THE CORPORATE SUPERANNUATION CONSULTANTS Transforming Super Into a Superior Benefit Richard Matsinger
DISCLAIMER The information contained within this presentation is intended to provide general advice only. It has been prepared without taking into account your objectives, financial situation or personal needs. The information is not financial advice and it is not intended that this information be used as a substitute for specific technical, taxation or financial advice. The information provided by AXIS Financial Group (ABN 21 092 889 579, AFSL 233680) within these slides is believed to be current. Changes in Government policy and legislation can dramatically alter the topics covered. This information is a summary based on AXIS' understanding of the relevant legislation. It is only intended to be general advice information. It is general in nature and may not be relevant to individual circumstances. Information in this presentation, which is taken from sources other than AXIS Financial Group, is believed to be accurate. However, subject to any contrary provision in any applicable law, neither AXIS Financial Group, nor its employees and directors, provide any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it.
Is your Corporate Super a Superior Benefit?
AREAS TO COVER How the super system works and why it s broken How traditional super providers do not deliver super in the best interests of your workforce A modern approach How to transform your corporate super plan into a superior benefit
THE BROKEN SUPER SYSTEM? WHO S LOOKING AFTER THE EMPLOYEES INTERESTS AND TRANSFORMING THEIR SUPER INTO A SUPERIOR BENEFIT
THE BROKEN SUPER SYSTEM? There is close on $2.5 Trillion with a T, within the superannuation system and it is the second biggest benefit after salary and wages that employers provide to their employees. So how does the system work? Let s start with the individual that actually owns the asset, the employee, who is acting in their best interest at the end of the day? On one hand we have the government who takes their slice of the pie in the form of taxes and keeps consistently changing the rules of the game. Then we have the providers, these providers are made up of the Master Trusts which are predominately owned by the banks and AMP, and we all know their main motivation is to generate profit. Along with the master trusts we have the industry funds and again I do question their motives in managing this benefit. Then we have the Employer who is actually providing this benefit as an employer funded employee entitlement and is often swamped by the complexities of the industry. So as I stated at the beginning who is really looking after the best interests of the employee? The one who actually owns the asset. I don t think it s the government, I don t think it s the providers so whose left? The employer. The employer is not to blame, this is a complex system that lacks transparency, but that is why we are here to explain where the money you as employers are paying actually goes.
WHERE DOES THE MONEY GO?
WHERE DOES THE MONEY GO? So let s look at what happens to your contributions all these aspects on the screen have a major difference over a lifetime of the asset and impacts an employee s annual income in retirement, which is something the majority of us worry about. Its actually the top financial concern of employees not having enough money to retire. There have been many studies completed around financial wellbeing and financial stress in the workplace and the correlation this has with decreased productivity and work efficiency is damaging to an employer s outputs. Having a superior superannuation arrangement can aid in reducing employee s financial pressures as well as being used as a tool to not only motivate current employees, but to retain and attract key talent in this competitive work environment. All in all, a huge COST if it is not managed properly. So, you pay the contribution, from there the government takes their slice, and the balance is then directed to the employees super account within an administration platform. From there, a range of fees are taken to administer the employee s account and premiums are deducted to fund insurance cover. So by the time you get to the net contribution in some cases the employee has less than 50% of the total contribution invested due to excessive fees and incorrect insurance design. But that s not all the monies are then invested which incurs investment fees and we can t forget investment performance. Which is something all the providers like to tell us is above board and their strategies will deliver the best long term returns. But how do you know? At the end of the day there is no accountability within the system, maybe because it s so complicated but that s why we are here.
AXIS CORPORATE SUPERANNUATION CONSULTANTS
AXIS CORPORATE SUPERANNUATION CONSULTANTS So who are we and why do we do what we do and how can we help you? I m Richard Matsinger, a partner of AXIS Financial Group, which has been around for 25 years we live and breathe corporate superannuation. We are the corporate superannuation consultants. With the ever changing superannuation environment we have constantly innovated our model and strategies to ensure that we are always acting in the best interests of our employer clients. We hold our own AFSL and have no financial ties with any product providers which means that we are always working for you and your employees. So why do we do this? Because we care about you as employers and your employees and we know the monetary and psychological difference a quality default superannuation arrangement can have to your workforce. At the end of the day we work for you, not a provider. We don t care which product you have in place and we don t have a preference for what we recommend. As long as it s the best option for you and your workforce. We are all about keeping the players in the industry honest because as it stands there are little questions being asked of these providers. I mean just recently in the Financial Review superannuation providers had to refund $21M back to members for services that were never delivered. We consult over 50 employers, 20,000 employees with a combined asset of approximately $2 Billion. You can see on the screen that we work with a range of quality national employers who have all realised the importance of superannuation as a superior benefit and the important role it plays. I will go through a few examples later in the presentation that might resonate with a few of you.
