Heron Quality Star Ratings Announced for 2009

Released: 6 February, 2009

Heron Quality Star Ratings Announced for 2009

Latest assessment of Super products

The Heron Partnership has announced the Heron Quality Star Ratings for 2009 for both Corporate and Retail superannuation products. Of the 154 individual products included in the 2009 assessment, the highest award of 5 Stars went to 24 Corporate products and 45 Retail products. When the Heron Quality Star Ratings were first released in 2006, about 100 individual products were assessed, with 5 Stars going to 17 corporate products and 22 retail products.

The highlights for this assessment and the current market environment include:

• Super investment returns “quite scary” while some increase investment fees by 10-20%
• Large range of investment fees (from 0.3 to 1.0%) for most popular options produce great variations in ultimate retirement income returns for members
• Growing concern that members opting for cash (due to negative share markets) will therefore miss the share market upturn when it occurs
• With markets down there is more focus on improving benefits such as insurance
• Death cover maximums have jumped – in some cases to an unlimited amount from previous maximums around $2 to $3 million
• Tower Life is particularly benefiting from this shift in focus towards insurance, especially among retail sector
• Members are likely to focus on specifics such as fees whereas research shows overwhelmingly that they need to consider the whole fund package – a complex task
• Care Super and ING Corporate Super continue outstanding form in ratings

The Heron Partnership’s Managing Director, Chris Butler said “We are delighted to announce that CARE Super and ING Corporate Super achieved the highest overall rating for their respective product classification in our latest assessment.

Mr Butler said “With the severe downturn in investment markets the superannuation market has been particularly challenging. However, it continues to be extremely competitive with most if not all leading products being enhanced to retain their competitive position. It is therefore a credit to both CARE Super and ING Corporate Super to have retained their Top Rated Product status for the past 3 half-yearly assessments (2008, 2008/09 & 2009). Indeed ING Corporate Super has achieved our highest rating since the award was introduced in January 2007 and CARE Super has achieved the highest rating for Retail products on all bar one occasion, when AGEST received the award for 2007/08.”

Based on The Heron Partnership’s rating system, the Retail products that achieved the 10 highest scores comprised 3 commercial master trusts and 7 industry funds, whilst the Corporate products with the 10 highest scores comprised 8 commercial master trusts and 2 industry funds.

The 45 Retail superannuation products rated as “outstanding quality” and therefore awarded 5 Heron Quality Stars are (in alphabetical order) as follows. Of these products, 25 are categorised as “industry” funds and 20 as “commercial” products.

Outstanding Retail Superannuation Products

• AGEST
• AMP Flexible Lifetime Super
• AON Master Trust - Personal Division
• Asgard Elements Super
• Asgard eWRAP Super
• ASSET Super
• AustralianSuper
• Aviva - Navigator Personal Retirement Plan
• AXA Summit - Personal Super
• BT SuperWrap Personal Super Plan
• CARE Super
• Catholic Superannuation Fund
• Colonial First State FirstChoice Personal Super
• Colonial First State FirstChoice Wholesale Personal Super
• Energy Industries Superannuation Scheme - Accumulation Scheme
• Equipsuper - Personal
• First State Super
• FSP Super Fund
• FuturePlus Super
• GESB Super
• Health Super
• HESTA
• Hostplus
• Hostplus - Executive
• IOOF Portfolio Service Personal Superannuation
• IOOF Pursuit Core Personal Superannuation
• IOOF Pursuit Select Personal Superannuation
• Legal Super
• Local Government Superannuation Scheme - Accumulation Scheme
• Media Super - Employer Sponsored Account
• MTAA
• netwealth Superannuation Master Fund
• NGS Super
• Plum Superannuation Fund - Personal Division
• REST
• Skandia Global Retirement Solutions
• Skandia One Retirement Solutions
• Skandia Wholesale Retirement Solutions
• Spectrum Super - Personal Division
• Strategy Retirement Fund
• Sunsuper
• Tasplan
• Unisuper - Accumulation Super (1)
• WA Local Government - Super Solutions
• Westscheme Superannuation Fund

The 24 Corporate superannuation products rated as “outstanding quality” and therefore awarded 5 Heron Quality Stars are (in alphabetical order), as follows. Of these products, 18 are classified as “commercial” products and 6 as “industry” products.

