Professor Deborah Ralston

The pre-eminent retirement incomes research organisation, the CSIRO-Monash University Superannuation Cluster, has secured another significant private sector backer with the decision by ANZ Wealth to join its ranks.

ANZ Wealth will join five other organisations as the key supporters of the $9 million research project that brings together academics from four universities, Monash, Warwick, Griffith and Western Australia, as well as the CSIRO, to examine the challenges facing the Australia’s retirement system.

The other five organisations are BT, Cbus, Mercer, Vanguard and Challenger, which, together Treasury, the ATO, the ABS, ASFA, National Seniors and AIST, form the Cluster’s Steering Committee with eminent researcher, Professor Hazel Bateman from the University of NSW. The Australian Centre for Financial Studies (ACFS), which promotes thought leadership in the financial services sector, leads the project for Monash University.

Patrick Clarke, Head of Direct Super and Investments at ANZ Wealth, said it was a privilege to be involved with the CSIRO-Monash University Superannuation Cluster.

“Over the past 18 months the work done by CSIRO and Monash in examining the dynamics and inter-relationships between superannuation and the wider economy, as well as the transition and retirement phase of Australians over 60, has been first class.

“We believe it’s critical that this research continues so that both the public and private sectors can base their decision–making on hard data in the vital area of superannuation.”

Dr Sarah Dods, CSIRO’s Research Director, Digital Economy, Digital Productivity and Services Flagship, said it was a tribute to the research done by the Cluster that such a significant player in the wealth management sector had decided to come on-board.

“We believe the research we have been conducting in areas such as ways to improve the participation of older workers is critical if we are to get the superannuation policy settings right, and for an organisation of the reputation of ANZ Wealth to give its support further endorses the value of our work.”

ACFS Executive Director, Professor Deborah Ralston, said the sheer size of the superannuation pool, at $1.8 trillion, posed important policy issues that the Cluster had been addressing.

“In the past, much of the research focus has been on asset allocation and the accumulation phase. But much less focus has been given to the post retirement phase and Australians over 60; a better retirement system is broader than superannuation, including pensions and private savings.

“What is critically needed for better policy and product development in post-retirement is a research evidence base.

“Funding for better health and welfare, accommodation and transport, they all have a bearing on the quality of the life enjoyed by older Australians and are important issues that demand a policy response, so the fact ANZ Wealth is giving its support to the Cluster is testimony we have the right focus and are adding to the pool of knowledge around retirement incomes policy.”

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The groundbreaking research was conducted by Russell Investments, the Asian Association for Investors in non-listed Real Estate Vehicles Limited (ANREV) and the Australian Institute of Superannuation Trustees (AIST) to gauge how Australian institutional investors view the opportunities and challenges associated with offshore real estate. Thirty-nine institutions and superannuation funds representing $360bn of funds under management participated in the inaugural survey, which will be carried out every two years.

“While Australian institutional investors have long discussed the need to capture global property opportunities, it seems a definite move offshore is now underway,” said Martin Lamb, director, Asia Pacific Real Estate Investment at Russell Investments.

Jeremy Stewardson, executive director of ANREV added: “We wanted to understand how investors were approaching this challenge and what support they needed to manage the transition. We think this study will enhance transparency and facilitate discussion.”

AIST CEO Fiona Reynolds said the study was particularly timely given debate about the asset allocation of Australian superannuation funds sparked by recent global sharemarket volatility. “International property will be increasingly on the radar of those funds looking for greater diversification,” she said.
 
Australian institutions currently allocate 9.7% of their investment portfolios to property, largely Australia-focused, and are intending to increase this to 10.5% in two years, the survey showed. When this increased property allocation is combined with the quickly-growing overall pool of superannuation capital, the survey suggests up to $40bn in new capital could be targeted for real estate in the next two years, a substantial sum for the circa $200bn Australian prime property market.

The research shows institutions are planning to increase the percentage of their property portfolios allocated to offshore investment from 2.3% to 3.2% in two years, a 34% increase. Many said they were planning overseas due diligence and said 2012 could be a watershed year.

The survey also uncovered some caution due to lingering bad memories from the global financial crisis (GFC), with investors now gravitating towards lower geared investments – 71% of those surveyed agreed they preferred funds with a gearing level of 50% or below.

Diversification, capacity constraints and access to high growth markets are the main drivers
Diversification was the overwelming reason why investors are looking offshore, with 71.8% of investors naming it as a motivation.

“Recent equity market instability has prompted investors to seek alternatives that reduce overall portfolio volatility and non-listed property has always been known for its low correlation with traditional asset classes,” said Mr Lamb.

