Corporate Super develops "slow leak" after choice

Chris Butler, Managing Director of The Heron Partnership, has issued a warning to corporate superannuation that unless they upgrade education and build better relationships with financial planners, they face a continuing "slow leak" of funds as their best future members opt for alternatives.

Mr Butler said "Although the proportion of members opting out of corporate funds is quite low, at around 4% - 5%, the bigger issue that is impacting the growth of assets in corporate funds is the number of new employees not joining their employer's "default" fund and continuing with their existing personal fund. From the work we have done, it seems that around 25% - 30% of employees coming to a new employer are sticking with the super product they have, notwithstanding the competitiveness of most employer "default" funds. It is anticipated that the percentage will continue to increase".

"On that basis, in 10 years the membership of employer "default" funds will be about 50% - 60% of what it is today. Furthermore, we expect that the level of assets in employer "default" funds will decrease at a greater rate as those with higher balances are more likely to stick with the super product they have when joining a new employer. It is anticipated that the higher proportion of new members will be younger people with minimal balances. As a consequence, costs, such as administration fees and insurance premiums, will increase due to the reduced "group buying power" of the "default" fund", Mr Butler said.

With member "choice of fund" being with us for just over 12 months, one of the key issues employers, Product Issuers and financial planners who have an interest in corporate super funds are facing is the mechanisms they have in place to assist with the retaining and gaining of assets in those funds.

"To stop this decline, what is needed is improved education and initiatives in place to assist financial planners, in conjunction with employers, retain and grow members and assets in their corporate super funds and therefore help individual employees ensure they are in the "best" fund for their personal circumstances" Mr Butler said.

Mr Butler said financial planners need better resources to advise their clients on choice. One such initiative introduced by The Heron Partnership is their internet based Heron Advisor Member Benefit Comparator. The Member Benefit Comparator is a system that enables the comparison of the attributes and features of the employers "default" fund with alternative funds/products that an individual may be considering, taking into account that individual's current age, proposed retirement age, actual super contribution and current fund balance, as well as the actual fees and charges applying to the funds being considered.

Mr Butler said, "This is a powerful and unique tool. It enables a financial planner to provide their client with not only a comparison of the features of the fund they could join compared with the super product they currently have, but also an illustration of the projected lump sum amount at the nominated retirement age, taking into account the costs of the funds being compared."