Shining a light on super

How much do you know about your super fund? Who is responsible for looking after your savings? What are the fund's investment objectives? Has it met them over a reasonable time period? Where and how is your money invested? Who runs the fund? How are they paid and how accountable are they to members?

If you don't know the answer to many of these questions, you're not alone. While super, for most Australians, is now their biggest asset after the family home, few take an active interest in how this asset is managed.

Because super is compulsory and locked away until retirement, most of us assume it will be there when we need it and focus our financial attention on the here and now.

The super industry has also been slow to adopt the sort of transparency that investors in other sectors - such as the sharemarket - enjoy. But that is set to change with the government introducing measures to make super funds more accountable, and the information easier for members to access and understand, as part of its Stronger Super reform process.

Draft legislation released last month will require super funds to disclose much more detail about their operation to members, bringing them more in line with listed companies from July 1 next year. All funds will be required to publish on their websites:

- Details of director and executive pay.

- Details of what assets the fund has invested in.

- An up-to-date "product dashboard", setting out clearly and concisely information on target investment returns, past performance against targets, investment risk, liquidity and fees, in relation to each product offered by the fund. That's on top of a requirement for all super funds to publish a new short-form product disclosure statement or member statement next month.

OUT IN THE OPEN

The chief executive of the Association of Superannuation Funds of Australia, Pauline Vamos, says this will provide seven or eight pages of the most important things people need to know up front about a super fund.

This includes what the fund is, who is behind it, the different fees, how the money is invested, what the benchmark against which it measures investment returns is, as well as the level of risk involved.

Vamos says this is the fundamental information that anyone should be easily able to find out about their fund.

In addition, she says, extra information will be available on fund websites to support that document.

This will include things such as how the fees are calculated, the fund's projections, where the money is invested in both country and asset-class terms, and other investment options available.

"[The new requirements] recognise that members have different levels of engagement," Vamos says. "Some people just want to know they're being looked after, but if you really want more information you can get it through the websites."

Disclosure has become a hot topic in the sector, with the usual argy-bargy between industry and retail funds over which is doing it better.

In March, the Financial Services Council released a corporate governance policy that will require its members to have an independent chairperson and a majority of independent directors, disclose remuneration of directors and senior management where they are paid from the trust, ban multiple and competing super-fund board positions, and to develop an environmental, social and governance risk management policy that is made available to members.

It will also require funds to develop and publicly disclose a proxy voting policy and publish their Australian proxy voting record.

For its part, the Australian Institute of Superannuation Trustees (which represents non-profit funds) released research recently on the level of disclosure by funds compared with its own fund governance framework.

MORE TRANSPARENCY

ON MANAGERS

While disclosure generally is improving, the report found only 15 per cent of funds surveyed publicly published their full financial statements online and about half disclosed their board's remuneration, governance policy, tenure of the chairperson and the number of board meetings held.

Only one in five disclosed the remuneration of its top-five executives and most did not disclose a gender diversity policy. The report found disclosure was most consistent in regard to investments.

Almost 90 per cent of funds disclosed their investment managers or the proportion in different asset classes and about 80 per cent included a summary of their investment strategy.

The survey included a number of retail funds, though most were from the non-profit sector.

The association says new prudential standards to be set by the Australian Prudential Regulation Authority will also increase transparency. It says directors' backgrounds, board composition and remuneration would all become minimum compulsory levels of disclosure over the next few years.

However, as the research manager at SuperRatings, Kirby Rappell, points out, it's the quality of information, not quantity, that's important.

"Annual returns are usually a good place to start," he says. "They should tell you what the fund is doing and how it is going about its business. You want to feel confident the people running the fund have a plan for the future and that they're telling members about it."

Rappell says information on who the board members are, how they're paid and what sort of investment strategy they have can help. He says the two most critical areas of information are investment returns and fees, though the better funds are providing more comprehensive information targeted to different members' needs.

Vamos says risk is also a critical consideration. The ASFA last year released guidelines with the Financial Services Council that identify risk as how often the fund is likely to experience a negative return in any 20-year period. This will be disclosed in the new short-form product disclosure statement.

With regard to investment returns, the new legislation will require funds to report on how they are performing compared with their objectives.

Rappell says many funds still lack "good objectives" and often have conflicting ones. They might, for example, say they want to outperform comparable funds and give a solid return over the long term. "But what the hell does that mean?" he says.

Rappell says members also need to judge their fund against the objectives over a longer time frame - not just react to short-term movements.

FOCUS ON PERFORMANCE

SuperRatings' March quarter returns for leading super funds show the dangers of picking an isolated time period. Over the five years to March 30, fund returns have been woeful, with the median balanced fund (with 60 per cent to 76 per cent in growth investments) returning less than 1 per cent a year and the median growth fund (77 per cent to 99 per cent) losing 0.7 per cent a year.

On these figures, you'd have been better in a capital-stable fund (3.3 per cent a year) or cash (4.5 per cent). But over the past three years, the median balanced fund has returned 8.4 per cent and over the past 10 years 5.2 per cent.

"The three-year returns look good because the [losses from] the global financial crisis have dropped out of those returns," Rappell says.

"But over five years, the numbers falling out are high returns from the bull market. Since compulsory super was introduced in 1992, the median balanced fund has grown by more than 6 per cent, which is more in line with its objectives."

The tables also show a big difference between the best and worst funds in each sector. The top-performing balanced fund over the past five and seven years is OSF Super, which returned 3.4 per cent a year over the past five years and 6.7 per cent over 10 years.

The worst fund surveyed lost 3.2 per cent a year over the past five years and returned only 1.7 per cent a year over the seven-year period.

Rappell says while you need to take your fund's investment strategy into account, its median figures are a good starting point for members wanting to see how their fund measures up. You'll need to compare apples with apples, but if your fund is below average you may want to ask why.

He says fees are also important and the average annual fee of about 1.3 per cent on a balance of $50,000 is a good benchmark to start from.

Some funds warrant higher fees for added features and services, but not all the more expensive ones are worth the cost. Rappell says fees should also reduce as a proportion of your investment as your account balance grows.