POWERED BY MOMENTUM MEDIA
(Feb-2005): The push/pull of outsourcing
2005 has already emerged as the year of continuing corporate superannuation consolidation.
If any proof were needed of that fact it was presented barely days after most people had returned to their desks after the Christmas break. First Russell and then AMP announced that they had secured significant corporate superannuation outsourcing mandates.
In the case of Russell it was the big News Limited Superannuation Fund, in the case of AMP it was the superannuation funds controlled by gaming company Tabcorp Holdings Limited.
In both cases, the catalyst for change was acknowledged to be the ever-
tightening regulatory environment confronting superannuation funds, particularly the advent of trustee licensing.
What is significant about the events of the opening weeks of 2005 is that they involved one of Australia’s largest remaining superannuation funds — NewsSuper — a fund with 8,000 members and around $700 million under management.
The Tabcorp Holdings Funds — the Tabcorp Superannuation Fund, the Jupiters Superannuation Fund and the Tab Staff Superannuation Fund — represented a somewhat more modest entity with 4,500 members and $200 million in assets.
The bottom line, however, is that the two announcements have added substance to the findings of a survey conducted last year by Australian Superannuation Advisory Services.
The survey looked at the attitudes of superannuation funds being serviced by the major administrators and asset consultants such as Mercer, Towers Perrin, Mellon, Watson Wyatt and AON, and its findings suggested there was likely to be little slackening in the pace of corporate superannuation outsourcing.
A key question in the survey asked respondents if they intended to keep their corporate fund for the foreseeable future, with up to 43 indicating that they would not be or that they were unsure about what would be happening in the future.
The survey suggested that the driving forces for outsourcing remained very much the same as they have been over the past eight months — the increasing complexity of Government legislation and regulation, the new licensing arrangements being put in place by the Australian Prudential Regulation Authority, and the twin issues of cost and performance.
The Tabcorp outsourcing tender was run by consultancy, the Heron Partnership with managing director, Chris Butler making clear that there was no lack of interest from companies looking to participate in the outsourcing tender.
“There was very strong interest in the market to participate in the Tabcorp tender,” he said. “On this occasion, AMP represented the best tip for Tabcorp and, indeed, the best overall value for money, notwithstanding they were not the lowest-priced participant.”
The continuing momentum for corporate superannuation outsourcing has also been underlined by Super Review’s own research, with its Top Super Funds survey, published in May last year, revealing an on-going decline in the number of corporate superannuation funds.
However, what the Super Review Top Super Funds survey showed was that it had been mainly the small to medium-sized corporate funds that had moved towards outsourcing, with the majors appearing to have sufficient size to remain independent.
Therefore, the news that NewsSuper, one of the larger corporate funds, had been outsourced to Russell represented a significant change and a possible indicator of what lies ahead.
The move will see NewsSuper managed as a separate sub-section of Russell’s SuperSolution Master Trust and clearly reflected the benefits flowing from Russell’s acquisition last year of the Australian business of Towers Perrin.
However, a more important indicator was the explanation of the outsourcing decision provided by News Limited’s group human resources director, Keith Brodie who suggested superannuation had become a burden the big media company was no longer willing to carry.
“We concluded that with the advent of choice and the ongoing changes to Government regulation and associated compliance burden, we were better off leaving it to the experts,” Brodie said.
Commenting on the deal, the managing director of Russell in Australia, Alan Schoenheimer said that it reinforced the complementary strengths of the Russell and Towers Perrin businesses, which had been bolstered late last year by the Nestle and George Weston Foods coming aboard as administration and consulting clients.
“This deal highlights that even very large organisations can achieve a sophisticated and cost-effective outsourced solution for their employees,” he said.
It was also significant that Tabcorp’s executive general manager human resources, Robert Preston also made clear that his company’s outsourcing decision had been driven by the increasing complexity of superannuation.
“We decided that with the ongoing complexity of superannuation, the forthcoming requirement for trustee boards to be licensed and the choice of fund regime just around the corner, it made sense to outsource our super arrangements,” he said.
AUTHOR
Mike Taylor
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