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Background

Each year we assess our performance in delivering outcomes to our members and, based on that assessment, make a determination that we are promoting the financial interests of our members.

The outcomes assessment covers a number of factors and needs to meet specific regulatory requirements. Mercy Super offers a range of investment options which need to be assessed separately as follows:

  • Our MySuper Balanced option – assessed against other fund MySuper products
  • Other investment options – assessed against other fund Choice options

Our assessment of our performance for the year ended 30 June 2020 has been completed and we’re pleased to share the following summary of our results.

MySuper option outcomes

To compare our MySuper Balanced option against other MySuper options, we used the Australian Prudential Regulation Authority (APRA)’s MySuper statistical publications to identify comparable options within other super funds.

The following table shows the relative position of Mercy Super’s MySuper product against all relevant MySuper products for:

  • Fees and Costs as a percentage of total account balance and Investment Performance for a representative member with a $50,000 account balance.
  • Investment Risk using the standard risk measure and likelihood of a negative return over 20 years.

Assessment area

Outcome at 30 June 2020

Fees and costs
(representative $50,000 balance member)
Result Range & Ranking of other MySuper products
Total fees and costs 1.09% 0.51% – 1.57%
55 out of 89
(low to high)
Administration fees and costs 0.25% 0.09% – 1.02%
25 out of 89
(low to high)
Investment performance
(MySuper 6 year net return representative $50,000 balance member)*
Mercy Super MySuper Balanced option 6.69% 4.15% – 7.85%
23 out of 89
(high to low)
Investment risk
MySuper Balanced risk label (estimated negative returns over 20 years) Medium to High
(3.15)
2.60 – 6.00
16 out of 69
(low to high)

*Note: The investment performance results reflect the 6 year annualised performance of the MySuper Balanced option net of investment and administration fees for a member with a $50,000 account balance.

Total fees and costs compared to other MySuper products

Mercy Super’s total fees and costs are marginally above the median of other MySuper products for a representative $50,000 balance member (1.09% vs. 1.02%).

The administration fee component of these costs is well below the median (0.25% vs. 0.35%). The investment fee component is higher than the median of other funds (0.84% vs. 0.67%) reflecting our active investment management approach, the cost of which we believe is justified through higher net returns for our MySuper product.

Investment performance compared to other MySuper products

Mercy Super’s net investment performance over 6 years to 30 June 2020 (after taking out all administration and investment fees for a member with a $50,000 balance) is above the median of other MySuper products (6.69% vs. 6.03%).

Investment risk compared to other MySuper products

The level of investment risk for Mercy Super’s MySuper product is below the median (lower chance of a negative return) of other MySuper products for the estimated negative returns over 20 years measure (3.15 vs. 3.60).

Mercy Super’s MySuper product also falls within the most common Medium to High risk category (the category that applies to 47 of 69 comparable MySuper products).


Choice option outcomes

To compare our other investment options (known as Choice products) we used:

  • SuperRatings data for Choice product Fees and Costs and Investment Performance for a representative member with a $50,000 account balance comparisons.
  • Data from the product disclosure statements of a relevant selection of other super funds to assess the Investment Risk Rating for each option.

Super accounts

Outcome at 30 June 2020

Total fees and costs
(representative member)

Result

Median for other funds
Account type Super Income* Super Income*
Growth option 1.14% 1.14% 1.17% 1.30%
Balanced option n/a 1.10% n/a 1.19%
Conservative option 1.03% 1.03% 1.06% 1.16%
Stable option 0.84% 0.84% 1.00% 1.07%
Socially Responsible option 1.58% n/a 1.13% n/a
Australian Shares option 0.74% n/a 1.06% n/a
International Shares option 0.87% n/a 1.08% n/a
Cash option 0.36% 0.36% 0.52% 0.56%
Investment performance
(net of fees and taxes)
Result Median for other funds
Account type Super Income Super Income
Growth option (3 years) 5.89% 6.86% 5.62% 6.17%
Balanced option (5 years) n/a 7.21% n/a 6.36%
Conservative option (5 years) 5.47% 6.10% 4.67% 5.37%
Stable option (5 years) 4.13% 4.59% 3.95% 4.44%
Socially Responsible option (5 years) 4.65% n/a 5.83% n/a
Australian Shares option (5 years) 6.55% n/a 6.12% n/a
International Shares option (5 years) 7.23% n/a 7.75% n/a
Cash option (3 years) 1.15% 1.35% 1.46% 1.72%
Investment risk
(Super and Income accounts)
Risk Rating Peer funds with same rating
(refer to Appendix A)
Growth option High 4 funds out of 5
Balanced option Medium to High 2 funds out of 5
Conservative option Medium 1 fund out of 3
Stable option Low to Medium 1 fund out of 5
Socially Responsible option High 3 funds out of 5
Australian Shares option Very High 4 funds out of 5
International Shares option Very High 4 funds out of 5
Cash option Very Low 5 funds out of 5

* The total fees and costs metrics for Income accounts is for the period ended 31 December 2019 sourced from the SuperRatings Pension Benchmark Report 2020.


