Wake-up call still ringing: Ian Silk on the future of super

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by Greg Bright

If there was likely to be any triumphalism expressed at last week’s CMSF, post Royal Commission and with the flood of money leaving bank-owned commercial super funds in favour of profit-for-member funds, Ian Silk put paid to it in the opening plenary session. There is no room for complacency.

Silk, the chief executive of AustralianSuper, has a habit of bringing industry funds back to earth. Several years ago, at the same AIST conference (CMSF) forum he told them that, while they thought their performance had been very good – certainly better than their commercial fund competitors – it really only reflected general market returns. They had to do better than that, he said back then. That came as a bit of a shock. Thanks Ian.

Similarly, this year he said that the future for members of super funds – “not for us in the industry” – would be harder than the past. “It will require a bolder and different mindset. It’s very easy to mouth platitudes about acting in the best interests of members… 2018 was an enormous wake-up call for the industry. The Productivity Commission report was a very impressive analysis of the industry.”

The Productivity Commission made three points about investment performance: most people were in well-performing funds; a significant minority were in poorly performing funds; and, industry funds outperformed the others. “Our only focus should be to be exemplary,” Silk said.

“The fact that industry funds emerged largely unscathed from the Royal Commission is no cause for triumphalism. There is no basis for complacency or hubris whatsoever. Our challenge is fundamental: to be the best we can be for our members,” he said.

Two themes emerged from his presentation in the first morning of the conference which were to reverberate throughout the three-day event: consistently under-performing funds need to exit in some fashion; and, an inquiry into SMSFs, particularly whether there should be a minimum balance before people are allowed to start one and get the consequent tax breaks, should be discussed at government level.

The Productivity Commission report raised the SMSF issue, not for the first time, providing evidence that those with a balance of less than $500,000 performed worse than most other funds. It said that setting a minimum balance of, say $500,000 (it had previously suggested $1 million as the minimum point at which SMSFs become competitive), might be “too blunt an instrument”. But in the least, advisors who recommend clients start an SMSF with less than that amount should have to justify their advice to ASIC, the Commission said.

Garry Weaven, the driving force behind the industry fund movement from the 1980s until his semi-retirement last December, said in a pre-CMSF interview  that we needed to have more facts about SMSFs. The outcome of any inquiry needed to be “fact based”, he said.

The momentum for an SMSF inquiry demonstrated at CMSF coincided with a call for same by the ACTU last week. John Maroney, the chief executive of the SMSF Association and an experienced actuary by profession, responded by questioning the data used by the Productivity Commission and its methodology. He also said the analysis was “too simplistic and ignored the non-financial benefits that many SMSF members believe they can only achieve by overseeing their own fund”.

Meanwhile, Silk said: “We have been the hunter as opposed to the hunted in the past. The industry fund sector is now larger than the retail sector and the gap is growing. But the changes in member and community expectations mean at least four things: the political focus will become more intense; the regulators will be more aggressive [see separate report this edition]; the media scrutiny will be higher; and all of this will take place in a more challenging investment environment.”

Silk, who likes his lists, said there were four things that members consistently said they wanted: strong long-term performance; low fees; a fund they could trust; and good member services. “We have collectively acted in ways in the past which won’t cut it in the future,” he said.

Some tips for funds to look at and perhaps consider exiting through merger or some other fashion, included: if cashflow is dropping off; if other funds’ investment performance is better; if a lot of members are transferring into a rollover fund; and, whether your fund has instructed its financial planners [in the members’ best interests]to recommend another fund.

“The answer to those questions will shape the future for our members,” Silk said. “Are we investing enough in technology? Are we capable of providing new services and products such as pension products, that members need?”

He said: “We have an obligation to run the system in the public interest. The Government has [effectively]outsourced this to us as public policy – a compulsory system with significant tax breaks. No other industry has those advantages.”

He left the audience with a list of eight thoughts for the future:

  • Most crucially, there should not be any consistently under-performing funds. They shouldn’t exist
  • Super funds should have well-articulated asset-owner guidelines for the companies they invest in. They need to prove they are responsible owners.
  • Be part of a retirement system which address the problem of women getting 40 per cent less than men on retirement
  • Recognise that the purpose of the system is not to “save” but rather to “spend” – in retirement
  • As funds which are governed and managed well grow, they will need more specialist skills at both the board and management level. But member representation needs to be retained as skills are diversified
  • Funds will need the internal expertise and financial resource, or committed partners to provide improved digital services
  • We need a revamped SMSF sector and a full inquiry as to their performance, and
  • Less self-congratulatory, every player wins a prize, black-tie superannuation awards nights.

“Each of us should make a genuine commitment to take our funds to the elite level.”

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