Australia's 'Value For Money' Benchmarking Recommendations: How Their Implementation Could Be 'Fast-Tracked' Around The World
“A slow but steady evolution in best practice on cost disclosure and reporting is changing the way pension funds think about the asset management industry as well as the way they structure their internal resources.”
INVESTMENT & PENSIONS EUROPEJANUARY 2017
“The sheer size of the superannuation system, combined with the compulsory and broad nature, makes the efficiency of the system paramount. Even small changes in efficiency can have significant impacts on the wealth and well-being of Australians.”
THE AUSTRALIAN PRODUCTIVITY COMMISSIONNOVEMBER 2016
Cost Disclosure Is Not Enough
The January issue of IPE magazine contains an 11-page report titled “Light in the Fog? Fees & Costs”. As background, it references emerging pension fund cost disclosure requirements by Swiss and Dutch regulators. For the UK, it references the developmental work of the Financial Conduct Authority (FCA) on ‘value for money’ measurement, and the pooling of Local Authority Pension Fund assets with the goal of delivering economies of scale and increased cost transparency.
There is of course, a fundamental problem with focusing on pension fund cost disclosure only. Cost information must be presented in a context that also addresses the value-creation question. It is ‘value for money’ that matters in pension fund management, and not whether costs are high or low relative to those of a comparable group of peers.
In the cited-above report titled “How to Assess the Competitiveness and Efficiency of the Superannuation System”, the Australians demonstrate that they get this. It sets out assessment criteria and success indicators for the Australian pension system as a whole. Specifically, it sets out goals for the system, formulates assessment criteria based on these goals, and identifies indicators to facilitate the assessment. This Letter summarizes the sensible pension efficiency benchmarking proposals of the Australian Productivity Commission (APC) and offers a ‘fast track’ route to their implementation around the world.