Underperformers should not be allowed new members: Silk

Australians should not be able to be defaulted into or even be able to choose to enter an underperforming superannuation fund, according to AustralianSuper chief executive Ian Silk.

Appearing before the House of Representatives Standing Committee on Economics this morning, Silk told the inquiry that the biggest issue facing the super sector at the moment is persistent underperformance.

"In a compulsory universal system, you shouldn't be able to be defaulted into - or I would say even choose - a persistently underperforming fund," Silk said.

Such a move would essentially mean underperforming super funds could not onboard any new members.

Silk added APRA's recently unveiled MySuper heatmaps were a good idea conceptually. He said if the tool works as well as the regulator hopes it will, it will have the "critical effect" of driving poor performing funds from the industry.

"The heatmaps are hopefully going to be an important mechanism to achieve that end," he said.

He said the ongoing battle between the industry and retail superannuation sectors is a point of interest for those in the sector, but not one that is shared by the wider-population.

Silk said that while industry funds typically outperform their retail counterparts, the "superannuation wars" aren't a matter of interest for fund members.

"The superannuation wars - as they've sometimes been characterised as, or industry funds versusretail funds - is of some interest to those of us in the industry but is not of great moment for most members of superannuation funds," Silk said.

"They're interested in a fund that maximises returns and as you [deputy chair Andrew Leigh] say the Productivity Commission review - which was the most authoritative and comprehensive review that's ever been undertaken of the superannuation industry in Australia over three years - found that the average industry fund outperformed the average retail fund by nearly 2% per annum.

"And when you consider that a 1% p.a. differential equates to around a $100,000 difference at retirement, we're talking very serious money here. Now that's not to say that every industry fund outperforms every retail fund, that's not the case."

He was also quizzed by Leigh on the fund's decision not to publish the valuation of its unlisted assets, and said the fund was aiming to avoid providing potential asset buyers with a market advantage.

"We don't want potential buyers having a market advantage that could see them act in a way that would be to the detriment of the fund's members. We're all about maximising the investment return of the fund," Silk explained.

"If we were to publicly divulge the valuation that we hold an asset at, then we think that's going to be at the detriment of the fund's members."

Asked of the benefit to Australia of having super funds invest in the nation's infrastructure, Silk said the focus was first and foremost on how to benefit members. If the fund can also help grow the economy through investments in domestic projects, Silk said the fund would aim to do so.

"There's nearly $3 trillion in the nation's superannuation pool, and wouldn't it be a terrific outcome if we could optimise individuals' retirement savings and at the same time, do something good for the nation," Silk said.

"There's a lot of talk about nation building and so-on. I know in AustralianSuper's case, our objective is not to contribute to nation building and then see what falls out of that by way of member outcomes, it's the reverse.

However, he said he is conscious of the fact that AustralianSuper is custodian of a large amount of money on behalf of two million Australians.

"If that can be contributed into the economy to increase the productivity of the economy, generate wealth in the nation, generate more employment in the nation, then you do have a virtuous circle, all directed to the best interests of the members of the fund, but able to generate a series of additional or ancillary benefits for the nation as well," he said.

"And that's something we see as a real positive of our infrastructure program."

Read more: AustralianSuperIan SilkAndrew LeighAPRAEconomicsHouse of RepresentativesMySuperProductivity Commission
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