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Finance and Public Administration Legislation Committee
09/02/2016
Estimates
FINANCE PORTFOLIO
Commonwealth Superannuation Corporation

Commonwealth Superannuation Corporation

[14:49]

CHAIR: Welcome. Mr Peter Carrigy-Ryan, would you like to make an opening statement?

Mr Carrigy-Ryan : Thank you, Chair. I do not want to make an opening statement.

CHAIR: We will go to questions. Senator McAllister.

Senator McALLISTER: I am interested to talk a little bit about an article that appeared in The Canberra Times at the end of last month that relates to former public servants being denied investment earnings on trapped super. The article essentially states that a former public servant is unable to roll over the balance of her government-run superannuation scheme into another fund. I am just wondering if someone could explain to me why that would be the case—why the old balance could not be rolled over into another fund.

Mr Carrigy-Ryan : The short answer to that question is: the benefit design, that component of it, is not funded, other than through the Future Fund. It is not funded into a member's account. Hence, there is no balance to roll over.

Senator Cormann: The benefit they are getting is a defined benefit, obviously. So how would you roll that over? You get an entitlement at the right time to an ongoing pension by way of a defined benefit. How would you possibly—

Senator McALLISTER: Just to be clear about the circumstances, this is a person who accrued an entitlement of some kind—and I am working from a newspaper article, so I accept that there might be some detail about this that is unclear to either of us. She became a default member of the public sector superannuation scheme, the PSS scheme, which is a defined benefit fund. But she was only there for three years, so, presumably, the benefit that she accrued in that time is quite modest. There is no way of cashing that out?

Mr Carrigy-Ryan : Again, there is money that the member would have contributed, but there is also an unfunded component that, as the minister has pointed out, crystallises at a point in time when a benefit becomes payable, which is typically at retirement age. If it is of help to you, I am happy, if you give me a copy of the article, to have a look at the detail in it. I do not recall the article, but I can have a look at the detail on it and get back to you, if you wish.

Senator McALLISTER: I think that would be useful. I may need to provide it later in the hearing, if that is all right, Chair. I wondered, too, then if you could provide an update on the merger between ComSuper and the Commonwealth Superannuation Corporation since the last estimates.

Mr Carrigy-Ryan : The merger is progressing extremely well, thank you, with three major things we are working on at the moment. For part of the cultural change strategy, we are now having values workshops right across the organisation in our Sydney, Civic and Belconnen offices. We are talking to all staff in small groups about values. We did a survey of the staff on which to base this new set of values, looking at what CSC values were and what ComSuper values were—bringing together the best of both worlds. That process has just started after the survey. The participation rate in the survey was very encouraging—from memory, about 74 per cent of staff, which was good.

The second thing we are working on is a long-term IT strategy. We have had a draft of a consultant's report received. We will be looking at that and talking to our board— and, ultimately, to government—about that for the longer term technology strategy for the organisation. The third thing we have done is to look at all of the core scheme administration processes that we undertake and to document the processes for each of those—some of which are extraordinarily complicated. We are looking to simplify them as must as we possibly can and make sure we avoid as much duplication as we possibly can in those processes. So we now have process maps of about 14 or 15 key processes that we do, and we are working through with each of the business units with those to make sure that we have people clear about what their accountabilities and responsibilities are.

Senator McALLISTER: At this point in the merger, are the business units still as they were prior to the merger, or have you undertaken a restructure of staff to integrate any of the business units in the merging organisations?

Mr Carrigy-Ryan : Some considerable time prior to the merger we showed all of the staff in both organisations what organisation structure we would have. We called that an interim organisation structure. By interim we were talking about two to three years to transition, from 1 July last year. So everybody was quite well aware of what the major business functions would be. In the scheme administration function, the Belconnen office, the two core functions out there that were substantially not touched at that time were what we call scheme administration.

Senator McALLISTER: These are the 14 processes that you are speaking about?

Mr Carrigy-Ryan : No, this is the organisation structure. A business process might be, for example, paying a pension or a benefit or whatever. So an organisation structure would be, for example, our technology group. It might be a finance group, or an operations group, or our investment group et cetera. So very early on in the piece everybody was very familiar with what those groups would look like and how the organisation in each cell would be under those groups.

Senator LUDWIG: Minister, if you go to page 35 of the annual report for the Commonwealth Superannuation Corporation, effectively it is a reflection of the same questions I asked earlier. It talks about the CSC remunerating people in accordance with its board-approved remuneration policy. Is that available to the committee? It then goes on to say that 'individually market-based adjustments are determined by reference to the market survey compiled by FIRG'—

Senator Cormann: I am finding it hard to hear.

Senator LUDWIG: I am only reading from what is there.

Senator Cormann: I have seen the extract. If the question is the same, I might be able to assist you by taking the same approach and taking it on notice to see whether we can help you with the same information that we might be able to provide you with.

Senator LUDWIG: It is only the executive employees—their salary bonuses and how it is structured—together with that policy, which is the board-approved policy. Secondly, if this market survey compiled by FIRG is available? Of course, the additional information is whether or not they set their policy for remuneration in accordance with that earlier document I read out, which was No. 126. I want to be able to effectively see how that policy is reflected in government owned corporations. And the same for ComSuper, although ComSuper is in a slightly different position as I understand it, but then I cannot see anything about their remuneration structure, so I presume they are public servants.

Senator Cormann: I have to take that on notice and see how we can assist you.

CHAIR: Mr Carrigy-Ryan, earlier we heard from the Future Fund about some of the expectations and unrest and volatility in investment markets. Has the Commonwealth Superannuation Corporation adapted its asset mix to account for instability in financial markets? I guess that is going to be directed somewhere else.

