ISN SUBMISSION
REPORTING STANDARDS 700, 702 &
703
ISN SUBMISSION REPORTING
STANDARDS SRS 700.0, 702.0
AND 703.0
July 19 2013
SB1301
Table of Contents
INTRODUCTION .................................................................................................................................................. 2
1. REPORTING STANDARD SRS 700.0 – PRODUCT DASHBOARD ........................................................................ 3
1.1 Net Returns................................................................................................................................................................................... 3
1.1.1 The calculation of Net-Net Return ........................................................................................................................................ 3
1.1.2 Net Return Target ................................................................................................................................................................. 3
1.1.3 Part A: 2. Comparison of return target and return ............................................................................................................... 3
1.2 Representative member ............................................................................................................................................................... 4
1.3 Level of investment risk ................................................................................................................................................................ 4
1.4 Lifecycle reporting requirements ................................................................................................................................................. 4
2. REPORTING STANDARD SRS 702.0 – INVESTMENT PERFORMANCE .............................................................. 4
2.1 General 702.0 comments ............................................................................................................................................................. 4
2.1.1 Quality control effective date ............................................................................................................................................... 5
3. REPORTING STANDARD SRS 703.0 – FEE DISCLOSURE ................................................................................... 5
3.1 Insurance ...................................................................................................................................................................................... 5
3.1.1 Additional level of identified cover required ........................................................................................................................ 5
3.1.2 Default insurance should be identified ................................................................................................................................. 6
3.1.3 Other matters ....................................................................................................................................................................... 6
3.2 Greater clarity around processes.................................................................................................................................................. 6
3.3 Conclusion .................................................................................................................................................................................... 6
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INTRODUCTION
ISN is supportive of the draft Reporting Standards 700.0, 702.0 and 703.0. These brief submissions raise a
number of issues which we believe are consistent with the reporting standard’s aims of greater simplicity,
transparency and comparability and will add to these aims.
ISN has welcomed and participated in the industry consultation processes relating to the proposed
standards and these submissions are to be read in conjunction with earlier comments made by ISN, both in
writing and in consultative meetings.
ISN remains of the view that there continue to be serious flaws with the proposed risk measure and
welcomes the commitments given that APRA will hold further discussions with the industry on the risk
measure.
About Industry Super Network
Industry Super Network (ISN) is an umbrella organisation for the industry super
movement. ISN manages collective projects on behalf of a number of industry super funds with
the objective of maximising the retirement savings of five million industry super members. Please
direct questions and comments to:
Richard Watts
External Relations Manager & Legal Counsel
Level 2, 50 Pitt Street
Sydney NSW 2000
02 8706 5271
rwatts@industrysuper.com
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1. Reporting Standard SRS 700.0 – Product Dashboard
ISN is generally supportive of Reporting Standard SRS 700.0 and recognises that there will be tailored
reporting standards for MySuper and Choice products. ISN will have further comments to make in SRS 701
which will deal with reporting requirements for choice products.
1.1 Net Returns
The current definition is net investment return is that after deducting investment fees, indirect cost ratio
investment costs and other investment costs and taxes on investment income after investment fees and
costs.
ISN is supportive of measures that reflect the real cost to members. This should at all times include the net
costs of both administration and investment fees.
1.1.1 The calculation of Net-Net Return
ISN supports the new definition of, a representative member is a member “with an account balance of
$50,000 at the end of the financial year who is fully invested in the given investment option…”.
The Standard needs greater clarity that the intention is that the calculation intends that the account
balance does not change with investment returns over the year.
It is our understanding that for the purposes of comparability only full-12 month returns will be required
for SRS 700.0, ISN supports this approach. This will be of relevance in the transitional period.
Fees
Where the net returns include both those for a MySuper product and predecessor, which fees are to be
applied for each of the 3 years needs to be prescribed (see example on draft SRF 700.0 page 4). While we
can see the validity of applying actual fees in place at the time, we believe that the fees should be those in
effect at the reporting date.
1.1.2 Net Return Target
Only the Product Dashboard requirements impose an obligation to report a net return target. Issues
surrounding the management of different SIS obligations arise.
It is assumed that the different trustee obligations arising from the s52 covenants regarding investment
objectives are to be legally separate requirements that are the subject of different methodology. This
requires clarification, particularly if the net return target is likely to be a different figure to the investment
objective cited in a PDS or other member communication.
Funds are to calculate an annualised estimate of the percentage rate of net return that exceeds the growth
in CPI over 10 years. Funds may have different interpretations of the definition of expected return and this
could diminish the principal objective of making dashboards more comparable. It would be helpful if a link
to the expected probability of achieving an outcome were to be included. For example, CPI + 5% 50% of
the time is different to CPI + 5% 80% of the time.
1.1.3 Part A: 2. Comparison of return target and return
It is submitted that the titles of the table should be more precise to better signal the items reported in it.
The current titles are quite vague. As a published table, the dashboard titles should articulate what is in it
to minimise confusion. For example, item 2, Return is referring to full financial year net-net return, item 3 is
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really asking for a 10 year moving average net-net return. Having “return” and “net return” in sequential
columns when they are calculated on the same base could cause confusion.
We are of the view that further exampled guidance would be of assistance to those funds that have merged
to enable those funds to better and appropriately calculate such matters as moving return averages over
the two past entities.
1.2 Representative member
ISN supports the definition of representative member and the use of an assumed $50,000 account
balance. Such an assumption is consistent with the shorter PDS regime. We believe it is important
to clarify that the use of the purposes of the reporting standard is to ensure comparability, not to
reflect actual member experience, which will more than not involve regular contributions to the
account balance.
