In Australia, whenever there is a large pool of money, it has become harder and harder to figure out who owns it and what is happening to it.
The National Disability Insurance Scheme (NDIS) is an obvious example where a good idea brought in to replace existing systems appears to have gone wrong.
Super is another example of a great idea that continues to be mismanaged, with platforms offering inefficient systems that fail to deliver optimal value to the vast majority of individuals who own the asset.
What is Wrong
Super has been around for over 30 years and attracts much attention from the government, the regulator, and all platforms, receiving comparatively little attention from the individuals who own the asset.
On observation, there are some fundamental flaws in the way super is being sold to the public, managed by the government, regulator, and platforms, and these are detailed below:
- The government (as in all the political parties) has stated that “super is a national asset” (as opposed to a personal asset) and suggests using this asset to fund essential social programs within Australia, such as affordable housing.
- Platforms record an individual’s balance but do not provide personal advice at an individual account level.
- Every platform has a marketing statement of brand, but no platform has a stated point of difference from its competitors, as they are all similar.
- Some platforms present their model as “lowest cost & highest returns”, but this is not entirely true as they do not factor in insurance premiums or options on cost and risks embedded in platform investment models.
- The entire platform market is increasing their investment in unlisted assets, not strictly in the best interest of members but to compete with platforms publicising their outperformance solely because of the way unlisted assets are valued.
- Government interference in suppressing costs involved with super inhibits competitive modelling, and any servicing that might optimise super at an individual account level is not a service option that a platform can fund due to reduced margins.
- Broad government commentary fuels suspicion of biased and conflicted advice.
- The regulator does not clearly define the difference between holistic financial planning and personal-scaled advice within their regulations.
- The regulator is slow to examine unlisted assets around valuation frequency/methodology and their level of liquidity.
- Every MySuper investment option has design flaws, failing to optimise super at an individual account level.
- MySuper has three basic design formats: a fixed portfolio (such as balanced), a glide path (where only future contributions get invested at a lower risk profile in consideration of someone’s age), and a life stages/cycle (where the de-risking of an individual’s asset occurs on reaching a certain age, in five or ten-year cycles).
- A market-dominant investment default, such as MySuper, based simply on age, ignores every other consideration of investment markets, especially market timing.
- Investment returns are examined annually as an average between products, a practice that does not review performance against a more relevant benchmark.
What Needs Doing
Financial education begins upon employment for a large majority of employees, and life then becomes a spin of domestic budgeting, balancing assets and liabilities and then being able to afford retirement. Although each employee owns their super asset, the employer funds it as an employee benefit and must play a role to ensure that value is delivered.
Super tends to underperform as an employee benefit unless wealth creation principles are understood and appropriate actions to manage the asset are undertaken.
Your current platform may not be the best input source if, as the employer, you intend to improve its current management and take advantage of the opportunity to enhance the relationship between management and workers.
- What makes you the best choice in the market?
- What is the biggest challenge you face as a platform?
- What are the KPIs used to measure service performance?
Employers must also canvas employee opinion of the current practices around super and the value associated of this employee benefit.
- How many employees have joined the existing employer super default plan?
- What ratio of employees have exercised their own choice of fund?
These numbers provide employers with some insight into the relative value that employees are currently placing on super as an employer funded employee benefit.
Creating a consultation team consisting of a couple of managers and several employees can establish a focal point for all employee benefits. Super is high on the agenda as the most significant financial reward after wages.
Informed decisions require an assessment of relevant information. A tailored report analysing the choices made by employees and identifying solutions to improve superannuation significantly over the long term is information that most employers are missing in the decision-making process.
Armed with this new information, employers can consider what to do next regarding financial education and servicing around super as a personal asset funded by the employer.