The super iceberg: what's beneath the surface of choice?

Sydney, 14th October 2008

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With superannuation members facing negative fund returns for the first time in recent memory, many may be considering a change of superannuation fund. Ernst & Young research has found that while choice-of-fund is a boon for employees, it is an administrative nightmare for employers and superannuation funds.

SuperChoice, a leading provider of e-commerce services for the superannuation industry, commissioned the research, which examines the impact of choice-of-fund on all stakeholders – employees, employers, superannuation funds and their administrators. A key finding is that all stakeholders are plagued with the inefficiencies of the system and that costs are substantial and increasing rapidly.

The resulting paper, The Super Iceberg: What’s beneath the surface of choice? has been released today to quantify the impact of superannuation choice-of-fund and to stimulate industry debate on the costs of superannuation administration. It comes at an opportune time given the pending release of the Australian Government’s discussion paper on superannuation.

Ernst & Young Partner, Graeme McKenzie, says that while some of the consumer benefits of choice-of-fund are being realised, the administration of choice is made costly and difficult by ad-hoc and time consuming manual processes.

"These are the hidden costs. Employees are overwhelmed by the complexity of information about their super fund, while employers are struggling to keep on top of their regulatory responsibilities and the varied administrative requirements of different funds," he says.

"Then we see funds challenged by manual transactions, incomplete or incorrect information from members and employers, and manually processing cheques." The research estimates that the current cost to participants of administering choice-offund is in excess of $130 million – for the 10% of the working population who have exercised choice. It is estimated that up to 35% of working Australians may exercise choice by 2013, which could see administration costs grow to an estimated $450 million.

According to SuperChoice CEO, Peter Phillip, it is likely that the rate of employees exercising choice over the next five years will increase as they change employers, better understand their super and scrutinise fund performance. "This will increase pressure on a system that is hampered by inefficiencies, add to the administrative burden for small employers and contribute to lost investment performance for employees," he says.

"This problem isn’t going to fix itself – we need to tackle the areas that undermine the efficiency of our superannuation system to ensure that Australia’s retirement savings industry is competitive with world’s best-practice and delivers the best results for employees." "Now is the time for the industry to come together to debate how present costly manual and paper-based processes can be eliminated with a common goal of reducing the cost of administering Australia’s retirement savings."

Some useful research findings

• Choice-of-fund has been exercised by more than 10% of the working population
  contributing to superannuation and is currently growing at a rate of 3-4% per
  annum.
• It has primarily been driven by employees changing employers and retaining existing
  superannuation funds. Given the mobility of the Australian workforce this is likely to
  significantly increase over time, with our modelling estimating take up being
  anywhere from 15% - 35% by the year 2013.
• Large employers appear to be coping reasonably well with choice-of-fund, but small
  and medium-sized employers are struggling with their legal and administrative
  requirements.
• Choice-of-fund has changed some fundamental structures in the superannuation
  industry and has increased the importance of funds engaging more closely with
  members.
• Funds and their administrators are incurring costs in administering superannuation
  contributions that exceed $400m per annum and, for some funds, the cost of
  managing choice-of-fund transactions represents up to 25% of their overall
  administration cost.
• Choice-of-fund is only one of a myriad of administration issues facing the industry
  and cannot be “fixed” in isolation. Funds need to take a broad-based approach to
  increasing efficiency of administration processes.
• There is considerable opportunity to enhance the effectiveness and efficiency of
  superannuation fund administration through the use of readily available electronic
  commerce systems for contributions, member transactions and the movement of
  cash.

Choice of super : New World order emerges in mass market

Sydney, 19th August 2008

Choice–of–fund dollars are continuing to grow steadily with well established industry and retail brands being the major benefactors according to the latest data from SuperChoice, Australia’s leading superannuation clearing service.

Incumbency is all powerful – one of the common links between all of the top twenty superannuation providers is they were all major super brands before choice-of-funds.

What is emerging in the results?

In the mass-market, where 80-90% of Australians may not seek direct personalised advice, in effecting their superannuation decisions these figures reflect the size, reach and the expanse of three major industry funds in connecting with 10m Australian workers.

Australian Super is three times the size of any of Australia’s Major Banks in terms of reaching the mass superannuation market.

Likewise, REST and SunSuper have carved out dominant positions significantly larger than any of the Major four Banks. The emerging industry fund is First State Super who became public offer around 12 months ago – had they been public offer in 2005 it is likely they would have figured in the Top 10.

The size and reach of 1.5 million members paid through SuperChoice out of a greater workforce population of around 10m - and the 200,000 members who have opted (chosen) out of their default fund reflects that this trend is not a statistical blip. This is the future mass market forming very quickly

AMP holds a dominant share of the mass market as the top ranked retail fund with 9.86% of member market share, more than twice the size of any of the Major Banks.

Why are the top five the top five?

The players with a dominant share are all major employer superannuation providers.

Clearly incumbent providers who have reached the mass market through employer superannuation services retain the greater balance of member’s choices.

“All the evidence indicates that it is new employees who are executing choice when they join the new employer. In "gross" terms, around 470,000 new employees were added to the service in the last twelve months, and over 100,000 were opting for a choice fund. What this indicates, is roughly 1 in 5 new employees are completing a choice form” said Mike Fielding, General Manager of SuperChoice.

While many argue a key chunk of choice is attributed to portability there are no real signs of this changing as consumers become more focused on superannuation performance and more educated about superannuation investment options.

