Retirement
‘YFYS reforms set to leave members worse off’
The YFYS reforms have been praised for being good in theory, but the outcomes could negatively impact members, an industry expert has revealed.
‘YFYS reforms set to leave members worse off’
The YFYS reforms have been praised for being good in theory, but the outcomes could negatively impact members, an industry expert has revealed.
During Wednesday’s AIST seminar, AustralianSuper’s chief investment officer, Mark Delaney, outlined why the Your Future, Your Super (YFYS) reforms may restrict members from getting the best returns possible.
The YFYS reforms are a government flagship program designed to improve the superannuation system.
The key changes to the super landscape include stapling members to a fund for the duration of their working life; pushing funds to inform members in writing of poor performance; making available a comparison tool; and ensuring trustees have a duty to act in the best financial interest of their members.
While praising the thought behind the reforms, Mr Delaney noted the obvious holes in the policy which could actually leave members in a worse financial position come retirement.
“There’s a lot to like about the thinking behind Your Future, Your Super and comparing the returns of the fund compared with a passive portfolio,” Mr Delaney said.
“If we can’t beat a passive portfolio then we shouldn’t spend members’ money trying to do so.
“The issue I have with Your Future, Your Super is returns are a function of what strategy you follow and how well you execute it with your future only measuring the second one of those.”
The CIO noted the potential that funds may develop an overly defensive strategy to protect themselves.
He explained: “Funds can have a very defensive strategy which means members make a lot less money in the longer run, outperform their benchmarks, i.e. do better than cash in a defensive strategy and the member will still make a very modest return.
“It’s the overall returns that matter for members because that is what they have to spend when they retire. So, what we should be doing is generating the biggest returns we can for members and we should be using both strategy and value-add to do so.”
Mr Delaney said the most important thing for members is their superannuation is in a high-performing fund, with it being less important as to how the money is made.
The Association of Super Funds of Australia (ASFA) estimates the average superannuation balance required to achieve a comfortable retirement would be $640,000 for a couple and $545,000 for a single person, assuming they withdrew their super as a lump sum and received a part Age Pension.
How much super you personally need will vary, though, according to the standard of living you want to maintain at retirement.
However, the average person has far less superannuation than these benchmarks, with men aged between 65 and 69 having on average $384,539 in super, while women have $313,050.
While members are currently retiring with less than they need, the YFYS test revealed a glaring issue, with IOOF passing with annual fees of $726 and a net return of 7.38 per cent, while Victorian Independent Schools which have lower fees of $577 and a stronger net return of 7.58 per cent failed the same test.
Mr Delaney warned the YFYS reforms may need tinkering to stop funds taking the test too seriously which could have perverse outcomes for members.
“What worries me is if funds take this really seriously, they may move to less growth-style portfolios and more defensive portfolios because it’s easier to beat. And I don’t think that is a worthwhile outcome,” he concluded.
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