Home' Superfunds : Superfunds June 2018 Contents Easily viewed as one among many new regulatory requirements
from APRA, ATO, ASIC and the other regulators, the pending
introduction of APRA’s new prudential requirements relating
to outcomes assessment poses a number of interesting challenges
for the industry. Arguably it is also the one change that is the most
aligned with our reason for being as an industry, directly relevant to
our members and therefore a change we should embrace.
The primary challenge, and no doubt a key driver of the regulatory intent
behind the requirement, is understanding and defining what represents a
good member outcome in the first place. In a bank, insurance company or
even a defined benefit fund the desirable consumer outcome is relatively
easy to identify and subsequently measure. Was the customer’s deposit
returned with appropriate interest at the end of the specified period? Was
the sum insured paid following the occurrence of the insured event? Did the
pensioner receive the benefit in retirement according to the fund benefit
rules? In a defined contribution context the temptation is to strive for the
best outcome we can achieve given the member’s investment choice.
However from the member’s perspective it feels rather like an entreaty to
trust us and we’ll do our best, regardless of whether our best delivers a
desirable outcome or not.
The challenges that then follow are setting up a strong and repeatable
process to enable us, once we have defined what a good outcome looks
like, to measure our performance against it on a consistent and repeatable
basis; define appropriate metrics based on quality data available from sound
sources; and respond to the results (even, or perhaps particularly, when they
tell us bad news).
Aside from being challenging to articulate, challenging to measure
and challenging to respond to, member outcomes assessment is pretty
straightforward! Living down to the stereotype that risk managers
exclusively deliver constant streams of good news, it’s also worth noting that
unfortunately there is no single measure that will work perfectly for all funds.
OUTCOMES AND INDICATORS
At TelstraSuper we are approaching the task by trying to structure our
thinking. Exploring what a good member outcome looks like seems like
the right place to start and distinguishing between outcome measures and
indicators is also useful.
It is easy to confuse outcomes and indicators. For example very often in
the industry we gravitate towards investment performance as the outcome of
our efforts. Of course this is an important contributor to member outcomes
and is also objective and relatively straightforward to measure. However
we need to consider whether it actually represents a member rather than
investment outcome. When considering different member cohorts as we
should, investment performance is agnostic to member demographics, takes
no account of length of time in the option and is blind to member experience
in retirement. As a result it might be better to think of it as an indicator.
Outcome measures on the other hand focus on the result as it pertains to
individual or cohorts of members. For example:
• The ASFA Retirement Standard
Assessing the likelihood of cohorts of members reaching that standard
at the point of retirement (adjusting for inflation) is perhaps a useful
place to start. Of course we know there are a number of variables
that funds cannot control in this case – such as how much a member
gets paid, time out the workforce, whether and when additional
contributions are made. However it is directly relevant to the member’s
lifestyle and adequacy of income in their retirement.
• Replacement rate
In Australia we have typically focused less on replacement rate than
our peers elsewhere in the world. Replacement rate measures the
proportion of pre-retirement income replaced in retirement and
therefore is closely aligned to retirement adequacy. Again this is a useful
outcome measure. Of course while funds like TelstraSuper may have
access to salary information for a large cohort of our members not all
Superfunds June 2018
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