Outstanding Corporate Superannuation Products

• AMP CustomSuper
• AMP SignatureSuper
• ANZ Super Advantage
• AON Master Trust - Standard Solution
• Asgard Employee Super
• AustralianSuper - Corporate
• AustralianSuper - Corporate Solutions
• Aviva - Navigator Business Super
• BT Lifetime Super - Employer Plan
• CARE Super - Corporate Super
• Colonial First State FirstChoice Employer Super
• Equipsuper - Corporate
• Equity Trustees - Freedom of Choice - Total Super
• ING Corporate Super
• ING Integra Super
• Mercer - SmartSuper
• Mercer - SuperTrust
• MLC MasterKey Business Super
• Plum Superannuation Fund
• REST - Acumen
• Russell SuperSolution Master Trust - Employer Division
• Skandia One Corporate Solutions
• Spectrum Super
• Sunsuper - Corporate

“When Heron assesses superannuation products we consider about 130 product features grouped under 5 Areas of Importance of Investment Arrangements, Contributions, Ancillary Benefits, Communications and Insurance. Insurance and Investment Arrangements have the highest weightings of 30% and 55% respectively”, Mr Butler, said.

In respect to Insurance Arrangements the following products achieved the highest rating:

Corporate Products

• ING Corporate Super
• Aviva - Navigator Business Super
• BT Lifetime Super – Employer Plan
• Aon Master Trust
• AMP SignatureSuper

Commercial Retail Master Trusts

• Aviva - Navigator Personal Retirement Plan
• Macquarie SuperOptions
• BT SuperWrap Personal Super Plan
• Skandia One Retirement Solutions
• Asgard Elements Super & eWrap Super

Industry Funds

• AGEST
• CARE Super
• Tasplan
• The Catholic Super Fund
• MTAA Super Fund

Mr Butler said, “Over the past 6 to 12 months the insurance arrangements offered by both retail and corporate products have continued to improve. An increasing number of products today offer unlimited death cover, Total and Permanent Disablement insurance (TPD) up to $3m and a maximum monthly Salary Continuance Insurance (SCI) benefit of up to $30,000. It is also much more common for funds to not only offer SCI benefits with a payment period of 2 years but also for 5 years and to age 65. Likewise it is becoming more common for the full spectrum of waiting periods (30, 60, 90, 120 and even 180 days) to be offered.”

“Of the 24 corporate products Tower Life is insurer to 4 of the 5 Star products, followed by AIG and ING with 3 products each. However, it is in the retail sector that Tower Life dominates as insurer for 16 of the 45 5 Star products (7 “industry” products and 9 “commercial” products), followed by Comminsure with 7 products and AIG with 6,” Mr Butler said.

“It is also interesting to note that although the majority of 5 Star rated commercial retail products offered “no maximum death cover”, most 5 Star products offered a $5m maximum for death insurance. A year or so ago that would have been $2m or $3m. In respect to TPD cover, most products offer a maximum benefit of $2m, although $3m is more common amongst commercial retail and corporate products. About 2/3rds of the 5 Star rated products continue to offer a of $20,000 per month, with the balance principally offering $25,000, except for 4 corporate products and 1 retail product offering best practice of $30,000,” Mr Butler said.

In respect to Investment Arrangements the following products received the highest rating:

Corporate Products

• AMP Signature Super
• Sunsuper Corporate
• ING Corporate
• Mercer SuperTrust
• Skandia One Corporate Solutions

Commercial Retail Master Trusts

• Mercer Super Trust – Personal Division
• Strategy Retirement Fund
• Colonial First State FirstChoice Personal Super
• AXA Summit – Personal Super
• Plum Superannuation Fund - Personal Division

Industry Funds

• Sunsuper Solutions
• CARE Super
• AustralianSuper
• REST
• Hostplus

Notwithstanding that super fund members have gained a better understanding of the way investment returns can fluctuate and fall away so quickly, due to the current economic crisis, short term investment performance continues to be the key focus and from Heron’s perspective investment performance is one of the main components of their rating of a products overall Investment Arrangements. Heron’s emphasis is on longer term results and consistency of performance. The 2009 assessment is based on performance to 30 September 2008.

