Some members are excited for retirement, while others approach it with a “real sense of shame and fear”. Funds are going to have to figure out how to cater to both groups or risk failing them all.
If there’s one lesson for investors from the past five years, it’s that chopping and changing their strategy – even in the face of massive market turmoil – doesn’t always pay.
More work to be done for members after YFYS
In the aftermath of Your Future Your Super (YFYS), members of dud funds still aren’t moving their super. And it’s not clear what the government and regulators can do about it.
It sometimes seems that so much time was spent on implementing the contentious YFYS reforms that the question of what would happen to members after was never really answered. But in the months since YFYS passed Parliament, it’s become clear that members – unengaged and unaware – have been stickier than either APRA or the government first thought.
In a senate estimates hearing last week it was revealed that about 89,000 members have moved their superannuation since funds sent out letters notifying them of their failure of APRA’s performance test. But another 1.3 million remain exactly where they were before. And while superannuation minister Jane Hume says the fact that nearly 90,000 have moved is “encouraging”, there seems to be little in the way of a plan to do more.
“Is there going to be a level of stickiness in superannuation? Yes, there always has been,” Hume said. “Disengagement is one of the things that’s plagued superannuation since day one, so I think it’s a great thing that so many of those people… are now going to be moving, because of the mergers that are occurring, into funds that are performing. I think that’s terrific.”
Hume, APRA, and Treasury were all interrogated during the course of the hearing as to their plans to encourage further movement. Treasury revealed it had already spent millions on an advertising campaign for Your Future Your Super, while Hume said that they were in the process of developing another campaign – which would be “a ripper” – that would communicate the issues to members in greater detail, though the specifics remain cabinet-in-confidence.
What’s clear from the hearings is that the government has mostly failed to encourage members to move out of underperforming funds, and that another advertising campaign where seven different creative agencies stuff their snouts into a trough of taxpayer funds might not do the trick. Margaret Cole, APRA’s new superannuation czar, recently lamented the same issue in an op-ed in the Sydney Morning Herald, saying the “most important thing you can do now, especially if your fund has failed the performance test, is to visit the ATO’s YourSuper comparison tool and make a decision.”
Hume’s contingency – that underperforming funds will find a merger partner where their members will be better off – also bears examining. While merger activity is progressing at pace, there is a fair amount of chance involved in relying on consolidation alone. Many funds will find a partner; others might languish for years, to say nothing of funds that fail in the future. Maritime’s recent move to merge with Hostplus gives some hope in this area, but others might not be so lucky. The faith-based funds like Christian and Catholic Super face particularly tricky mergers, with the onus likely on the receiving fund to put specific screens in place to meet the needs of those members who opt for faith-based exclusions.
This would all be less of an issue were it not for the nature of the performance test, which could result in a variety of outcomes, mostly negative: an underperformer might take extreme risks to beat the benchmark, endangering the retirement savings of their members, and fail anyway. That would see them barred from accepting new members, putting them in a cashflow negative position and further reducing their ability to play on the same field as the AustralianSupers of the world. Another question: will the appetite for mergers continue unabated?
One option could be a national default fund, or a nominated fund of last resort, into which the members of underperformers could be transferred if the fund can’t partner up – but these are strictly hypotheticals and have not been explored in any real detail. The least bad option would likely be to give APRA the emergency power to force a fund to merge. It’s a power that’s on Cole’s wish list, but Hume and Treasury appear to have lost their appetite for any more interventions in the superannuation system. And with an election looming – and any number of economic and budgetary issues to deal with after it – it seems unlikely that APRA will receive those powers anytime soon, if ever.
