Australian Super member direct

Discussion in 'Shares & Funds' started by pippen, 19th Oct, 2019.

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  1. rizzle

    rizzle Well-Known Member

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    Gotta have faith :D

    That would be ideal. I'd hazard a guess there is strict legislation in this space since most Super 'Pay an annual fee and directly invest' options (e.g. SMSF lite) have massive limitations (such as capping any single holding to 20% of portfolio, and capping total proportion in direct invest at 80%). Hopefully Vanguard can find a way around this.
     
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  2. ChrisP73

    ChrisP73 Well-Known Member

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    Email delivered to members today.

    Sunsuper and QSuper begin formal due diligence to explore merger

    As previously announced, Sunsuper and QSuper have been in high-level discussions about a possible partnership.

    We're now pleased to inform you that both funds have agreed to formal merger discussions and will start a comprehensive due diligence process. The outcome of this process is dependent on many factors and will allow both funds to more formally evaluate the potential benefits of a merger for you, our members.

    At Sunsuper, we have an obligation to you to consider the benefits of a potential merger. A merger has the potential to leverage scale and capabilities, drive greater efficiencies, promote a stronger competitive position in the market, and ultimately generate greater value for you through low fees and improved services. As profit-for-member funds, there is a strong alignment between the two organisations. We can assure you, both Sunsuper and QSuper are committed to the best interests of members, and indeed a combined membership base, if a merger was to proceed.

    The due diligence process will take some time, but we intend to keep you updated of any major developments. In the meantime, it's business as usual for both funds and we remain committed to delivering great value super to you in order to help maximise your retirement savings.

    Yours sincerely,

    Bernard Reilly
    Chief Executive Officer
     
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  3. ChrisP73

    ChrisP73 Well-Known Member

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    For anyone following the SunSuper indexing journey....

    Me: One other question. I invest in the australian and international index investment options. My understanding is that SunSuper use Vanguard for the underlying investments. With Vanguard's recent announcement that they are exiting management of investments on behalf of Australian funds like SunSuper, how is this likely to impact SunSuper's ability to provide low cost capweighted index share investment options?

    SunSuper: Sunsuper currently uses Vanguard for index management using separately managed accounts and we have recently been informed that Vanguard are no longer going to offer these services going forward. Vanguard are one of a number of high quality managers that we could use to manage our index investments and we are now undertaking an analysis of alternative providers to ensure we can continue to achieve the best outcomes for members with our index investments. One of the strengths and reasons why we choose to invest via separately managed accounts is that the replacement of a manager like Vanguard can be achieved without any transaction costs as Sunsuper directly owns the underlying investments. We will be maintaining our commitment to offering low cost index options to our members and we are not intending to change either the menu of index options that we offer or the investment objectives for those options.

    Me: And hopefully the investment management fees on these options keep trending down too!

    SunSuper: I couldn't comment there at this stage sorry Chris.

    Me: No problem. Totally understand!. Thank you for your help.
     
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  4. ChrisP73

    ChrisP73 Well-Known Member

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    I did note the language "Sunsuper directly owns the underlying investment" which isn't strictly accurate (well I hope not!), as it is my understanding that the SunSuper Trustee holds the assets in trust on behalf of members!

    ..but the point is that they aren't held directly by vanguard, just managed by.
     
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  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The trustee is the legal owner - so it is probably correct.
     
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  6. Zenith Chaos

    Zenith Chaos Well-Known Member

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    I received the same response from SunSuper and will remain with my current super index allocations until a decision has been confirmed. Theoretically it should be relatively easy to replicate what Vanguard does, particularly if they've been watching Vanguard since fund inception.

    I really don't want to move superannuation again.
     
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  7. DoggaPP

    DoggaPP Well-Known Member

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    I wonder if iShares will step in and fill the void as they have comparable very cheap index options like IOZ and IWLD managed fund equivalents. Time will tell.
     
