Annual Outcomes Assessment 2022: Mercer Choice

We’ve assessed the performance of the Mercer Choice Product and determined that it’s promoting the financial interests of our members.

Each year Mercer Super is required to assess our performance against other super products and determine whether our products promote the financial interests of our members.

The annual assessment is split into three  stages – two comparative assessment stages as applied for the 2020 assessments, and a further stage which considers the results of the annual APRA Performance Test. For the two comparative assessment stages, the Trustee is required to:

  • decide on the weighting of the comparative assessment stages when making its determination – The Trustee has decided to place equal weighting on both comparative assessment stages; and
  • identify the other super products used to undertake the comparison – noting that the Mercer Santos MySuper product is a MySuper product, the Trustee has decided to perform comparative assessments against all MySuper products in the market.

We’ve assessed the performance of the Mercer Choice product and determined that it’s promoting the financial interests of our members as at 30 June 2021  based on the factors detailed in the below table. 

Both comparative assessment stages examine results based on different factors. We summarise the assessment of each factor in the table below. Green indicates it is clear financial interests are promoted, amber indicates financial interests are mostly promoted, and red indicates that further improvement is required to ensure financial interests are promoted.

Factor

Rating

Stage 1

 

Net Investment returns

Members’ financial interests are promoted.

In comparison to SuperRatings median returns, the CSD Choice products where the majority of members are invested perform above competitor medians over 3 and 5 year periods, and most above median over 10 years.

Comparative net returns, for choice products where assets are greater than 5%, are listed in the table below (with SuperRatings medians in brackets):

Choice Product

1 year net return

3 year (pa)

5 year (pa)

10 year (pa)

Proportion of CSD Choice assets

Mercer Conservative Growth

7.3% (7.6%)

5.1% (4.6%)

5.1% (4.6)

5.4% (5.3%)

7.0%

Mercer Moderate Growth

11.8% (12.6%)

6.4% (6.2%)

6.7% (6.4%)

6.7% (6.7%)

8.5%

Mercer High Growth

22.1% (22.3%)

9.5% (9.2%)

10.2% (9.8%)

9.0% (9.2%)

17.2%

Mercer Diversified Shares

26.7% (25.6%)

10.4% (9.5%)

11.6% (10.6)

10.1% (10.1%)

15.3%

Mercer Select Growth

16.3% (17.6%)

8.0% (7.9%)

8.9% (8.4%)

NA

21.3%

When compared to SuperRatings median returns, CSD choice products perform above competitor medians over 3, 5, and 10 year periods (with the exception of Mercer High Growth, which underperformed the median over 10 years by 20 basis points).

Investment risk

Members’ financial interests are promoted.

There is no publicly available information which provides a breakdown of the level of investment risk for the choice products and therefore it is difficult to make reasonable comparisons against the industry.

However, during the 2021 annual review of investment options performed by the Trustee as part of the SPS 530 requirements, the Trustee confirmed that it was comfortable with the level of investment risk in each choice investment option.

Fees

Members’ financial interests are mostly promoted. 

Per annum fees for CSD choice products rank below median or bottom quartile compared to all choice options2 .

So, in 2021 we took action to improve this outcome by reducing total fees on two occasions, with the most recent action in October reducing administration and investment fees by around 0.15% for members on the highest fee level. We also anticipate further fee adjustments as the Fund continues to share efficiencies and scale benefits with members over time.

Fees for CSD Choice products with the assets over 5% to 1 December (therefore excluding the latest fee reductions) are listed in the table below:

Choice Product

Fees (% p.a.)