Constraints in the local market was named by 46.2% of respondents as a key reason to invest offshore, while access to high growth markets came in third with 43.6%.

Interestingly, the strong Australian dollar was not a primary motivation for investing offshore, as many investors felt currency exchange rates were too volatile to form the basis for an investment strategy and preferred to think of the current favourable exchange rate as “an added sweetener”.

Concerns around due diligence and foreign tax drag
Even as institutions are beginning to embrace offshore property investing, there are many concerns to address.
 
“Over half of respondents (56.4%) named lack of knowledge of offshore property as a challenge, and suggested this could be improved by better education supported by industry groups, consultants and fund manangers,” said Ms Reynolds.

Foreign tax drag was also a deterrant for 43.6% of investors, with many particularly cautious about the US. They suggested the industry could do a better job of explaining tax efficient investment structures.

With trustee due diligence in the spotlight recently, investors are also worried they do not have the necessary internal resources to manage global real estate allocations, with 41% naming it as a concern.

“Australians are savvy property investors, and the survey shows they are clear-eyed about the opportunity to diversify their property holdings and bolster their offshore expertise. However there are still numerous challenges and we as an industry need to support them, to ensure we all negotiate this new territory prudently and look beyond our shores together,” Mr Lamb concluded.

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The Australian Institute of Superannuation Trustees (AIST) and Russell Investments have today launched their inaugural Super Engagement Index (SEI) and associated research report, Tuning in to super, which shows Australians have the right attitude towards their super but many are still in the dark on additional services provided by their funds aimed at helping members reach their retirement goals.

The SEI measures member engagement across eight weighted elements depending on the level of money and time spent and understanding associated with each factor. The inaugural SEI is set at 100 and will track Australia’s super engagement every two years while also providing insights by segment including age, income and gender.

AIST CEO Fiona Reynolds said the index and research addresses a gap in the industry’s knowledge about how members engage with their super funds.

“Given the compulsory nature of our superannuation system, it’s vital that Australians are engaged with their super, This tool will help us understand and track engagement, what triggers it, and what qualifies as engagement at various life stages. For example, at age 25, if you know what super fund you belong to and you’ve checked your balance in the last year, that’s engagement, but if you are 45, it may not be,” she said.

Geoff Peck, Managing Director, Corporate Superannuation at Russell Investments said the research highlights that Australians understand the importance of superannuation after many years of education with the vast majority (85%) agreeing super is important to their retirement, and six in 10 placing importance on it now. Furthermore, many put super on par or ahead of most other financial and investment decisions.

“The findings from the research show the work being done by the industry is starting to have an effect and not just with those approaching retirement. Although older members place more importance on superannuation, saving for retirement is a life long journey and many are recognising it needs to be a priority as soon as we start working,” he said.

The high percentage of members who place importance on super can also be linked to the government’s effort to help people save for retirement. More than seven in 10 (72%) Australians are aware of salary sacrificing and similarly high levels of awareness exist for the government’s co-contribution scheme (77%) and making contributions electronically (60%).

Ms Reynolds said “It was pleasing to see that one third of the survey respondents were aware of the most recent proposal to raise the super guarantee to 12 per cent.

“Obviously if we get to 12% super, then member engagement will become even more important than it is now. We’ve come a long way, but there are still gaps for the industry to address. With this biennial research, we’re able to track more robustly the effects of our efforts and ultimately better prepare Australians for retirement.”

More needs to be done

Although members are aware of the importance of super, there continues to be some cause for concern as over half the respondents in each of the age groups over 46 years felt their super balance was low and time was running out to build wealth. This is consistent with almost one in three (31%) not being confident their retirement income goals are on track.

“Longevity risk is a concern for many fund members so it’s concerning 36 to 45 olds – a crucial time for saving for retirement – are not making the time to engage with their super,” Ms Reynolds said.

Aside from member balance, the other major area for concern was that one in three did not know the amount employers contribute to super on their behalf.

Engaging through education

Further work is required to engage and educate Australians about their retirement future. The results from the research show the industry needs to continue to simplify and improve member communications, education and additional services such as insurance.

“Alarmingly low levels of Australians (6%) have taken up their super fund’s offer to top up their default insurance cover in the past year with only 55% of Australians knowing they can increase their insurance coverage via super,” Mr Peck said.

Education seminars run by their super fund on insurance and other issues is something a majority of Australians do not know they can take advantage of (42% knew about this service), with even less (only 9%) taking advantage of this educational opportunity. However, education can only go so far with evidence suggesting Australians still aren’t consolidating their super and are hence incurring more fees.

A copy of the AIST/ Russell superannuation engagement research is available at: www.aist.asn.au and at www.russell.com.au/sei

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