Clough bucks trend

In the final part of a six part series on corporate superannuation, Mark Beyer looks at organisations that have resisted the outsourcing trend.

OUTSOURCING has been one of the most popular management trends of the past decade and corporate superannuation has been no exception.

Hundreds of Australian companies have closed their in-house super funds and outsourced to master trusts or industry funds.

The total number of corporate super funds in Australia has halved over the past eight years to 2,045, according to the Australian Prudential Regulation Authority.

Many of these funds have outsourced key functions such as administration and investment.

Woodside Petroleum, which has been conducting a major company-wide cost cutting and efficiency drive, is believed to have joined the outsourcing trend.

A company spokesman said Woodside was currently assessing options for its staff super fund but had not made a final decision.

Another big Perth company that has resisted the outsourcing trend is engineering group Clough, which has about 1,000 members and $60 million of assets in its staff super fund.

Clough’s happy experience with its in-house fund provides a timely antidote to the rush by many other companies to enter the embrace of master trusts.

“They don’t really know what they’ve got until it’s gone,” said Clough company secretary Mirek Uchanski, who is also secretary of the staff super fund.

He said the trustees of the Clough fund regularly reviewed the costs of running their own fund relative to outsourced alternatives such as master trusts.

They also reviewed investment returns compared with the returns achieved by professional fund managers.

On both counts, Mr Uchanski said the in-house fund was superior.

The fund’s investment return has averaged 7.5 per cent per annum over the past three years and it has never had negative returns.

Over the same three-year period, many other funds have struggled to post positive returns.

A review of super funds by APRA also found that corporate funds had achieved better returns than other funds.

Over the seven years to June 2002 corporate funds achieved an average return net of expenses of 6.96 per cent per annum.

This compares with an average return by all funds of 6.68 per cent.

The Clough fund has allocated some money to external fund managers but invests most of its money directly.

Mr Uchanski said the fund took a long-term investment horizon.

This included buying properties and, in some cases, engaging in land development.

It has been helped by a decision to largely steer clear of international shares, which have delivered large negative returns over recent years.

On the expenses side, the only running cost absorbed by the parent company is the time spent by trustees attending trustee meetings.

The trustee has four employer representatives, including man-aging director Brian Hewitt and four member representatives.

However, all other costs were charged to the company, including time spent by Mr Uchanski administering the fund and any time spent by trustees on specific projects.

He said the fund’s ‘management expense ratio’ was lower than alternatives such as master trusts.

The task of fund administration is helped by using software developed by Mercer.

Mr Uchanski said this made it easier to keep up with changing legislation and managing multiple accounts.

Members of the Clough fund also have secure online access to account balances and a range of other superannuation information via www.superfacts.com.au, a web site managed by Mercer.

The web site includes financial planning tools, eligible termination payment calculators and articles on superannuation and costs $1 per member per annum.

A feature not offered by the Clough fund is investment choice. All of its money is invested in a single pool.

This contrasts with master trusts and industry funds and even many corporate funds, which offer at least five or six investment options and, in some cases, many more.

Mr Uchanski said some members had retained superannuation accounts with other funds and were able to direct voluntary superannuation contributions (above the compulsory 9 per cent employer contribution) to their own fund.

Another feature not offered by the Clough fund is an allocated pension, which would provide a regular tax-effective income for retirees.

Mr Uchanski noted that about 20 per cent of the fund’s members were retired and had elected to keep money in the fund.