Total fees and costs compared to other Choice products

* The total fees and costs metrics for Income accounts is for the period ended 31 December 2019 sourced from the SuperRatings Pension Benchmark Report 2020.

The above chart shows the total fees and costs (administration plus investment fees for a representative member with $50,000 balance) for all Choice option products. With the exception of the Socially Responsible option (which has above median investment fees to accommodate the specialist investment processes for that option), the total fees and costs for all options remain below the median of all other relevant options based on SuperRatings data.

Investment performance compared to other Choice products

The chart above illustrates the net (of investment fees and taxes) performance for each of Mercy Super’s choice options against the related industry median using SuperRatings data over the periods identified. With the exception of the Socially Responsible, International Shares and Cash options – all options have provided net returns in excess of the median over the respective periods.

Investment risk (risk adjusted return) compared to other Choice products

* The Sharpe ratio for the Balanced option is for the period ended 31 December 2019 for this income account option. The details for all other options are based on the super account option performance for the period ended 30 June 2020.

Sharpe ratios are used to understand the return of an investment compared to its risk, otherwise known as the risk adjusted return for an investment option. Generally, the higher the Sharpe ratio the more attractive the risk-adjusted return for a given option.

SuperRatings calculate the Sharpe ratio for our Growth, Balanced, Conservative and Stable options and compares them to the industry median for like options within their database. The Sharpe ratio is above the median, providing a better risk adjusted return than the median, for all these options.

Options, benefits and facilities (MySuper and Choice products)

At the core of Mercy Super’s member outcomes criteria are member cohort-level targets for improving how members utilise our product features and engage with their account, predominantly using Mercy Super’s well established in-house Health Check criteria.

The member engagement outcomes for specific cohorts have, with very few exceptions, exceeded expectations and for most metrics are already at or above the desired targets for 30/6/2021. This has been achieved through sustained and ongoing member engagement initiatives helping members achieve better outcomes even through the COVID-19 disruption in the latter part of 2019-20.

Through the actions of members making the most of the services provided, the Trustee is satisfied that the options, benefits and facilities offered by Mercy Super remain appropriate to our beneficiaries.

Insurance strategy outcomes (MySuper and Choice products)

Mercy Super has established a “needs based” insurance design that aims to provide members with access to reasonable levels of insurance cover as a default, based on their age and anticipated insurance needs. The cover provided has been based on average premiums being within a percentage of average account balances across cohorts as a reasonable measure of affordability.

We recognise that the Insurance in Superannuation Voluntary Code of Practice suggests a ‘best practice’ premium level of 1% of estimated salary. A key component of Mercy Super’s insurance is default income protection cover for five years and as such we feel the percentage of 1% – 2% of average balances across cohorts is a more appropriate measure for the cover provided.

This appropriateness of the current insurance design for Mercy Super’s members is evidenced through the realisation of the insurance benefits provided through claims, particularly for income protection cover which is relied upon to provide an income during disability which members would not have otherwise had. This is further reinforced through the level of voluntary opt-out being within target and feedback from member focus groups which have supported the inclusion of income protection within the default cover arrangements.

The higher premium/account balance ratio for the Emily (under 25) cohort is a known variance due to the low balances for these members who are often just starting out on their super journey. The underlying design, cost and affordability of insurance cover forms part of a review of the insurance product during 2020-21 which is likely to be implemented in 2021-22.

Based on the continued take-up of the insurance benefits provided, supported by regular communication with members informing them of their cover and associated costs, the Trustee is satisfied that the insurance strategy is appropriate for the beneficiaries and the premiums paid by members with insurance cover do not inappropriately erode their retirement income.

Fees and costs outcomes (MySuper and Choice products)

Mercy Super’s current operating costs are above long-term expectations. This is due to additional costs incurred from recent legislative change, planned projects and agreed changes in how the tax benefit from insurance premiums is utilised.

This has not impacted members directly. To the contrary, Mercy Super recently made a significant reduction in the administration fees charged to member accounts from 1 October 2020 which are now well below the industry median for a representative member with a $50,000 balance, ensuring their retirement accounts are not impacted by short term costs.

These costs are consistent with the Business Plan and the intended use of existing Fund reserves over the strategic planning period. It is expected that operating costs per member will be higher in 2020-21 as investment in the future of the Fund continues, leading to improved metrics from 2021-22.

Scale and sustainability outcomes (MySuper and Choice products)

Mercy Super continues to experience the flow-through impact from recent legislative change which is reducing membership numbers across the super industry and the COVID-19 pandemic has had a negative impact on short-term investment markets reducing growth in funds under management.