TRADITIONAL MODEL RESULT LACK OF PENETRATION, VALUE & ACCOUNTABILITY
TRADITIONAL MODEL So what is the traditional model and why doesn t it help generate a superior benefit? Firstly, as I mentioned the superannuation system has been around for 25 years with little to no innovation. So what are the consequences of this? First we have poorly structured insurance arrangements where there is very little creativity in managing insurances based on age and lifestyle demographics. What do I mean by this? A young employee who has just started in the workforce should have little insurance they have no debt and no dependants and should be using the majority of their contributions to reach a critical mass not paying for insurance premiums. In comparison to a middle aged employee who has a mortgage and dependants where insurance plays a massive role as a security plan just in case the worst happens. Then there is the employee who is close to retirement, they are an empty nester with no mortgage and have accumulated enough wealth to support their family what s the point of them using their valuable retirement benefit to pay for insurance that is not needed. Do you know how much insurance cover you have, how much you are paying and how much you actually need? I m not saying that everyone over the age of 50 should go out and cancel their insurances, but it s something to think about.
TRADITIONAL MODEL Then we have the fee structure which lacks transparency. ASIC has recently issued a requirement for superannuation platforms to disclose a deeper level of fees with the outcome to lift the veil off these providers but in our opinion this has just complicated things further with so many layers of fees being uncovered. Then you have the investment returns and strategy that does not deliver value to the member s invested. Since the introduction of MySuper, providers made a decision around the structure of their default investment strategies; being either a one size fits all option or an untested lifestage approach. These default investment strategies are where the trustee will invest your money when you have not made an active investment choice. One multi-national employer client explained to me that they strive to be a median employer (i.e. they pay median salary with median benefits) but in this instance it was discovered that their default investment performance has been consistently below median for the past 3 years. This disturbed them to engage us to enter into a discussion with the provider to question the lack of value being delivered and to instigate some form of change. We are not saying that all investment managers need to be in the top quartile for performance but they need to be held accountable for their performance.
TRADITIONAL MODEL Without confidence in knowing that your current superannuation provider is delivering value and is competitive, how can you expect to promote the plan to the workforce? Agreed that complacency is one excuse but again I do question the service models of these providers, how they measure success and what their definition of service delivery really is. Which leads me into performance management. There is no real Key Performance Indicators established for these providers Just like any other service provider in your organisation, your superannuation provider is no different. You would consistently review and measure these providers performance and if you re not satisfied you would seek alternative options, so why isn t your super provider held in the same regard? Is it too hard or you don t know where to start or you keep being told by these providers that they are the best? One client was told by their provider that the performance of the fund was median the reality was that they were 59 out of 60. So how do you know that they are telling you the truth do you have a benchmark to compare against? That s why we think the current system is broken, that it can be delivered much better and the monetary results for employees will speak for themselves.
MODERN APPROACH DESIGNING, PROMOTING AND DELIVERING A SUPERIOR BENEFIT IT DOES NOT MATTER WHICH PROVIDER
MODERN APPROACH So what s the alternative you might ask. We call it the Modern Approach. Where the product is measured on two broad aspects: Plan Design and Service Delivery Plan Design consists of fees, insurances and investment design. If we start with insurance design; employers need to analyse their workforce demographics. Then a decision can be made on the actual design. This allows flexibility within the plan to ensure it meets the needs of the employees as the need for insurance is predominately dependent on life events, debt or mortgage, dependents or health issues. So why not have an insurance structure that takes this into account. Then we look at fees which come in a variety of forms, we have dollar based fees, percentage based fees and plan rebates based on negotiations. Without doing a comparison employers rely on trusting the provider to ensure their plan fees are market competitive. By instigating a comparison commercial pressure can be placed on the provider to ensure there is credible reasoning behind their reported fees.
MODERN APPROACH Finally there is investment design which is the largest contributor to a member s annual income in retirement. All the platforms offer a range of investment choices for members to invest in outside the provided default options. An additional 1% in investment performance for your average employee over the balance of their working life will increase their annual income in retirement significantly which I will show you in the next slide and it will blow you away. For the plan to be a promotable benefit these aspects need to meet the needs of not only the employee but the employer as well. The second aspect is service delivery. Once you are satisfied that your plan design is benefiting your employee s asset, the method used by the provider to deliver this value becomes important. Some Key Performance Indicators that should be presented by your provider as to the health of your super plan include: How many employees have consolidated their super? How many employees have elected to salary sacrifice? How many employees have selected an active investment strategy? How many employees over 50 have unnecessary insurance? Do you even have a Policy Committee Meeting? If you do I bet they aren t that informative. So what difference does all this make to your employees and how can you use this?
