The Australian superannuation industry has a lot going for it, despite a tendency by regulators and (whisper it) the media to focus on the things that go wrong and what it could be doing better. And things do go wrong and there are things it could do better.
But overall, policy settings for the system are mostly sound; regulation is largely effective; and competition between profit-to-member and for-profit funds is healthier today than it was a few years ago in the wake of the Hayne royal commission.
That competition is critical to driving better outcomes for members in retirement. Australians need to be able to choose between different models – including self-managed funds – for marshalling their retirement savings.
There are some things the for-profit sector does well – think product innovation, for example, and in particular the investment linked lifetime income stream (ILLIS) products that have emerged from retail funds (including AMP and MLC) and which are tipped to sweep across the industry as funds and members alike cotton-on to their potential benefits.
And there are some things the profit-to-member sector does well, like driving down costs and including member representation at the trustee board level.
But in a report published this week, the Superannuation Members Council (SMC) overstates quite significantly the importance of the “trustee representative” governance structure of profit-to-member funds by claiming that a range of benefits to members – including stronger (net) investment performance, lower fees and more efficiency, and superior diversification – can be attributed to it.
The report, titled Member-first representation: The profit‑to‑member governance advantage, conflates two issues: representative trustee governance and the profit-to-member structure. Those things exist together in the funds that SMC represents, but one is a much greater driver than the other of the positive characteristics SMC hypes in its report.
“The representative trustee model continues to play a pivotal role in championing the retirement interests of Australians,” SMC says, and it delivers “robust governance”, which is true; but it also says this model delivers “strong financial returns, and lower costs for members”.
The primary driver of low costs – and hence higher net investment returns, and a range of other benefits – is “surpluses retained for members”, not the board structure per se.
SMC claims the representative trustee model delivers lower fees and more efficiency. Fees are lower because there’s no profit margin built in. Everything else – including “stronger investment performance” and “lower fees and more efficiency”, flow from that, not from the structure of the board per se.
“Superior diversification” stemming from allocating “more to unlisted assets such as infrastructure and private credit” likewise has nothing to do with the structure of the board.
And “stronger risk-adjusted returns and more resilience during market shocks like the GFC” again come back to lower fees due to the profit-to-member structure, not the faces round the board table.
Lower costs to members are not due to the representative trustee model – that’s just the model that happens to govern the profit-to-member funds. The representative trustee model isn’t necessarily or inherently a better way of putting together a board of trustees. And as an aside, there is in theory no reason why a trustee representative model could not work in a for-profit fund.
Profit-to-member funds might deliver cheaper services, but they aren’t necessarily cheaper to govern. According to APRA data the board of AustralianSuper was paid, collectively, $2.37 million in 2024-25, the board of Cbus $1.92 million, and the boards of ART and Aware about $1.5 million each. The board of AMP was paid $1.08 million, Colonial First State $1.05 million and MLC Super $921,000. And we’re not arguing that the boards of profit-to-member funds are overpaid.
Trustees of APRA-regulated funds are all are subject to the same regulations and oversight. Trustee skills, diversity and education – critical attributes identified by SMC – are equally important to all funds and form the basis of effective and accountable governance in both structures.
It’s difficult to argue that the board of trustees that oversees the super funds in, say, the Insignia Financial group – led by Danielle Press, former ASIC Commissioner, Equip Super and Myer family office CEO and UBS Global Asset Management managing director – is inferior in quality and competence to the board of Rest or Cbus or AustralianSuper or to any other profit-to-member fund.
The trustee representative model is just one way of putting a board together, but it’s not the only way and it’s not what drives the claimed lower costs in profit-to-member funds.
The representative trustee model championed by SMC serves members of profit-to-member funds well. The boards of for-profit funds serve their members well, too.
The SMC’s claims of better net investment performance, lower fees and more efficiency, and superior diversification are a great advertisement for profit-to-member funds, but they can’t be attributed to the trustee representative board structure.
By claiming they are the SMC is distracting from the message.
