences are explained and the investment fundamentals clear, all Australian investors will be in a much better position to make stronger super decisions.

Tim Samway is the chief executive of Hyperion Asset Management.