THE IMPACT ON EMPLOYEES WEALTH RACE TO $100K Traditional: 20 year old with 3 super plans (multiple fees & insurances) by age 30. Consolidates into one plan at age 45. In retirement converts to an income stream and no capital left after 20 years.
THE IMPACT ON EMPLOYEES WEALTH This graph shows the time it takes for an individual to reach their first milestone of $100K superannuation. This is a critical milestone or what we call critical mass. This individual begins work at age 20 has three jobs over their lifetime and joins all three company default super plans periodically. Meaning they have three sets of fees and insurance premiums eroding their retirement sum. The flip side of this, is if the same individual had those three jobs, joined the first company default super plan and took some advice and reviewed their super account annually to ensure insurances were appropriate, did a little bit of salary sacrifice and implemented an investment strategy. At each change in job reviewed their circumstances and consolidated as necessary to always only have one account. The modern approach will allow the individual to reach $100K 3 years earlier than the traditional model. As we all know investing is all about the compounding effect of money over time. And as Einstein quoted it is the most powerful force in the universe. The quicker you get to $100K then quicker you get to $200K and so on. On it s own this may not seem ground breaking to you, 3 years isn t a long time. But on the next slide I will show you the impact over a lifetime!
THE IMPACT ON EMPLOYEES WEALTH YOUNG MEMBER SUPERANNUATION JOURNEY Modern: 20 year old maintains one super account throughout lifetime. Manages insurance, makes extra contributions and an active investment choice. In retirement converts to an income stream and no capital left after 20 years.
THE IMPACT ON EMPLOYEES WEALTH This journey is for a full working life so 45 years in employment and look at the outcomes. The member under the traditional model can expect to retire at age 65 with $1 million in their account where the member under the modern model can expect to retire at age 65 with a balance of $1.8 million Which would you prefer? I know what I d be choosing that s for sure You would agree that that result is staggering. The difference between the two models is the superior benefit we can help you to add. So how does AXIS assist employers to achieve this modern approach for their company default plans and hence for their employees?
THE AXIS METHOD
THE AXIS METHOD AXIS has developed a methodology that takes a three staged approach. The first stage is to know where you are. How do you do this? AXIS will evaluate your current situation through our proprietary Super Plan Evaluator. In the majority of cases this will uncover deficiencies within the plan design; whereby we make recommendations to improve by placing commercial pressure on the incumbent provider. The second stage is to promote the improvements to the workforce leading to increased participation and motivation. Because what is the point in having a superior plan if you don t promote it to the entire workforce. The final stage is to measure the service delivery through a series of Key Performance Indicators to ensure value is delivered through the improved plan design. The next slide will illustrate this process, how we have applied the modern approach and the transformations we have achieved.
CLIENT EXPERIENCES
CLIENT EXPERIENCES First a global gold mining producer that came to us to review their arrangement. They have a plan asset of $60 million with 1,600 employees. Through the Super Plan Evaluation Report we highlighted that the current default fees and insurance premiums appeared high when compared to the market. The report provided a few options for the employer to consider; with the assistance of AXIS the employer was able to negotiate a significant fee and insurance premium reduction totalling $240K annually. The employer was delighted with the report provided and after reading they had a clearer understanding of where they stood, felt they were now in a more competitive situation and were providing their employees with a superior benefit design. A good news story that the HR manager was able to promote to the workforce. We are still advising the employer as it was realised that the workforce penetration was another area they wish to tackle. Company B has been a client of ours for 10 years now. They are a large producer in the chemical industry with a plan asset of $50 million. AXIS has worked with the employer to ensure that the benefit provided to the employees is of high value and that the workforce understands the superior benefit they are being offered. This has resulted in the plan asset doubling in the past 5 years while the number of employees has remained stable, with 99% of the total workforce participating in the company default super plan this is because the employees have welcomed the modern approach.
WHERE TO NEXT? YOU NEED TO ASK QUESTIONS Is your current plan design market competitive? What is your current provider doing to promote the plan? How is service delivery measured? What is the workforce penetration? Do you care about your employees financial welfare?
WHERE TO NEXT? YOU NEED TO ASK QUESTIONS So if you still need a reason to look at your super arrangement more closely I ll leave you with some more. Because it is an opportunity for you to demonstrate that you are an employer of choice and have your employees best interests at heart That you ve satisfied a duty of care or ethical commitment and finally that you have a benefit that you can confidently promote to the workforce. To be able to do this, ask yourselves these questions: Is your current employer plan design market competitive? What is your provider doing to promote your employer plan? How is your provider measured? What percentage of your workforce participates in the plan? Does your employer care about your employees financial wellbeing? If you don t know the answers to these questions, let AXIS Financial Group help you come and speak to my colleague Roy or myself outside. We will also send some research we have collated over the past quarter to give you some further insights into the industry and our findings.
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