FUND managers will find it harder to give themselves big bonus rises during bull markets under rules proposed by the government, a leading superannuation group says.
About half the cost of managing the nation's $1.3 trillion in super funds arises from payments to fund managers, with the industry on track to make $9.4 billion in revenue this year. A key complaint of investors has been that managers' performance fees can appear to be "win-win" that bonuses rise in line with the sharemarket but when markets fall, salary packages are renegotiated to include a larger portion of fixed pay.
The Australian Institute of Superannuation Trustees says the practice faces a crackdown when new criteria for performance fees are introduced with MySuper, a no-frills super product beginning in July next year.
Draft MySuper legislation suggests fund managers may be forced to repay bonuses from previous years when they underperform the market. Bonuses would have to be based on longer periods of market performance and they could be determined on an after-tax and after-fee basis only.
Institute chief executive Fiona Reynolds said the draft criteria represented a "good step in the right direction".
"We need fee models that reward fund managers when they have demonstrably contributed to asset growth and out-performance," she said. Ms Reynolds said there was still a "get-out clause" for funds to overlook the criteria but they would have to prove such an approach was in the best interest of members. While the standards are part of MySuper, Ms Reynolds said they were likely to apply to other super funds.
The proposal comes as the government seeks to raise the superannuation guarantee from 9 per cent to 12 per cent by 2019-20.
"In a compulsory super system where you have legislated growth of 12 per cent, super fund members need to be confident that fund managers are only paid performance fees when they earn them," Ms Reynolds said.
When the government released the draft MySuper legislation last month, Superannuation Minister Bill Shorten said: "We've increased super from nine to 12 per cent, but we don't want to see that all frittered away by fund managers clipping the ticket on the way through on people's retirement earnings."