Heron measure comparative investment returns over 1, 3 and 5 years for each product’s multi-manager Balanced Option (45% -64% growth assets), Balanced/Growth Option (65% - 79% growth assets) and Growth Option (80% - 90% growth assets). Only 11 products achieved top quartile investment performance, based on the Heron universe of products, for at least 1 investment option, for all 3 periods monitored. REST is the only product to achieve top quartile performance for all 3 investment options monitored.

Mr Butler said, “The difficult investment climate continues to test investment managers with significant divergence in investment returns between products. For the 3 investment options we monitor the 1 year returns to September 2008, have ranged from -1.17% to -17.2% for the Balanced option, from -0.67% to -20.4% for the Balanced/Growth option and from -7.2% to -24.5% for the Growth option. For the year ended 31 December 2008, the indications are that the better managers will produce returns of around -12% - -14% for the Balanced option, -19% - -21% for the Balanced/Growth option and -24% - -26% for the Growth option. These are quite scary outcomes which is leading to an increasing number of members cashing up their equity investments and as a consequence crystallising their loss. Unfortunately these same people will most likely miss the significant upturn in equity markets which invariably happens when confidence finally returns.”

Mr Butler said “Over the past 12 months or so many products have increased their ongoing fees, in particular investment fees. We have observed increases in investment fees of 10% to 20%, if not higher for some products, excluding performance fees, which incidentally will continue to apply for many products notwithstanding the extent of negative returns. It is of interest to also note that there has been minimal change to the investment fees charged by the Heron 5 Star rated products.

Most members invest in their funds “default” investment option, commonly comprising 65%-79% growth assets. The investment fee for these options, based on the Heron 5 Star rated products, currently range from 0.3% of assets to around 1% of assets. Of these products, the average investment fee is 0.82% for commercial retail products, 0.67% for corporate products and 0.63% for industry funds. On top of these fees, invariably there are other fees, the most notable being the administration fee and the member fee, which can add a further 10 – 150 basis points.”

“As a consequence, there is a considerable difference between the retirement outcomes of the various products. To illustrate, if you take a membership period of just 25 years and assuming the same contribution and investment returns, First State Super is the lowest cost Heron 5 Star rated retail product, producing a retirement benefit some 15% greater than the average retirement benefit produced by the combined 45 retail products. First State Super was followed by GESB Super and AGEST.” Heron’s analysis of administration and investment fees excludes any adviser fees an individual has agreed to pay their financial planner; hence a like with like comparison.

“For consumers, due to the variance in features, investment returns and overall costs between super products, a holistic assessment has to be undertaken. Only looking at costs or past investment returns, for example, is not sufficient to select the super fund that potentially the individual will be connected with for 50 or more years. Heron therefore recommends that individuals seek advice from a financial planner to assist them select the product that best suits their requirements.” Mr Butler said.

When releasing the ratings for 2009, Mr Butler, said “The primary goal of the Heron Quality Star Ratings is to provide a realistic and objective representation of the strengths and weaknesses of a product. The ratings are based on feature specific benchmarks which guide Heron’s assessors to rate the feature objectively, with all products therefore being rated on the exact same basis. The ratings for each feature are aggregated to an overall numeric rating for each product”.

The Heron Partnership’s product research and assessments are provided through their Heron Advisor internet based research service. This research service is utilised by an increasing number of product issuers, dealer groups and financial planners as a superannuation research tool, for superannuation advice and corporate super tenders.

The Heron Quality Star Ratings have 5 levels as follows:

• 5 stars - Outstanding
• 4 stars - Commendable
• 3 stars - Good
• 2 stars - Poor
• 1 star - Unacceptable

Details of the Heron Quality Star Ratings, including the assessment methodology and products awarded with 5 Heron Quality Stars, are featured on The Heron Partnership’s web site. In addition, through the Heron Advisor service, subscribers are able to access the Quality Star Rating for all products as well as the detailed product research.