The superannuation market is changing very rapidly in terms of product offerings, technology areas, and the players in the market. With corporations thinking about whether they are offering the best superannuation options to their employees, and weighing up the increasing demands being placed on trustees, many are looking at other superannuation arrangements for their members.
But deciding on which option is best for your superannuation fund isn’t easy.
Choosing a master trust
It is important that a fund recognises what type of product will meet its needs, says Anthony Lowe, a principal at William M Mercer. For example, there are some corporates that would like to take a hands-off approach and find a master trust that will take care of all the superannuation needs of employers, while there are others that want to outsource their super plan to a master trust but still want to maintain a strong corporate presence.
Strategy is all-important, says David Coogan, a financial services partner at PricewaterhouseCoopers.
He says factors that need to be examined when considering a master trust include a proven satisfactory investment record, manager selection process, the extent of in-house products versus external offerings, the investment default option, fees, insurance options, service and back-office issues, as well as the choice of investment options to meet the different risk-return profiles of individual members.
Because corporations don’t tend to switch master trust providers once they decide on one, it’s important to get these issues sorted out before making a decision, Lowe says.
Flexibility is also a key issue, particularly in terms of insurance arrangements and investment options. For example, you might not be able to get the level of cover for your employees that you desire. You need to shop around. Funds need to work out how much flexibility they need and how much the various funds offer.
Traps to avoid
It’s important to find out all the details of what the various master trusts offer.
For example, there are only a handful of master trusts that allow defined benefit (DB) components as part of the master trust arrangement — so if you are a corporate that wants to keep a DB component as an option for members, you need to find which master trusts offer this. There are some funds that promise this but are unable to deliver.
According to Wayne Walker, a director at Phillips Fox, the transition phase is where most of the mistakes are made.
“Most people want it to be rushed. They don’t delve deeply enough into the capacity of the firms to carry out the transition.”
Coogan agrees that the implementation of the arrangement is crucial. He says there are three basic factors that need to be addressed. They include issues involving the timeframe, communication and ongoing monitoring.
Regarding the timeframe of implementation, Coogan suggests that funds double however much time they think the process will take to arrive at a more realistic timeframe. He says six to 12 months is realistic for many funds.
Communication with members and employees is vital.
“Members must be kept informed of what options the fund is considering and how it is doing it. This process must be managed very carefully,” said Coogan.
Another area that is worth taking a second look at is fees. Fees are not all that transparent, Walker says. “Make sure you nail down all the costs that you are going to incur with the master trust — both in the short and medium term.”
He adds that the various plans on offer are very negotiable. “Negotiate on fees first, then on service,” he says.
Using a tender consultant
Should funds use a tender consultant or go it alone?
Lowe believes that at the larger end of the market, funds should use a consultant.
“Tender consultants tend to be known by their reputation,” he says. “Talk to other companies that have recently gone through this process — get some tips from them. Talk to some of the consultants, ask who they have advised, see if any other funds have needs similar to yours.
