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(August-2004) Corporates need not fear choice: Heron
Corporate superannuation funds have little to fear from the new choice of fund regime, according to research conducted by independent superannuation group, The Heron Partnership.
According to the Heron Partnership’s analysis, corporate superannuation funds have little to fear from choice because the vast majority of members “will see the sense in remaining with the buying power of their employer’s fund”.
It says that the difference between staying with a company fund and moving to a personal retail fund could be as much as 34 per cent.
“As an example, the retirement benefit of an employee in a small to medium business company fund — with 30 years to retirement — will be 25 per cent more at retirement if he stays with his company fund rather than move to a personal retail fund,” it says.
“This same person, if employed in a large company will be 34 per cent better off due to the improved ‘buying power’ of his larger employer,” the Heron research says.
However, the Heron Partnership’s managing director, Christopher Butler, says corporate funds will need to ensure that they are able to offer the range and flexibility of options members expect at a wholesale price.
Butler says the push for companies to outsource their superannuation continues to gain strength driven by complexity, regulatory provisions, cost and the simple desire to improve services provided to their employees.
“It is also of interest to note that most companies when considering ‘choice’ are wanting to ensure that their employees remain with their company arrangements rather than go their own way and are therefore keen to ensure that their fund remains competitive rather than wipe their hands of superannuation in a choice environment,” he says.
Butler predicts that within five years there will only be around 200 company superannuation funds compared to the more than 1,500 that exist today.
“We estimate that the major move to outsourcing to a master trust or industry fund will occur over the next couple of years, and choice of fund will only speed that up,” he says.
However Butler says the introduction of choice will not result in large scale movement by employees from their employer’s superannuation fund because employees will have little incentive to leave a well-structured fund.
“Employees moving from their employer’s fund will potentially lose the buying power that comes from being part of a bigger group, which impacts in particular on costs and automatic insurance coverage,” he says.
“Buying power is critical in a choice environment and individuals have negligible buying power,” Butler says.
AUTHOR
Mike Taylor
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