SuperChoice statistics - Top 20 Funds

Total Mem no.	Market Share		Super Fund
27977	14.77%	No.1	Australian Super
18675	9.86%	No.2	AMP
11728	6.19%	No.3	REST
10679	5.64%	No.4	SunSuper
9063	4.79%	No.5	ING-ANZ
8895	4.70%	No.6	CFS-CBA
8719	4.60%	No.7	MLC-NAB
7260	3.83%	No.8	Host Plus
6105	3.22%	No.9	CBUS
5772	3.05%	No.10	BT-WBC	TOTAL:60.65%
4630	2.44%	No.11	AXA
4329	2.29%	No.12	HESTA
3333	1.76%	No.13	CareSuper
3152	1.66%	No.14	MTAA
3071	1.62%	No.15	Westscheme
2834	1.50%	No.16	LUCRF
2746	1.45%	No.17	ASGARD
2578	1.36%	No.18	Mercer
2303	1.22%	No.19	Media Super
1752	0.93%	No.20	First State Super	TOTAL:76.88%

Payroll Lets Fly at Superannuation

Sydney, 11th July 2008

A survey jointly conducted by Superannuation Clearing Service specialist, SuperChoice and The Association for Payroll Specialists (TAPS) has found close to 60% of medium to large-sized businesses find their choice-of-fund process cumbersome and unsatisfactory due to the labor intensive tasks involved.

The survey targeted medium to large sized employers with formal payroll processes - the average company had over 1,000 employees.

The research comes at a time when the Rudd Government is focused on reducing employer costs and the ever consuming paperwork and administration tasks that are required to meet superannuation guarantee and choice obligations. With the Rudd Government's concern for evidence-based policy this research offers insights into the choice-of-fund reality straight from the horses mouth- that is, payroll professionals within corporates.

To assist the government, the survey identified key issues employers noted as most pressing to improve superannuation choice processes such as:

• Standardising remittance & reporting formats for all choice transactions
• Acceptance of Electronic Funds Transfer (EFT) as a mandatory payment method
• Support prompt returns of rejected payments back to employers
• Ban employer registration requirement from super fund compliance mandate

The pain of choice-of-fund is evenly spread across all industry segments but not in the same way. As employee numbers increase costs per employee can reduce. The excessive cost is mainly attributed to the time spent managing different fund rules, data validation and correcting super fund returns. This requires most payroll departments to dedicate 2 days a month strictly to process choice.

Peter Philip, CEO of SuperChoice said, "We found medium to large-sized businesses are spending $25 per employee annually to administer choice - this relates to both the human resource and non human costs of administering & delivering the payments. This can equate to tens of thousands of dollars annually per employer - with particularly high impacts for employers with very large numbers of employees and/or with high staff turnover".

Two thirds said they were struggling with essentially manual in-house processes, writing out multiple cheques & remittances to funds and experiencing high error rates and refunds.

Jason Low, General Manager of TAPs said "We realise there's an argument the human resource cost is a sunk cost, but tell that to the payroll managers who get in at 7am and stay back till 7pm to process cheques to fifty super funds with different requirements & formats"

The research also serves as a wake up call for clearing houses. While satisfaction levels for employers who used clearing was far higher than for those employers not using a clearing service, clearing services have room to improve, particularly in regards to delays with refunded payments.

Other employer frustrations included the non standardised requirements of super funds, particularly the outdated requirement for employer registration and the widespread lack of adoption of EFT amongst superannuation funds. Many surveyed asked why a superannuation fund won't accept EFT, then shouldn't the employer have the right to reject that employee's choice?

"We were greatly encouraged by the fact employers using clearing services more than halved their cost and time associated with superannuation choice administration. We think this time & cost saving can go a long way further as scale & efficiency increase", said Mr Philip.

SuperChoice believes the employer take up of Clearing House Services, currently 35%, will increase dramatically to 50% over the next 2 years as organisations become more aware of these benefits.

Mr Low indicated there are some straightforward things for the government to work on almost immediately.

"The idea that a large number of super funds want employers to register with them because one employee chooses the fund is a very significant time-waster for payroll. If the government really wants to cut red-tape for business, this needs to go" said Mr Low.

Choice-Of-Fund Leader Backs Budget Clearinghouse Provisions

Sydney, 15th May 2008

Superannuation Clearing Service provider InvestmentLink believes the Rudd Government's investment in the establishment of a National Clearing House will significantly reduce the cost associated with compliance with choice-of-fund for Australian employers.

InvestmentLink, through it's market leading SuperChoice service, provides an online employer contribution infrastructure for leading superannuation providers and administrators including AMP, AXA, Asgard Wealth Solutions, Mercer, ING and IBM/Russell. The SuperChoice service is used by over 42,000 employers with nearly 1.4 million employees and will process over $6 billion in superannuation contributions in 2008.

"I commend the Government for recognising that employers need assistance to reduce the burden of complying with choice-of-fund", said Peter Philip, CEO of InvestmentLink, adding "The budget provisions will help galvanise the industry towards action to reduce the administrative burden and alleviate the concerns of employers."

InvestmentLink are confident that budget provisions will lead to further enhancements in the efficiency of the superannuation system and will lessen the red-tape for employers - particularly amongst the 755,000 Australian small businesses with less than 20 employees.

Mr Philip said, "We are keen to continue leading the momentum towards a solution that meets the needs of all stakeholders, including the business community, government and the superannuation industry."

Just prior to the budget announcement, InvestmentLink and The Association for Payroll Specialists (TAPS) launched a research project on the impact of choice-of-fund on employers. Early results from this research indicate that employers both large and small are deeply concerned about the growing impact of choice-of-fund on their businesses.

Mr Philip anticipates the results, which will be released next month, will provide the industry with solid data on the magnitude of the issues linked to employee superannuation contributions.