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  8. Hockey Monkey

    Hockey Monkey Well-Known Member

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    For folks that have gone with the direct options (eg AustSuper Member Direct or HostPlus Choice Plus), what have you chosen for your 20% minimum that cannot be directly invested in Shares/ETFs/LICs?

    Aust Super, don’t seem to have many low cost index options.
    Superannuation Fees & Costs | AustralianSuper

    Some possibilities
    1) Australian Shares option as an alternative to VAS @0.21% although unfortunately it is actively managed
    2) Indexed Diversified @0.18% although it holds 8% cash

    HostPlus has an interesting low cost “International Shares (Hedged) – Indexed” option @0.10% which might be a good alternative to VGAD if it uses ToFA (need to confirm with HostPlus) to get around the lumpy distributions due to VGAD’s lack of ToFA

    Or maybe Vanguard comes out with an awesome superannuation offering that blows them all away. Not holding my breath after their VPI offering.
     
  9. Hockey Monkey

    Hockey Monkey Well-Known Member

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    Hey @dunno,

    I’m trying to get my head around this CGT tax drag in pooled super funds and better understand your awesome analysis.

    Am I correctly understanding that this analysis assumes a worst case 10% CGT payable on the entire capital gain each year?

    In practice, capital gains passed on to unit owners are generally much much less and often zero if inflows are sufficient to provide required liquidity.

    For example this year before switching to ETFs, I had a $3600 capital gain from around $500K invested outside of super that was 50/50 Vanguard wholesale pooled versions of VAS/VGS. Interestingly capital gains were all from VGS. If gain was in super at a 10% long term CGT rate this would be $360 tax that could not be deferred. I expect this was a particularly bad year as people sold in March due to COVID and in other years, the pooled capital gain would be less.

    Compared to the modelling on page 1 of this thread, non deferred capital gains of Sunsuper for $508K was assumed to be $2206 (row 20) or 6x more as an absolute worst case.

    Have I understood correctly?

    I wonder if data on pooled capital gains is available somewhere,
     
    Last edited: 20th Oct, 2020
  10. dunno

    dunno Well-Known Member

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    Hi @Hockey Monkey

    Don’t confuse your understanding of personal tax with pooled super accounting.

    The pooled super funds are required to use tax effect accounting and provision for 10% for long term capital gains and 15% for short term CG. They do this before your return is calculated. Just take a look at the size of the pooled funds deferred tax liabilities on their balance sheets to verify the issue.

    The issue is meaningful. A 10% Capital gain provisioned at the long-term rate of 10% is effectively a cost of 1% of assets which is not allocated to a member’s account but rather to deferred tax. Now as the tax is deferred, its not actually paid to the tax office so the assets remain in the fund and will earn future returns but how those earnings are distributed is not transparent. [Split evenly across both active and passive fund members? Directed to headline my super fund option, Pay the passive index manager fees, so that your passive options look cheap? Promote the fund? Sponsor a rugby team maybe? Donate to political party? Pay for long lunches and end of year functions? Who knows? I’ve looked for answers and I can’t find any transparency, so the cynic in me comes out.] Direct investment option looks to have better and somewhat more transparent tax consequences for passive investing within industry funds but I haven’t fully explored it as my solution is to run a SMSF.

    When pooled members transfer from accumulation to pension, the tax liability for amounts under 1.6M will be extinguished under current law, some funds are better than others at allocating this tax benefit to the applicable member. Some still don’t have any form of super boost for this occurrence.

    Any rate, you are smart, if you persevere on understanding tax effect accounting for pooled funds you will work it out and you will realize the issue is far more meaningful than the few base points of MER that the rest of the “investment efficiency” crowd on the internet are worrying about when considering options within pooled super funds.

    I hope you will keep exploring and maybe communicate the issue more widely once you have nailed it. But property chat isn’t really the place for tearing this issue apart. As I have already broken a promise to myself to not post complex **** here anymore, I will leave it at that.

    Cheers


     
  11. DoggaPP

    DoggaPP Well-Known Member

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    Penny drop moment - gah!! ..... this info instantly made me feel sick in the stomach. I've been thinking of Aware recently building and funding certain things like apartments etc and thinking to myself "where do you guys fund this from and how does that find its way back to me as a benefit??"

