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Will Govt’s YFYS legislation force a cull of superannuation associations?

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Emerging

Emerging

Signifi cant danger in lack of YFYS detail

BY MIKE TAYLOR

The Federal Government is finding itself under increasing pressure from all segments of the superannuation industry over its failure to provide sufficient detail around its Your Future, Your Super legislation, particularly the super fund performance test.

The Senate Economics Legislation Committee has heard from virtually all parties that it is almost impossible to determine what the new regime will look like in the absence of the Government providing the fine detail of its regulations.

The committee has been told by a range of parties, including Mercer, that implementation of the legislation needs to be delayed beyond 1 July, this year, and that a significant consultation period will be needed once the regulations are ultimately released.

Mercer senior partner and superannuation specialist, Dr David Knox, said the new arrangements would place increased responsibility and pressure on employers who would be left unprepared under the current legislative timetable.

“Employers need to be given time and the 1 July start date is impractical,” Knox told the committee’s hearings.

Both Mercer and the McKell Institute also warned that the super fund performance test would risk driving down superannuation funds as fund trustees became more conservative and limited the range of investments they were prepared to pursue.

As well, the McKell Institute argued that any performance test which excluded the impact of fees risked distorting the market.

Will Govt’s YFYS legislation force a cull of superannuation associations?

Major superannuation industry organisations may find themselves suffering collateral damage from the Government’s new Your Future, Your Superannuation (YFYS) with funds being asked to justify the payment of large membership fees.

There are three significant industry associations representing the superannuation industry with the two organisations expected to be the most exposed being the Association of Superannuation Funds of Australia (ASFA) and the Australian Institute of Superannuation Trustees (AIST).

ASFA represents a cross-section of superannuation funds, while the AIST is regarded as mostly representing industry and profit to member superannuation entities.

The acting chairman of the committee hearings reviewing the YFYS legislation, NSW Liberal backbencher, Senator Andrew Bragg, specifically challenged superannuation funds and others giving evidence about the industry organisations in which they held membership.

Bragg also queried whether there were too many organisations seeking to represent the superannuation industry.

Later, answering a query from Super Review, Bragg said the current situation of half a dozen industry organisations seeking to represent the industry was “intolerable and unsustainable”.

When the question of how many associations were active in seeking to represent the superannuation industry, the AMP representative acknowledged that “some consolidation would be sensible”.

The committee hearing heard from the Financial Services Council (FSC) that in terms of the proposed new legislative arrangements around members’ best financial interests, it was possible that superannuation funds could be challenged on whether their membership of particular industry associations was delivering members value for money.

The FSC deputy chief executive, Blake Briggs, said that the FSC would be comfortable with that sort of scrutiny with respect to its superannuation fund members.

IFM Investor’s fi rms boost renewable energy investment

BY JASSMYN GOH

Institutional fund manager IFM Investors-owned companies Buckeye Partners and Nala Renewables have together acquired a majority ownership in clean energy development investment platform Swift Current Energy.

The acquisition, an announcement by Buckeye and Nala said, would allow the firms to invest in a renewable energy platform that aligned with their priorities and further participate in energy transition.

Buckeye president and chief executive, Clark Smith, said: “This strategic partnership offers an exciting opportunity to further advance critical renewable energy generation and storage development projects across the United States while growing this platform”.

Nala incoming chief executive, Jasandra Nyker, said she saw North America as a dynamic and growing segment of the global renewable energy landscape.

Buckeye was a wholly owned investment of the IFM Global Infrastructure fund based in Houston, Texas; Nala was a joint venture between Trafigura and IFM Investors based in Geneva, Switzerland; and Swift was headquartered in Boston, Massachusetts.

Govt lambasted over lack of detail on super performance tests

BY MIKE TAYLOR

The Federal Government is being urged to undertake detailed consultations with superannuation funds about how, precisely, its performance test will operate under the new Your Future, Your Super legislation.

Both AMP Limited and IOOF have used their submissions to the Senate Economics Legislation Committee to call for the detailed industry consultation warning that the absence of critical detail could prove to be significantly detrimental to both superannuation funds and their members.

The IOOF submission points to the fact that while the legislation outlines the need for a performance measurement it provides no specific detail beyond suggesting that the methodology be contained within yet to be determined regulations.

“The bill provides that details of performance measurement criteria will be set out in the regulations,” it said. “IOOF supports an extensive and robust consultation process to determine the content of these regulations.

“IOOF believes an industry consultation process should be established, providing input to the proposed performance benchmarking methodology that ultimately forms the regulations. As APRA has a role in determining which ranking formulae to choose, we suggest it would appropriate to include the regulator in these consultations to ensure consistency and transparency of approach.”

For its part, AMP expressed concern that critical details to be contained in the regulations were not yet available.

“Without the regulations, and no formal indication of when these will be released, trustees are unable to understand the annual performance assessment methodology, determine the application of the performance assessment to their MySuper product or identify potential issues relating to its implementation,” the AMP submission said.

“The magnitude and absence of such critical details suggests that the Government has not yet decided what the requirements for the annual performance assessment should be. AMP raised this concern in our submission to Treasury in December 2020 and three months later, the situation remains unchanged; consequently, our concern has escalated.”

Not easy for industry superannuation fund members to find total fees

BY JASSMYN GOH

The idea that industry superannuation funds are always cheaper than retail funds is incorrect as fees disclosed by industry funds omit property operating costs, borrowing costs, and implicit and explicit costs, according to an adviser.

Speaking to Super Review, HH Wealth director and financial adviser, Chris Holme, said he had to dig through the product disclosure statement (PDS) and the supplementary PDS to find out all the fees involved with the fund.

“If we include some of those costs that they put into their fees guide, investment guide or supplementary PDS we’re finding their fees are a fair bit higher than what we originally thought or that are disclosed to clients,” he said.

“Now these are fees that are taken out before clients see investment returns they don’t have to put them on statements but I do count them as costs because they’re coming out of a client’s performance before they receive it.

“I still like industry funds and I’ve got a lot of clients in those funds and haven’t moved them specifically because they are still adequate for my client needs but I think the whole conception that industry funds are always cheaper than retail funds is pretty wrong to be honest,” he said.

Holme said he had a client whose industry super fund claimed their total fees were 0.93% but, in actuality, the total fees were 1.94%, over a per cent higher than what the fund disclosed.

“The fees are in the supplementary PDS but the funds are not making clients aware of it or making it easy for advisers to accurately compare like-for-like,” Holme said.

“I won’t change super funds if there is no benefit but previously we were looking at staying in a lot of the industry funds because we weren’t aware of these additional fees.

“It’s not fully hidden but what client is going to comb through the PDS an then after that look at their fee guide or supplementary PDS?”

He noted that when the super fund was approached about the fee discrepancy, they originally claimed the higher fee was incorrect but when the fees were broken down they retracted their statement and said it was correct.

“Because they take these fees out before performance is shown to the client it’s taken as a ‘that’s not our fees that’s the fund manager’s fees’ but at the end of the day if you’re getting a net return, those fees should be included,” he said.

Holme also noted that he did not think a lot of advisers realised the hidden fees as he had to adjust the comparison software he used to factor these fees to compare like-for-like super funds.

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