1.3 Level of investment risk
The table on page 7, item 3 should be renamed Level of Investment Volatility to better describe the one (of
others) investment risk which this table is seeking to address.
We again note our support for the industry to continue towards developing a risk measure which helps
members understand the risk/return trade-off as well as the need for members to achieve real long term
returns in order to meet their retirement objectives.
It is strongly suggested that the adoption of the Standard Risk Measure as a measure of investment risk is
flawed as it does not take a net net approach.
1.4 Lifecycle reporting requirements
ISN is supportive of the principle that all stages of a lifecycle option should be reported. In cases where this
requires many different replications of dashboard disclosure, it is suggested that it would be appropriate
that the relevant product be associated with a calculator style interface to allow for greater consumer
accessibility. In cases where age is the variable, the consumer would be required to input the relevant age
which would then impact on the associated reporting factors shown on the dashboard.
2. Reporting Standard SRS 702.0 – Investment Performance
We understand that APRA recognises that the requirements imposed by SRS 702.0 will be difficult for some
funds to meet. It is hoped that both APRA and ASIC will have sufficient resources to provide guidance and
assistance where required.
2.1 General 702.0 comments
At 1.2 of the Investment Performance Standard 702.0 a definition of “Indirect cost ratio investment costs”
is required as it is unclear what this refers to.
It is understood that at 1.3 “Other investment costs”, there is no expectation that in ordinary circumstances
that there will be any entry, rather than this is a catch all component. This should be clarified in the
standard.
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At 1.5 “Taxes on investment income after investment fees and costs”, further clarification is required. As
the form is reported quarterly, it is assumed that it is the taxes that were accrued for the reporting quarter,
not actual tax that will be ultimately paid that is being reported. Further clarification is required. It
suggested that if a net investment return is to reported, the tax figures will be an accrual movement of
realised and unrealised tax.
It is also understood that unlike the PDS requirements, investment, administration and advice fees are pretax calculations as tax data is captured separately. This should be clarified in the reporting standard.
The definition of indirect cost ratio should be clear to ensure funds use a common definition.
It is our understanding that there is no intention to make arrangements to account for circumstances
where investment fee claw back arrangements come into effect as any return on investment fees will wash
through the performance figures in the long-term. This is not opposed, but should be clarified.
It should be noted that the definition of investment management performance fees includes accruals. This
should also be included in the definition of investment management base fees.
2.1.1 Quality control effective date
While the first annual reporting date is at 30 June 2014, RSEs will first be required to submit SRF 702.0 for
quarterly information within 28 days after 30 September 2013. Information provided by the RSE is to be
the product of systems, procedures and internal controls that have been reviewed and tested by the RSE
auditor. While this is to be done on an annual basis (at least), given both strict liability issues placed on
RSEs and the lateness of resolving the Standards, we request a deferral of this requirement until 30 June
2014.
3. Reporting Standard SRS 703.0 – Fee Disclosure
3.1 Insurance
Insurance is a significant cost within super. In too many instances the problems of complexity are cited as
grounds for not exploring higher level of disclosure regarding insurance fee levels and coverage.
ISN welcomes the collection of insurance fee data and make the following comments.
3.1.1 Additional level of identified cover required
ISN is of the view that the demographic work categories of “blue” and “white” are out dated and raise too
many issues surrounding category selection and could allow funds to self-select the substantial grey space
between “blue” and “white” to their potential advantage.
It is strongly suggested that there should be a minimum of 3 categories for the purposes of data collection.
These could simply be entitled Highest Risk, Average Risk and Lowest Risk.
In addition there needs to be cited example guidance associated with the standard regarding the
appropriate categorisation of occupations that goes beyond terms such as “technical” or “administrative”.
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3.1.2 Default insurance should be identified
Most members of a default investment option do not alter the default insurance settings. In some cases
there have been inappropriate assumptions made when dealing with the insurance risks associated with
new members, such as the assumption that a new member is a 45 year old, male smoker in a manual
occupation, despite the fund in many instances having data to the contrary.
ISN believes that the utility of the insurance data would be greatly enhanced if there was an explicit
requirement for a fund to identify what their default insurance assumptions are. It is also suggested that
such a requirement is likely to have a downward impact on costs by reducing the incidence of inappropriate
assumptions.
3.1.3 Other matters
Item 3. ISN is supportive of the requirement that all administration fee discounts provided are to be
reported.
Item 6. Further guidance is required where life insurance and TPD insurance are combined.
3.2 Greater clarity around processes
Reporting dates
Both draft SRS 700.0 SSRS 702.0 assume that all RSEs have a 30 June reporting date. Not all
superannuation funds have a 30 June reporting date. The reporting of the annualised return should align
with the RSE’s annual reporting date.
An amendment should be made to the definition of Reporting days and due dates in both draft SRS 700.0
and SRS 702.0.
The quarterly reporting periods are within 28 calendar days at the end of each quarter. In practical terms,
this means 20 business days. AIST expresses strong concern about RSE’s capacity to gather a substantial
amount of information in a short timeframe. AIST recommends that the reference to 28 calendar days be
changed to 25 business days.
For reporting periods after 30 June 2016, the annual report is to be lodged within 3 months. AIST suggests
that given this report is to be audited, that this timeframe is too short and that the 4 month period as
applied to 30 June 2014-30 June 2015 inclusive be applied to future annual reporting periods.
3.3 Conclusion
ISN welcomes the new reporting standards and appreciates the consultative process undertaken to date.
The areas identified, including risk measure matters require further consideration and discussion. This
should be undertaken promptly given the timeframes funds are required to work within.
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