New broom to clean up government super?

Superannuation - Daryl Dixon

The Public Sector Informant (Canberra Times), February 2010


Outsourcing 
Lindsay Tanner's overhaul of superannuation funds may improve or worsen service.

Late last year, the Minister for Finance and Deregulation, Lindsay Tanner, announced key changes to the administration and operation of the Federal Government's superannuation schemes. On July 1 this year, the Government will abolish the position of superannuation commissioner, now held by Leo Bator, and install a chief executive, who will be responsible to a new single trustee board.

The new board will replace the existing separate trustee boards responsible for the military and public sector schemes, and be responsible for all five public sector schemes, including the CSS, PSS, PSS Accumulation Plan, DFRDB, and MSBS funds. This will open up the possibility of all of the accumulation accounts being managed in the one investment fund. 

Tanner expects these initiatives to save money, including the plan to outsource from ComSuper the administration of the PSS Accumulation Plan after July 1, 2011. This fund covers all federal staff employed since July 1, 2005. The Government apparently considers that an established professional superannuation administrator will be able to provide the required services more efficiently and cheaply than ComSuper.

Tanner says the savings will fund improvements in superannuation information, IT infrastructure and ComSuper's administration of its defined-benefit plans. For members of these plans, the uncertainty is just how tangible these benefits will be.

Past experience with consolidation and outsourcing in other jurisdictions, including NSW, has not resulted in improved service delivery from a larger entity. Members of the NSW State Superannuation Scheme, which was closed to new entrants in 1985, now experience considerable difficulty in obtaining information about the benefits and options available to them.

This is largely due to the departure of staff with relevant expertise over the past 25 years, but also reflects the changing priorities of trustee boards that are responsible for several funds, including larger, newer funds. Just how the new consolidated trustee board responsible for all federal public sector funds will proceed remains to be seen. However, Tanner's emphasis on cost savings provides some reason for members of the defined-benefit funds already closed to new members to be concerned about future services.

It is possible that the single trustee board will adopt a "new broom" approach and evaluate the best way of helping members of all the of the funds for which they are responsible. The fact the the new chairman will be the present chairman of the MSBS fund, Tony Hyams, could help CSS members obtain improvements to the investment options offered by their current trustees.

CSS members now have access to only two investment options for the member and productivity components of their fund. These are either the cash fund, invested in safe fixed interest, or a diversified higher risk default fund chosen by the trustees. The MSBS fund allows members a much wider choice of investment options, including medium and more aggressive risk options.

By providing members a wider range of investment choice, the MSBS trustees give their members greater flexibility in matching their investment with their personal risk profile. The trustees responsible for the CSS, in stark contrast, provide their members with an all-or-nothing choice between a safe and low-yielding cash fund and an aggressive volatile default fund.

On the investment front, the change in trustee arrangements, will have little impact on PSS members. For contributing members, the PSS is a totally defined-benefit fund where the final benefit is unaffected by investment earnings. The employer bears all of the investment risk for contributing members, and if returns are low or negative this only adds to the employer contribution to the fund.

Just why the MSBS has taken a more enlightened approach than the CSS by giving members a wider range of investment options is not entirely clear. It could simply be that the MSBS was a newly created fund and the trustees made their decisions based on best-practice considerations when it was established. Whatever the reason, CSS members will gain significant benefits from the new arrangements if the new trustees standardise procedures by using the MSBS investment options model.

Daryl Dixon is the executive chairman of Dixon Advisory and Superannuation Services.