QSuper grapples with retirement income in low-return world

Sally Rose

By

27/01/2017

It’s set to be a big year for QSuper, as the $65 billion default fund for Queensland public servants opens its doors to the wider public.

But the biggest challenge on QSuper chief executive Michael Pennisi’s mind is how to develop new retirement income strategies to help members weather expected lower returns from global investment markets.

QSuper is a Conexus Financial Superannuation Awards 2017 finalist in five categories: Pension Fund of the Year, Default Fund of the Year, Best Advice Offering, Innovation and Transformation, and Large Fund of the Year (for funds with more than $10 billion in assets).

Investment Magazine will feature Q&As with all of the finalists, ahead of the winners being revealed at the awards dinner in Sydney on March 9.

Here, Pennisi shares his thoughts on the challenges facing QSuper in 2017 as it transforms into a public offer fund at a time when the outlook for investment markets is strained and disenchantment with the system is growing.

IM: What was the biggest development at QSuper in 2016?

MP: It’s hard to put my finger on just one thing from what was a big year.

A major highlight was setting up QInsure, the first insurer to be fully owned by a super fund. That was a big task, brought to bear in a short space of time, that is going to bring a large benefit to members.

Our new group insurance products have much more tailoring to ensure members are getting the right cover at the right age, and people can personalise it.

Another industry first we achieved was the introduction of our retirement income account transfer bonus, which has already given many of our members an extra boost.

More than $4.5 million has been paid to members since the transfer bonus was put into place in June 2016. That’s a tangible benefit to members that I’m very proud of.

What do you expect to be your biggest area of focus in 2017?

In December, I sent an email to all staff, basically saying thanks for a big year in 2016 … but 2017 is looking even busier.

As has been well publicised, the Queensland Parliament has passed legislation to enable QSuper to convert into a public offer fund, which will allow anyone to join and anyone to leave. As I see it, opening the fund up to give all members choice is just a natural evolution. We are not changing our spots.

On the product development side of things, we will be particularly focused on improving post-retirement solutions.

One initiative is developing a new smart default option for retired members who select an income account allocated pension. At the moment, pension members who select an income account are asked to select their preferred investment strategy option. They will still be able to [do this], but the new default will be a mix of cash (set aside to make regular payments) with the rest invested in a balanced investment strategy.

We thought it was the right move to put a default investment strategy in place for the retirement income account. Many of our retiring members get financial advice through QInvest, but lots just want us as a trustee to make it as simple as possible for them with an appropriate default.

The government recently released its consultation on new legislation for comprehensive income products for retirement (CIPR) and there is obviously a lot of work for the whole industry to do on developing longevity products. We will actively contribute to that process.

What do you consider the most important measure of success for the fund?

It’s a simple set of measures. Has the fund delivered on its promise to members? Has it achieved its long-term investment objectives? Has it delivered this while also delivering exceptional value? Would a member actively encourage their family and friends to join the fund?

What is the biggest challenge facing the industry?

 One of the biggest challenges we are spending a lot of time thinking about is the outlook for a lower return environment moving forward. I think that is probably preoccupying the chief executives, CIOs and directors of super funds all around the country.

Lower investment returns mean lower account balances, which mean members have less to live on and may be more stressed at retirement, when they should be enjoying life.

It is critical at a time like this to make sure we have a high degree of conviction in the investment strategy. In 2012, QSuper moved to a more diversified strategy. This has served our members well and we maintain conviction in that approach. The portfolio is designed to produce stability in times of instability and I think that is going to be important in the years ahead.

Another big ongoing challenge for the industry in 2017 is that superannuation will, no doubt, continue to be in the press for all the wrong reasons.

Super was obviously a big election issue in 2016, sparking much debate and a number of tax changes that will take effect from July 1, 2017. What the general public wants from the government is a sense of stability in the direction of future policy.

While talking about super in a negative light is mostly unwarranted, it is completely understandable that people are increasingly doing so. There is an important role for industry to play in talking about the great benefits super provides.

It is incumbent on us [the industry], and on the government, for the good of the country, to make sure people believe the super rules of today will stand up tomorrow and the next day. Our super system is a fundamental building block of the Australian way of life.

 

The winners of the Conexus Financial Superannuation Awards 2017 will be unveiled at a black-tie event at the Ivy, Sydney, on March 9, supported by Vanguard and AIA Australia. You can purchase single tickets or tables for 10 by visiting the event website. The Conexus Financial Superannuation Awards proudly support The Wayside Chapel.