Mr Carrigy-Ryan : Certainly, we have. I was listening to the comments that David Neal made earlier, and certainly some of his views about volatility in the world, about a recovery in the United States, about a strengthening US economy, and about some concerns with world debt levels. They are pretty well-accepted themes throughout the investment community, and many of us have adjusted our portfolios to reflect some of those views over time. In CSC's case, we would typically have a lower exposure to risk assets than most of our peers. Our listed equity holding would be lower than many of our peers. That reflects the demographics of our contributor population. We do have a number of older workers who are approaching or at retirement age who have significant balances, so our investment strategy is based around not perhaps gaining as much on a large upswing in equity markets but by the same token not suffering as much downside when there is a downturn in the markets.

CHAIR: In that respect, do you, like the Future Fund, have a target rate of return?

Mr Carrigy-Ryan : The target rate return we have for our default funds is 3½ per cent real over a longer term. That is a lower rate than the Future Fund for the reason I just gave you. It reflects the nature of our membership and the risk that we are prepared and prudently take over the longer period.

CHAIR: Mr Neal said he met his target over one, three, five, 10 years since inception, I think it was. Are you achieving that over similar time frames?

Mr Carrigy-Ryan : Yes, we are.

CHAIR: That is all I need to know. I do not need to know the specifics of it as well. You also mentioned earlier that you did a values survey of your workers. How much commonality was there between the values of the two organisations?

Mr Carrigy-Ryan : Substantial, is the answer. There are the usual things, like trust, respect, integrity—those sorts of things—but we are trying a different approach and framing our values around some more active statements. For example—

CHAIR: That is encouraging.

Mr Carrigy-Ryan : Yes. It encapsulates the things that people usually consider to be values, but the discussion we had was about whether or not certain things that people call values are in fact outcomes rather than values. If you say 'trust', is that a value that one has, a statement that someone makes about one or a bit of both? So we have reframed, using the same sorts of principles with the same sorts of outcomes and have explanatory statements—

CHAIR: Sorry to cut you off, in the end, it has to be about outcomes for your clients. That is whose money you are dealing with.

Mr Carrigy-Ryan : Exactly. And one of the core values—

CHAIR: They need to be able to trust you, so you have to deliver trustworthy advice or whatever the circumstances may be.

Mr Carrigy-Ryan : Investment, whatever we are doing. Exactly.

CHAIR: What about the new fee arrangement? How is that going to impact or grow over time as a share of your funds under management? What are the expectations there?

Mr Carrigy-Ryan : Do you mean the fees that were introduced for PSSap last year?

CHAIR: Yes, the recovery cost.

Mr Carrigy-Ryan : That administration fee of $5 a month is exactly the same as what a member of any accumulation plan in the community pays for a scheme administration fee.

CHAIR: I am going to ask: is it capped, in the sense of your overall administration fees, so if the fund continues to grow you may see some benefits of economies of scale, or will it ultimately be a profit centre?

Mr Carrigy-Ryan : Commercially, we would expect that to happen. As scale increases so should costs be rationalised, but it is a pretty low fee at the moment and it is a function that is outsourced. That scheme administration function is performed by Pillar. Part of that is a direct charge of what we pay to Pillar and there is a trustee fee in there. But, yes, the larger you get the more you can bring it down.

CHAIR: Just for my curiosity, because I have been looking at some other investment options that claim to have low fees, if I had to put the total amount of fees—that $5-a-month administration charge—as a percentage of assets under advice from management, what would it be? You may need to take it on notice.

Mr Carrigy-Ryan : It is pretty hard to express it like that. Typically in the disclosure documents we are required to express our total costs for a person with an account balance of $50,000. In that you include the scheme administration charge, whatever that might be, plus whatever your investment cost might be.

CHAIR: Charged by the managers.

Mr Carrigy-Ryan : Yes, exactly. If you look on our website, for example, under fees and other costs, you will see that for a $50,000 balance the total cost for a member with that balance would be $515. That is investment fees, administration fees and the whole lot.

CHAIR: I am just going to do my maths: what is that, 0.1 per cent, is it?

Mr Carrigy-Ryan : 0.1-ish, yes, that is right. And that includes, for example, an additional cost that we have had to bear in the last couple of years to create an operational risk reserve because of regulatory requirements and things like that.

CHAIR: Sorry: it is about one per cent, isn't it.

Mr Carrigy-Ryan : One-ish, that is right.

CHAIR: And that includes manager costs plus the administration fees.

Mr Carrigy-Ryan : Yes. That is the total cost.

CHAIR: Which on a relatively low base is not too bad.

Mr Carrigy-Ryan : Yes. It is probably just above the median cost. That is right.

CHAIR: But as balances grow the percentage paid by each fund member would be reduced over—

Mr Carrigy-Ryan : You would certainly hope so, but I suppose we have also been advocates of two other things. One is to look at the total return and use cost as a part of that. And the other one is to make sure that when you are comparing costs you are genuinely comparing apples with apples.

CHAIR: And that is the challenge for people in any investment. The returns are variable; they cannot essentially control those. But one thing they can control is costs, and it is very difficult to compare apples with apples. So, you want to make sure that your clients are getting a fair deal.

Mr Carrigy-Ryan : Exactly. And what we are disclosing as cost is being disclosed in the same way by everybody else in the marketplace.

CHAIR: That might be too big a wish!

Senator McALLISTER: I made reference earlier to a newspaper article, and the secretariat has very kindly assisted in locating that, so perhaps I could table that, with the officers'—

CHAIR: What is it?

Senator McALLISTER: It is simply the article about the public servant denied access to super seeking to roll it over, and they undertook to come back to us.

Mr Carrigy-Ryan : Yes, we will take that on notice and provide you with a response.

CHAIR: Okay. Thank you. If there are no further questions, thank you very much for your attendance today.