    I moved away from Choiceplus (Hostplus' direct investment platform) last year to try and simplify my super and went to First State Super (Now Aware Super) using the two funds that use Vanguard underlying index funds.

    Sigh.

    Oh for a reliable, trustworthy, affordable outsourcer. I'm truly tired and my head hurts.
     
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  12. SatayKing

    SatayKing Well-Known Member

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    Possibly attempting to do what some European pension funds have done by creating a form of an annuity stream. Now if the fund you mentioned actually sold annuities rather than providing you an account-based pension based on your funds the approach would make sense to me.

    Until then it doesn't. Nor do any fund which I understand can provide low cost accommodation to some of its members. I think that is a fund involved in the health sector but I could be completely incorrect.
     
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  13. Hockey Monkey

    Hockey Monkey Well-Known Member

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    Really appreciate your detailed response @dunno

    At the moment we have a bit of a hybrid strategy using passive ETF index funds outside of super and leaving super to the experts (UniSuper) who use a mostly active approach. The latest UniSuper annual report shows $1.8B deferred tax liabilities against $80B FUM

    As our balances increase, fees start to become quite obvious in the many thousands per year but equally UniSuper has consistently outperformed for more than a decade so we may just continue to live with a little opaqueness.

    I'm a little less cynical about the Industry Funds looking after their members, although will definitely follow your advice and keep exploring.
     
  14. DoggaPP

    DoggaPP Well-Known Member

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    Yeah - I work for NSW Health and it is our default Government Health super fund.
    It has just amalgamated Vic Super and a major Western Australian Super fund under its wing too.
     
  15. dunno

    dunno Well-Known Member

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    Uni Super seems pretty good and your hybrid strategy is on the money.

    Invest via passive Indexing outside super where your return is not reduced by tax effect accounting for unrealised gains prior to determining return and you have individual tax consequences to benefit from your personal low turnover. ETF’s are also efficient at not realising CG during your hold period.

    With super, find a fund happy to stay within its niche rather than grow, grow, grow. They are much more likely to be member centric rather than executive/employee/corporate juggernaut centric. Then stay with their highest profile active option (Align your interests with their need to be seen to be performing) that matches your risk profile.

    What I worry about is people who may unwittingly make choices like moving from an active managed option at say UNI super to a pooled index option at say REST who I think offer that option for 'free'. They think they are doing the right thing by buying into the passive efficiency mantra and saving some basis points on reported fees but are oblivious to the tax drag.

    Pooled super funds are just not the structure for running a passive index approach. If you must do it at least look at direct investment options even though on the surface the MER’s and platform access costs may look higher. (how to reach these people and educate about a complex issue is problematic, by the time they realize if they ever do the slow burn could have lasted decades and cost many, many thousands in final balance)

    Circling back I agree with @Hockey Monkey strategy. Use the pooled super funds if you have/want to be in one for lowish cost active management and passive index outside super. Its about as efficient as you can realistically get at the moment.
     
  16. SatayKing

    SatayKing Well-Known Member

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    Take heart @DoggaPP. If you hold the top 300 shares, you at least have NWL working for you. Nice fee income there (for NWL) as well - platform revenue of $121M (26% increase over previous year.)
     
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  17. exp

    exp Well-Known Member

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    What's the problem with ChoicePlus direct investment options?
     
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  18. exp

    exp Well-Known Member

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    Don't pooled actively managed funds in super suffer from the same problem as pooled passively managed options in super?
     
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  19. DoggaPP

    DoggaPP Well-Known Member

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    Nothing - I just wanted a set and forget solution to make life simpler. I actually really enjoyed ChoicePlus for the most part
     
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  20. Hockey Monkey

    Hockey Monkey Well-Known Member

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    I believe the point is that it is avoidable with passive indexing using the direct options, where as if you choose an active manager, they are all pooled.
     
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