Out of India – a third admin player enters market

A third significant player is set to join the Australian superannuation administration market alongside Link Market Services and Mercer with Indian-based Tech Mahindra set to formally offer its services to superannuation funds.

Tech Mahindra country manager, Jeff Ferdinands confirmed the company’s intentions during a Super Review Editor’s Lunch roundtable held in Sydney in late September, noting that that the intention was to bring a best of breed offering to the local market.

The roundtable attended by both superannuation fund chief executives and leading consultants, was told by Ferdinands that Tech Mahindra had decided to pursue a strategy of competing in the administration market as a major player, having earlier contemplated growth via acquisition.

“We’ve been looking for acquisitions in this marketplace and found nothing that would deliver the return we were looking for,” Ferdinands said.“[We’ve decided to] invest in the business organically to drive that growth.”

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Participants in the roundtable including NGS Super chief executive, Laura Wright, EISS Super chief executive, Alex Hutchison and NESS Super chief executive, Paul Cahill all agreed that there was room in the Australian superannuation market for a third player.

Noting that with Mercer’s acquisition of Pillar Administration nearly two years’ ago the Australian superannuation administration market had been effectively reduced to two major players, both the fund chief executives and consultants argued that a third entity would deliver more competition.

Deloitte superannuation partner, Russell Mason said that having recently been involved in an administration tender process, he believed there was room for another player in the market.

NGS’s Wright said that having also been involved in a recent administration tender, she believed there was a need for a third player, especially in circumstances where the needs of superannuation funds had become increasingly diverse.

She said that while many superannuation funds were looking for a holistic service from administrators, others such as NGS Super had existing in-house functionality and were looking to integrate other technology offerings.

Tech Mahindra’s Ferdinands acknowledged that the company already had a significant background in the Australian superannuation administration market, having been a technology provider to Link for a number of years up to the first half of 2018.

As well, he said that the company was already providing administration services to Perpetual and was providing technology services to Telstra.

Commenting on the likelihood of possible superannuation fund concerns about the security of member data held by foreign-owned service providers, Tech Mahindra’s regional head, Rahul Girotra said that all data was kept within Australia.

NGS Super’s Wright said that, in any case, she believed most superannuation fund boards had come to terms with the reality of foreign service providers and that there were fewer concerns than had existed a number of years ago.

Deloitte’s Russell Mason said it was worth noting, however, that the other major players in the administration space – Link and Mercer – were winding back the number of people they were using offshore.

“With straight-through processing et cetera they are using less and less,” he said.  

“Where, 10 years’ ago, as much as 30 per cent of activity may have been handled off-shore, today it is probably less than five per cent,” he said.

Asked whether, in the absence of a third player there had been a lack of pricing competition in the market, both Mason and KPMG superannuation leader, Adam Gee, suggested that there had been plenty of competition.

“Having recently been involved in an administration tender there has been plenty of pricing tension,” Gee said. “I think that, across the board, pricing has come down.”

However, he said that given recent Federal Budget changes, he could not be certain that that would continue to be the case.

NESS Super chief executive, Paul Cahill questioned why administration pricing would be coming down when there were just two players in the market.

However, both Mason and Gee suggested the competitive pricing may also have been influenced by the cost savings which had been generated by SuperStream and the increasing use of straight-through processing.

Gee said, however, that the proposed changes to insurance inside superannuation might alter that dynamic.

Are retail funds irrevocably conflicted?

Retail superannuation funds, particularly those sitting within vertically-integrated institutions, will need to carefully consider their futures. 

That was the bottom line assessment of participants in Super Review’s recent Editor’s Lunch roundtable in which testimony given to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was discussed.

NESS Super chief executive, Paul Cahill told the roundtable he believed the Royal Commission testimony had laid bare the inherent conflict tied up in the bank-owned retail funds model – whether the funds owed were being run for the benefit of shareholders or whether they we being run for the benefit of members.

He said the legislation dictated that such superannuation funds ought to be run for the benefit of members, but this appeared to be clearly in conflict with the requirement to generate a profit for shareholders.

Deloitte superannuation partner, Russell Mason said he believed the broader superannuation industry needed to understand that the mere declaration of the existence of a conflict of interest did not make that conflict of interest go away.

“What you’re getting is a potential conflict of interest and you think declaring the conflict makes it go away,” he said. “Declaring a conflict doesn’t make it go away.”

“We’ve now got to recognise the conflicts and doing something about them.”

EISS Super chief executive, Alex Hutchison said the testimony given to the Royal Commission may have given rise to questions about whether profit to shareholder funds should be regulated differently to profit to member funds.

“Should they be regulated differently because they don’t have the same characteristics?” Hutchison asked.

IOOF general manager, distribution, Mark Oliver said it was slightly naïve to suggest any organisation had no conflicts.

“It’s how you handle them,” he said.

However, Hutchison said such an approach represented the old way and that a new approach to dealing with conflicts was needed.

Unintended consequences from insurance changes

The Federal Government needs to be conscious of unintended consequences resulting from its Budget move to make insurance inside superannuation opt-in aged under 25 or with low account balances. 

Super Review’s Editor’s Lunch roundtable heard that for superannuation funds covering high injury risk industries such as power generation, the Budget changes could be particularly problematic,

EISS Super chief executive, Alex Hutchison said that his fund had actually been lobbying for the Government to agree to a carve-out from the legislative carve-out because of the high-risk nature of the work conducted by the fund’s members.

NESS Super chief executive, Paul Cahill agreed with Hutchison and noted that it was difficult to see the policy rationale for not providing such a carve-out.

Hutchison said that the reality was that if members of his fund did not obtain their insurance cover via superannuation, then the cover would probably not be obtained at all.

“How much are you going to pay and can you actually obtain insurance,” he said.

Hutchison said that the reality was that the changes were a problem for workers if they worked in a dangerous calling.

Deloitte superannuation partner, Russell Mason said it was also wrong to assume that workers under 25 did not have dependents.

“If you are looking at those working at Deloitte or KPMG the absence of dependents is probably right, but in other industries that is not the case,” he said.

Cahill said the equation also varied according to whether people worked in metropolitan or regional areas.

He earned agreement from Prime Super general manager, operations, Stephen Pratt, who said a large proportion of Prime Super’s members were based in regional areas and he could confirm the higher number of dependents.