One of the key recent directives to fix the ailing superannuation fund industry in Australia has been for the Productivity Commission to recommend drawing up a list of the top ten super funds in the country. The sector, just like other parts of Australian finance, has seen the negative effects of a series of revelations from last year’s inquiries, and they now have work to do to regain public trust.
This led the commission to suggest that a list of the top performers would indicate success and worth to the public, removing some of the mist shrouded around superannuation funds.
However, AMP Chairman David Murray has been quick to speak out against the decision, saying that if it changes the way that investors put capital in supers, then it will affect the retirement funds of members who have been paying in.
The Productivity Commission released its final report last week, and it said that the $2.7tn industry should offer a list of the best performers to Australian workers so that they could make their mind up without having to worry about selling.
One of the biggest criticisms to come out of the last year for the banking and wealth industry was that sales were receiving priority over actually producing something fit for customers’ needs. The list will also be a mechanism to ensure that Australians do not fall into under-performing funds if they are not aware of what returns to expect.
At present, an opt-out process exists, and employees have a link to the default fund of their organizations. The superannuation sector has an intake of just under half a million people with $1bn in contributions per year.
The new proposal says that Australian employees should no longer be on default funds and instead should have access to the top ten list so that they can get a fairer reflection of how to get good returns. The default funds usually do not perform as well as they should, and they typically fall under My Super arrangements.
Convinced that the list will make a big difference, the Productivity Commission is pushing ahead with the reforms. It said that a worker starting a career now and retiring in 2064 could be in line to save an additional half a million dollars, which shows just how much of an impact that using the top ten list could generate over a lifetime. By guaranteeing more income for those who have retired, the Australian economy should also benefit, so instigating this move is somewhat of a win-win over the long term.
However, Murray, who has chaired AMP since the previous incumbent left in the wake of the inquiry, said that the plan will need proper consideration because some funds could risk losing out if investors just go straight to the top performers on the list.
He added that the desire to get super funds into the top ten could lead their managers to distort results by going for short-term returns and using ‘different asset classes…to provide apparent more reliable and less volatile outcomes.’ According to Murray, this could simply see more capital invested in fixed income and private assets, which are more likely to be reevaluated than publicly listed ones.