Annual Outcomes Assessment 2022: Mercer SmartPath MySuper

We’ve assessed the performance of Mercer SmartPath 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 members1

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 Mercer SmartPath 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.

Investment returns, after deduction of all fees, costs and taxes, are above median or top quartile over 1, 3 and 5 years for the majority of members compared to other super funds.

However, some members have received lower net returns where they are in investments designed to be less volatile with lower exposure to risk.

The below table shows Mercer SmartPath net returns over one, three, and five years, along with how those returns compared to all other MySuper products.2

 

Lifecycle stage

1-year net return (% p.a.)

Quartile

3-year net return (% p.a.)

Quartile

5-year net return (% p.a.)

Quartile

Stage of glide path3

1929 to 1933

10.65

Bottom quartile

5.80

Bottom quartile

5.70

Bottom quartile

Post glide

1934 to 1938

10.32

Bottom quartile

5.59

Bottom quartile

5.68

Bottom quartile

Post glide

1939 to 1943

10.23

Bottom quartile

5.45

Bottom quartile

5.62

Bottom quartile

Post glide

1944 to 1948

10.32

Bottom quartile

5.41

Bottom quartile

5.53

Bottom quartile

Post glide

1949 to 1953

10.61

Bottom quartile

5.50

Bottom quartile

5.77

Bottom quartile

Post glide

1954 to 1958

12.96

Bottom quartile

6.25

Bottom quartile

6.66

Bottom quartile

In glide

1959 to 1963

15.71

Below Median

6.95

Below Median

7.54

Below Median

In glide

1964 to 1968

19.01

Above Median

7.91

Above Median

8.62

Above Median

In glide

1969 to 1973

21.16

Above Median

8.45

Above Median

9.24

Top quartile

Pre glide

1974 to 1978

21.56

Above Median

8.61

Above Median

9.34

Top quartile

Pre glide

1979 to 1983

21.68

Top quartile

8.68

Above Median

9.40

Top quartile

Pre glide

1984 to 1988

21.65

Top quartile

8.72

Above Median

9.40

Top quartile

Pre glide

1989 to 1993

21.30

Above Median

8.58

Above Median

9.26

Top quartile

Pre glide

1994 to 1998

21.13

Above Median

8.54

Above Median

9.25

Top quartile

Pre glide

1999 to 2003

20.80

Above Median

8.32

Above Median

8.97

Top quartile

Pre glide

2004 to 2008

19.76

Above Median

 

 

 

 

Pre glide

 

Over all periods, the rank of the Mercer SmartPath net returns reduces from above median/top quartile to bottom quartile for the in glide and post glide cohorts. This is due to the nature of the de-risking strategy in the glidepath. The in glide and post glide cohorts have an increasingly reduced proportion of assets invested in growth type asset classes as members age, consistent with the primary focus on reducing downside risk for cohort members (see analysis of level of investment risk below).

In order to better help us determine whether in glide and post glide Mercer SmartPath cohorts are promoting members’ interests, we have considered net returns taking account of risk. For each post glide and in glide cohort, we have measured the level of investment risk based on the allocation to growth assets. We then combined the net returns with the level of investment risk to determine risk-adjusted net returns, which were then compared with all MySuper products4. Results from the comparative assessment are shown in the table below:

Lifecycle stage

1-year net return quartile

3-year  net return quartile

5-year  net return quartile

1929 to 1933

Above Median

Top quartile

Top quartile

1934 to 1938

Above Median

Above Median

Top quartile

1939 to 1943

Above Median

Below Median

Top quartile

1944 to 1948

Above Median

Below Median

Top quartile

1949 to 1953

Above Median

Above Median

Top quartile

1954 to 1958

Above Median

Above Median

Above Median

1959 to 1963

Above Median

Below Median

Above Median

1964 to 1968

Top quartile

Above Median

Above Median

 

The 1954 to 1958, 1959 to 1963 and 1964 to 1968 lifecycle stages make up 38% of Mercer SmartPath assets, and have delivered, on a risk-adjusted basis, above median to top quartile performance across all periods, with the exception of 1959 to 1963 over a three year period. The lifecycle stages in the range 1969 to 2008 make up the remaining 62% of Mercer SmartPath assets, and have delivered above median to top quartile performance across all periods. Overall when the performance of each lifecycle stage is weighted based on the value of assets, members’ financial interests are promoted.

Investment risk

Members’ financial interests are promoted.

Compared with other MySuper products the level of investment risk in Mercer SmartPath is below median to bottom quartile.

The level of investment risk for each lifecycle stage of Mercer SmartPath has been determined by estimating the number of negative net investment returns over a 20 year period. The results have then been ranked against all MySuper products.

Out of 398 MySuper products, Mercer SmartPath ranks5 as follows (with 1st representing the MySuper product with the highest level of investment risk):

  • Pre glide: 200th;
  • In glide: 200th – 288th; and
  • Post glide: 333rd – 372nd.

Overall, members’ financial interests are promoted as Mercer SmartPath does not expose members to significantly higher levels of investment risk when compared with all MySuper products.

Fees

Further improvement is required to ensure members’ financial interests are promoted. 

Fees for members who joined the Individual Section of Mercer SmartPath were ranked bottom quartile of all MySuper products at 30 June 2021.

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.

In addition, members who joined Mercer SmartPath via their employer often receive a discount due to their size and have fees that are lower than the standard fees.

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 top quartile or above median net returns or risk-adjusted net returns.

The net fees comparison also assumes that the options, benefits and facilities offered by all MySuper products is identical. We take the approach that member services and engagement are vitally important in the member superannuation and retirement journey and continue to offer an extensive list of options, benefits and facilities to our members. Nevertheless, we recognise that having higher fees than other MySuper products are only justifiable if they lead to better financial outcomes for members.

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 55 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 -106.

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:

  • 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 Act7 , we have 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 that the Death and TPD and IP offerings compared favourably with competitors. Furthermore our products were rated 5 out of 5 by Chant West9.

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 SmartPath 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 Mercer SmartPath 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 Mercer SmartPath 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 regularly assesses the appropriateness of the fees charged to Mercer SmartPath 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 SmartPath members..

 

1 1 SIS Act section 52 (9)

2 APRA Quarterly MySuper statistics September 2019 - September 2021

3 Mercer SmarthPath automatically reduces your exposure to growth assets as you get closer to retirement – we refer to this process as ‘gliding’.  Younger members who have not seen any reduction in growth assets are classed as ‘pre-glide’, members who have seen some reduction in growth assets are classed as “in glide” and members who have had their growth assets reduced to the minimum amount are classed as “post-glide”.

4 APRA Quarterly MySuper statistics: September 2019 - September 2021

5 Quarterly MySuper statistics: September 2019 - September 2021

6 Chant West Member Outcomes Dashboard 30 June 2021

7  The Evolved Group 2020

8 APRA Prudential Standard SPS 250 Insurance in Superannuation

9 Chant West Member Outcomes Dashboard 30 June 2021