If you look back far enough, history will often help predict the future. And, in the case of master trusts, the relevant period is the 1960s, when stand-alone corporate funds evolved out of the dominant AMP and National Mutual master trust vehicles of the day.
With such a historical perspective, the current trend back to corporate outsourcing possesses a circularity that implies corporate super, at some point in the future, will again exit the master trust.
Although today’s traffic is still predominantly into master trusts, continuing innovation with education, Web sites, and electronic transfer of funds and data, means employers now have more reasons to look for better deals with other master trusts and industry funds.
For superannuation consultant at Watson Wyatt Worldwide, Andrew Boal, this history lesson serves as an important reminder that it is almost always harder to get out of a master trust than it is to get into one.
Boal has recently helped several clients withdraw from master trusts back to stand-alone arrangements, but he believes large-scale movement between super providers is still several years away.
“Historically in the corporate fund area, when a fund changed service provider they would usually give that fund three or four years to get over any teething problems,” Boal says.
“I think master trusts will get the same window of opportunity to get things right. So for the big companies that have moved recently you won’t see any dramatic shift for three to six years.”
In the meantime, the funds that are transferring now continue to struggle with successor fund issues.
Phillips Fox Actuaries managing director Michael Rice explains that an employer can transfer its members en masse provided the new fund offers equivalent rights to members. This means trustees of the existing fund and trustees of the new fund must agree that member benefits will not be diminished in any way.
But Rice says the lack of a checklist defining what is equivalent leads to a range of esoteric arguments between lawyers about contingencies where one member might be potentially worse off.
“You can imagine, with complex benefit structures, how hard it is to get it right,” Rice says. “And, the fund losing the business can be pig-headed and defer the transfer for some time, which defeats the object of what you are trying to do.”
Superannuation partner at Blake Dawson & Waldron, Michael Vrisakis, says establishing equivalency of rights is even further confused by arguments over definitions of what a ‘right’ is.
Vrisakis adds: “For example, are fees considered as rights? And, if you take fees into account for equivalence of rights do you consider the current levels of fees or the total levels of fees that could be charged?
“Also, is the precise investment option you are invested in considered a right, and if you can’t align these investment options between master trusts, does that pose a problem?”
However, employers can avoid successor fund issues by exercising their power to redirect contributions to a new fund, or by giving employees the choice of which fund they would like to enter.
In Boal’s experience, Company A (which has a stand-alone fund) typically takes over Company B (which pays into master trust). Company A redirects all of Company B’s contributions to the stand-alone fund and leaves employees to choose whether to move their existing assets across to the stand-alone fund.
“In these cases we give presentations and explain that all new contributions will be going into the company fund,” Boal says. “Usually the company fund has no fees and looks pretty compelling, so most people are happy to bring their money into it.”
The only catch with this mechanism is that if choice-of-fund is introduced, employers will lose the power to decide where to pay their contributions.