Rank amongst all Choice

Quartile

Mercer Super Trust - Mercer Conservative Growth

1.16%

338

Below Median

Mercer Super Trust - Mercer Diversified Shares

1.35%

224

Below Median

Mercer Super Trust - Mercer High Growth

1.43%

186

Below Median

Mercer Super Trust - Mercer Moderate Growth

1.26%

284

Below Median

Mercer Super Trust - Mercer Select Growth

1.75%

76

Bottom Quartile

Mercer Super Trust - Mercer Sustainable Plus Conservative Growth

1.54%

153

Bottom Quartile

Mercer Super Trust - Mercer Sustainable Plus Growth

1.75%

76

Bottom Quartile

Mercer Super Trust - Mercer Sustainable Plus High Growth

1.69%

98

Bottom Quartile

Mercer Super Trust - Mercer Sustainable Plus Moderate Growth

1.65%

110

Bottom Quartile

Mercer Super Trust - Mercer Sustainable Plus Shares

1.74%

83

Bottom Quartile

Although fees rank in the bottom quartile when viewed in isolation, the above net investment returns assessment clearly shows that the majority of members still achieve above median net returns for risk-adjusted net returns.

Stage 2

Options, benefits and facilities

Members’ financial interests are promoted.

The trustee assessed the appropriateness of the options, benefits and facilities in the Mercer Super Trust (MST) in February 2021, considering member outcomes, member services, and any subsequent actions to improve the MST service offering. The assessment was that the options, benefits and facilities provided in the MST provide significant value for members.

Further to this, the Chant West member outcomes dashboard rated MST 5 out of 53 for quality of Member Services and Member Engagement. 

Member Services rated top 3 in 2020 by Chant West compared to all other retail and industry funds. 

MST also achieved an overall Net Promoter Score of +13 compared with the industry average of -104.

Investment strategy

Members’ financial interests are promoted.

An annual review of investments is completed and small adjustments made to the investment strategy to improve member outcomes. Overall, the Trustee is comfortable that the annual review process ensures each investment strategy:

Overall, the Trustee is comfortable that the annual review process ensures each investment strategy:

  • has appropriate objectives to deliver to strategy;
  • is appropriately diversified;
  • has sufficient liquidity, and

thereby ensuring each investment strategy continues to promote members’ financial interests.

Insurance strategy

Members’ financial interests are promoted.

In accordance with the SIS Act5, We used the Insurance Management Framework to assess the appropriateness of the Insurance Strategy. 

An insurance benchmarking report was commissioned to compare our insurance design to our competitors. The key findings of the report were the Death and TPD and IP offerings compared favourably with competitors. Furthermore our products were rated 5 out of 5 by Chant West3 Subsequently we determined that our Insurance strategy supports member needs.

Insurance fees

Members’ financial interests are promoted.

Again, using the Insurance Management Framework to assess the appropriateness of Insurance Fees, we determined that the insurance fees charged in relation to Mercer Choice do not inappropriately erode the retirement income of members.

Scale

Members’ financial interests are promoted.

In determining scale, and whether the scale of MSAL’s operations disadvantages the financial interests of beneficiaries in a particular product, we separately analysed the Mercer Choice Product against five scale assessment perspectives:

  1. Operational scale
  2. Impact on investment strategy
  3. Bargaining power with service providers
  4. Staffing
  5. Risk pooling.

Three categories determined the scale was optimised and the remaining two determined that scale was obtained, however could be improved on in the future.

Additionally, based on analysis of the APRA annual fund-level superannuation statistics as at 30 June 2021, MSAL ranked 18th (of all APRA regulated funds with more than four members respectively) for number of member accounts and total assets. Both results are top quartile and thus providing strong scale opportunities for members. Although this annual outcomes assessment is for the Mercer Choice Product specifically, the product benefits from the full scale of MSAL’s operations and therefore the comparison has been completed at RSE level.

Operating cost

Members’ financial interests are promoted.

MSAL outsources all of the functions required to operate the MST in an efficient and effective manner. Therefore, how the operating costs of the MST affect members’ financial interests depends largely on the costs MSAL pays to its service providers. 

The service providers have contracts that are negotiated regularly and benchmarked to other potential providers. 

Fees structure

Members’ financial interests are promoted.

MSAL annually assesses the appropriateness of the fees charged to Mercer Choice Product beneficiaries. The assessment considers; Attribution of costs, Fee discounts or rebates, the structure of the fees charged, fee comparison to comparable products.  The most recent assessment determined that Administration Fees, Investment Fees and Shared Costs were appropriate for Mercer Choice Product members.

 

1 SIS Act section 52 (9)

2 APRA Choice Heatmap December 2021