This is not expected to have any significant impact on the ongoing sustainability of the Fund. Due to the nature of the Fund we do not expect any significant member growth, intending to remain a niche corporate fund.

Determination for the period ended 30 June 2020

Having conducted a business performance review the Trustee believes that, on balance, it has achieved the desired member outcomes for the 2019–20 year and has continued to promote the financial interests of Fund beneficiaries throughout the year. This assessment is based on the consideration of the following for Mercy Super’s MySuper and Choice investment options:

  • investment returns delivered to members
  • fees and costs that affect the return; and
  • the level of investment risk.

Furthermore, as a result of the annual outcomes assessment the Trustee has determined that:

  • the options, benefits and facilities offered by Mercy Super remain appropriate for our beneficiaries
  • the investment strategies for each investment option, including the level of risk and return target, remain appropriate for the Fund’s membership; and
  • the insurance strategy is appropriate for the beneficiaries and the premiums paid by members with insurance cover do not inappropriately erode their retirement income.

2019-20 was a period of significant disruption as a result of both legislative changes and the COVID-19 pandemic. Whilst the impact of these has been significant for the Fund, it is pleasing to see that the majority of member outcome objectives have still been achieved. It is expected that Mercy Super will continue to meet member outcomes over the current strategic planning period.

 

Data for MySuper option assessment

Fees and Costs and Investment performance assessment areas

Data from APRA’s MySuper Product Heatmap – December 2020 was utilised in the assessment of the Fund’s MySuper option outcomes for the Fees and Costs and Investment performance assessment areas. This included a comparison against 89 MySuper products which included:

  • All single-strategy MySuper products with published 6 year net investment return and total fees details (50 products)
  • All lifecycle MySuper products with a strategic growth asset allocation between 60% and 76% that have published 6 year net investment return and total fee details (39 products)

Investment risk assessment area

Data from APRA’s Quarterly MySuper statistics: September 2018 – September 2020 was utilised in the assessment of the Fund’s MySuper option outcomes for the Investment risk assessment area. This included all single investment strategy MySuper products and all Lifecycle stages MySuper products with a Medium to high investment risk label in this publication with a published Level of investment risk at 30 June 2020 (total of 69 MySuper products).

Data for Choice option assessment

Fees and Costs and Investment performance measures

The Choice option Fees and Costs assessment has been based on detailed comparison for super option metrics at 30 June 2020 within Mercy Super’s annual SuperRatings Benchmark Report (2021). The SuperRatings Pension Benchmark Report 2020 provided metrics effective 31 December 2019 for some income account option comparisons.

The Choice option investment performance assessment has been based on the following benchmarks published by SuperRatings:

Investment option Account type Benchmark
Growth

 

Super SuperRatings SR50 Growth (77-90) Index 3 year median*
Income SuperRatings SRP50 Growth (77-90) Index 3 year median*
Balanced Income only SuperRatings SRP50 Balanced (60-76) Index 5 year median
Conservative

 

Super SuperRatings SR25 Conservative Balanced (41-59) Index 5 year median
Income SuperRatings SRP25 Conservative Balanced (41-59) Index 5 year median
Stable

 

Super SuperRatings SR50 Capital Stable (20-40) Index 5 year median
Income SuperRatings SRP50 Capital Stable (20-40) Index 5 year median
Socially Responsible Super only SuperRatings SR50 Balanced (60-76) Index 5 year median
Australian Shares Super only SuperRatings SR50 Australian Shares Index 5 year median
International Shares Super only SuperRatings SR50 International Shares Index 5 year median
Cash

 

Super SuperRatings SR50 Cash Index 3 year median
Income SuperRatings SRP50 Cash Index 3 year median

* Three year median chosen as an initial metric for the Growth option as it was only established in 2017. Over time this will be change to the 5 year median once returns are available for the option over this period.

These have been identified as appropriate benchmarks based on the Growth asset allocation for each option. Five year performance metrics have been chosen for most options as they are relevant to the longer-term nature of the investment option, relate to average membership period of Mercy Super members and are the focus period for investment performance in APRA’s MySuper Product Heatmap.

Investment Risk measures

The peer fund group selected for investment risk comparisons has been selected based on the other super funds which Mercy Super’s membership cohort has typically had some past experience with (based on rollover transactions) and includes:

  1. AustralianSuper – PDS dated 25 September 2020
  2. HESTA – PDS dated 1 October 2020
  3. QSuper – PDS dated 1 January 2021
  4. Sunsuper – PDS dated 1 January 2021
  5. UniSuper – PDS dated 1 October 2020

Further investment risk comparisons utilising Sharpe ratios for a number of Choice options was based on the:

  • SuperRatings Benchmark Report 2021 (with metrics based on super accounts as at 30 June 2020), and
  • SuperRatings Pension Benchmark Report 2020 for the Balanced option (it is noted that this report is based on pension account metrics as at 31 December 2019 – at the time of publication this was the latest available date for these type of accounts).

 

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