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Your Super Future Is Changing

Whilst the federal budget has not tinkered with the detailed workings of super, the government did announce something called “Your Future, Your Super”. Since the Royal Commission, some of the recent amendments to regulations governing the super value being delivered or indeed not delivered by existing product providers within the financial services industry have been most concerned with individuals having unintended multiple accounts and also insurances.  

This latest initiative is again hot on that topic and is a measure aimed at preventing the proliferation of unintended multiple accounts for each individual by stapling the employee’s first account opened in their first job to the individual for their next job and throughout the employee’s career until retirement.  This initiative is also tied to a government labelling any super product as being good enough in terms of cost and performance to accept new members.  If the government evaluation disapproves of the product, that product will not be allowed to accept new members. All rather interesting!

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Consequences for Employers

Whenever anyone makes a decision, you have to understand you are responsible for the consequences.  Some of the potential consequences might be:

  • This initiative only considers the MySuper cost and investment structure and not a wider and deeper view of product functionality.  So if a product has a quality investment choice menu, it may be possible to construct a portfolio to outperform the MySuper structure.  Based upon returns to 30thJune 2020, the table below presents an interesting comparison between top and bottom performers for the MySuper investment option:
Performer Investment Option Annual Projected Income in Retirement to Age 67
Age 25
Salary $60,000		 Age 35
Salary $80,000		 Age 45
Salary $85,000
Balance $20,000 Balance $75,000 Balance $120,000
Top Factory Default
-MySuper		 $37,300 $30,600 $23,300
Bottom Factory Default
-MySuper		 $30,500 $25,200 $19,400
Annual Difference $6,800
Plus 22%		 $5,400
Plus 21%		 $3,900
Plus 20%

Figures obtained from AXIS Service Model Analysis for Corporate Super v1.1 as at 30/06/2020

By using a product’s investment choice menu, how does the top MySuper investment strategy compare with what is the top performing AXIS recommended portfolio:

Performer Investment Option Annual Projected Income in Retirement
Age 25
Salary $60,000		 Age 35
Salary $80,000		 Age 45
Salary $85,000
Balance $20,000 Balance $75,000 Balance $120,000
Top Factory Default
-MySuper		 $37,300 $30,600 $23,300
Top AXIS –
Aggressive		 $44,300 $35,500 $25,900
Annual Difference $7,000
Plus Another 19%		 $4,900
Plus Another 16%		 $2,600
Plus Another 11%

Figures obtained from AXIS Service Model Analysis for Corporate Super v1.1 as at 30/06/2020

  • In taking a simple view of the future for super, where a product is judged by the government not to currently meet a certain performance standard, that product will be told not to accept new individual clients.  Super is a long term investment and while all products and all MySuper default investment strategies do not perform all the time, it does not mean that the ones who are performing now are necessarily able to do so over the long term 
  • The financial services industry offers reduced fees for medium to large sized corporate plans. The introduction of choice of fund legislation along with the one dimensional publication of annual investment returns has already weakened this market to the detriment of the individual account holder.  Whatever product you use and then how you use that product is such a critical issue to the value of super being delivered as an employer funded employee entitlement
  • The rationale being imposed by the government is therefore shallow as it concentrates on the standard MySuper service model and not a fully comprehensive analysis of the subtleties of all service models

Employer Duty of Care

In framing the latest initiative by the government to improve super, the measure appears to be a disengagement model as opposed to the alternative of educating everyone around measures to be taken in terms of their individual financial wellbeing.  This initiative disconnects super as a remuneration benefit being funded by the employer and therefore damages an employer’s effort to attract, retain and motivate the biggest determinant of their performance – their employees.

The ability of a corporate super product to present a superior result can indeed be analysed and then its performance can actually be evaluated and controlled.  Unfortunately most employers put super in the background somewhere and some employers have been with their current super provider for far too long and without anything on record to prove that optimum value is delivered.  Most employers “park” super with HR and while there may be a Remuneration Manager within HR, no employer possesses the knowledge internally to efficiently analyse the performance of the second biggest financial benefit as funded by the employer.  

So to some extent, I am holding up a red flag on the issue of super being a well-managed remuneration benefit amongst all the other employee benefits being administered and delivered by HR.  In today’s litigious world every employer runs the risk of a future dispute where they have been negligent around the value being delivered or indeed not being delivered by their super provider.  The difference in value from an employee benefit point of view is quite stark as noted in the tables above.

If I might end with a touch of humour, nothing in future life is certain but for birth, taxes, super and death!  Not very funny?

This document was prepared and issued by AXIS Financial Group (ABN 21 092 889 579, AFSL 233680). The information contained within it is not advice. It provides general information only and does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking with your financial adviser before making an investment decision. Information in this publication, which is taken from sources other than AXIS Financial Group, is believed to be accurate. However, subject to any contrary provision in any applicable law, neither AXIS Financial Group, nor its employees and directors, provide any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it.

Let’s talk about the right super fit for your employees.

Testimonials

Mitsui & Co. (Australia) Ltd engaged AXIS Financial Group in reviewing the existing employer super arrangements and clarifying which product provider might be best for Mitsui & Co. (Australia) Ltd and it’s group of companies.

AXIS Financial Group provided a concise explanation as to who might be best and why, in particular ensuring that the internal project team had the information to feel confident as decisions were made. The project team moved from arguably being daunted by the prospect of improving this particular employer funded employee entitlement and better understood how to manage super as a remuneration benefit through the detailed analysis and explanation provided by AXIS Financial Group

Antony Auliso
General Manager - Human Resources Division
Mitsui & Co. (Australia) Ltd

I want to thank AXIS Financial Group for their efforts in handling insurance claims on behalf of the employees of WesTrac. From the moment AXIS Financial Group were appointed to the task, they moved so seamlessly into position and have made sure that WesTrac is not only better serviced as a result but also more informed about claims progress. I also note the outstanding results achieved by AXIS with respect to marketing and placement of our employer super policy.

It seems nothing is a problem for the AXIS team and I would commend all employers to consider this service.

Gary Carter
Group Insurance Manager
WesTrac Pty Ltd

AXIS Financial Group’s knowledge of employer super is second to none.

DXC tasked AXIS Financial Group with consolidating multiple superannuation funds to a
single company-wide default fund. They delivered, displaying superior knowledge of their
industry, along with the highest level of service and diligence.
From start to finish – the initial analysis of our previous funds, the detailed tender process,
the transition to our new fund, and post-transition – AXIS Financial Group always made
themselves available for support.
We strongly recommend speaking to AXIS Financial Group for all matters relating to
employer super.

Michael McGoldrick
Director, Compensation Asia Pacific
DXC Technology