Increasing complexity and tough penalties for regulatory breaches have seen more companies outsource super. But choosing the right outsourcing option is the challenge.
By Christopher Page

KEY POINTS
Competition for your company's superannuation is fierce. Most employers now use master trusts or industry funds. Funds offer a wide range of services and so you should try to choose one with the right mix of services that suites your company's needs.

There is fierce competition for your company's superannuation business. There are more service providers than ever out there in a crowded market. This is the good news for employers and their employees. The bad news is choosing a superannuation provider from among the 150 or so major wholesale corporate master trusts, implemented consultants and industry funds can be almost overwhelming.

New wholesale corporate master trust providers are striving to be smarter, cheaper, better, and more transparent than their established competitors in an attempt to win over even the most steadfast and loyal stand-alone corporate superannuation funds. Some of the features on offer are low fees, tailored defined benefits, online access to member accounts, integrated payroll accounting systems, age-based default investment options, on-going education and financial planning, and a range of investment and insurance options.

There are also low-cost industry funds that have a lot in common with in-house corporate superannuation funds. They are both run on a not-for-profit basis and offer a similar range of services such as investment choice, financial planning, spouse accounts, home loans and other banking products, allocated pensions and competitive insurance options. A growing number of industry funds are offering defined benefit arrangements in an effort to capture corporate funds with defined benefit structures.

Outsourcing super is now the norm

Also some master trusts and industry funds have gone to great pains to capture, for the employer, those advantages traditionally associated with operating stand-alone arrangements. They can continue to badge the company fund name and promote the company, not the master trust or industry fund. This is especially vital for companies who fear outsourcing their company super fund will force them to lose important contact opportunities with their prime assets - their employees.

The trend for companies to close down their superannuation fund and switch employees over to a wholesale corporate master trust or industry fund is now long established. The pressures driving this trend includes tougher compliance rules, increasing expectations from more informed members, the increasing complexity of superannuation, the regulators moves to force trustees to be licensed. And let's not forget the costs and fears of surging liabilities that employers running their own in-house fund may face if they breach the Superannuation Industry (Supervision) Act, nothwithstanding the employer protections in the choice legislation.

The impact of all this is that only 10% of all super is now held in in-house funds while industry funds and master trusts now hold 46%. Even very large, complex and experienced funds, including defined benefit funds, are joining the outsourcing trend first started by smaller and medium-sized funds.

What are your outsourcing options

Corporate master trusts are funds run by financial institutions or financial planning groups. They usually offer many investment and insurance options, are generally open to the public and are integrated with financial planning and other support services.

Industry funds are not-for-profit funds operated by employer associations and unions involved with a particular industry or group of industries. They usually offer a more streamlined array of investment and insurance options than most master trusts, though this is changing. The bigger industry funds are now also open to the public or employers not directly associated with the particular industry can join.

Implemented consulting services are where fund investment advisers effectively operate the in-house fund's investments by selecting the investment managers for the super fund and assembling pre-packaged investment options that the in-house fund can then make available to their members. Some implemented consulting services even go beyond this to operate the in-house fund's trustee board.

Selecting the right superannuation fund - or post choice, the right default super fund - is crucial for both employer and employees. It will impact how your company operates, employee relations, and the quality of retirement benefits. You want happy, well-informed employees who are looked after by their superannuation fund but above all you want an arrangement that is easy to operate and actually helps your company.

What to look for

Employers usually have a clear idea about what they want from a superannuation fund. They usually want good investment returns, low fees, well priced and flexible insurance, good extra services and quality administration systems to minimise their payroll headaches. They also want a fund with a sound reputation and track record. And employers may also want their funds to have good communications, financial planning and education services for their employees.

But not all funds are the same and not all employers and employees want the same mix of services. Employers however should be able to find a flexible, reliable and professionally run arrangement that suits them as well as their employees. This means though that the best fund for you may not be the best fund for the company next door. Indeed, SelectingSuper can find so many ways to talk about the best funds that we have to include dozens of top 10 lists so employers and employees can explore their own custom hot topics.

So when choosing the default super fund for your company you should look for a fund where you are comfortable with the organisation and people running the fund, where the investment options suite your needs, where the investment returns are reliable, where the insurances suite you, where there is a reasonable mix of appropriate extra services that you will really use, where the fund makes sense, and where the fee deal is reasonable.

And remember, outsourcing superannuation shouldn't mean you, the employer, lose control. The way the fund manages their relationship with you is very important as well.

You can of course choose a specialist consultant or financial planner to help you make the right decision but be aware that their short lists may not be as independent as you think. Make sure you understand how they are assembled. Again, it's about you staying in control.

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