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Article
Publication date: 14 November 2016

Yen Hoang Bui, Delpachitra Sarath and Abdullahi D. Ahmed

The purpose of this paper is to measure efficiency of superannuation funds using data envelopment analysis (DEA), using data related to financial performance of…

Abstract

Purpose

The purpose of this paper is to measure efficiency of superannuation funds using data envelopment analysis (DEA), using data related to financial performance of superannuation funds. The sample comprises 183 superannuation funds covering approximately 79 per cent of the 231 largest Australian Prudential Regulation Authority (APRA)-regulated funds in 2012. The research covers a period of seven years from 2005 to 2012. The results indicate that most Australian superannuation funds are inefficient relative to the benchmark efficiency frontier based on efficient funds. The findings emphasise the importance of improving the efficiency of Australian superannuation funds by reducing overall fund expenses to narrow the gap in performance between efficient and inefficient funds.

Design/methodology/approach

This study aims to contribute to policy, theory and practice in several dimensions. Member protection and the efficiency of the superannuation system are topical issues (Donald, 2009). Despite its importance from a regulatory point of view, efficiency has only been discussed in relation to operational issues such as managing agency relationships, fees and charges, investment return or economies of scale. The relative efficiency of the Australian superannuation system from an economic productivity perspective has rarely been examined, except for a study by Njie (2006), where the Malmquist productivity DEA technique was used to measure the efficiency of Australia’s retirement income system.

Findings

Most inefficient funds had very low efficiency scores and were fell into the lower quintiles such as Quintiles 4 (scored 0.200-0.399) and 5 (scored 0.001-0.199). Consequently, input reduction targets were significantly higher for these two quintiles. Similarly, input reduction targets were high under the period DEA estimates. In order to be comparatively efficient, Quintile 4 funds were required to reduce total expenses by 75 per cent (−0.754) and volatility of return by 80 per cent (−0.801). Similarly, Quintile 5 funds needed to reduce total expenses by, on average, 83 per cent (−0.824) and volatility of return by 89 per cent (−0.894).

Research limitations/implications

As in other empirical research, this study also depended heavily on the data collected from the secondary sources such as APRA database and other financial reports. The issues of measurement errors in data sources such as APRA database are well documented (see, e.g. Cummins, 2012). This issue needs the attention of future research on the efficiency of superannuation funds.

Practical implications

The findings on individual year DEA estimates indicate that most funds were inefficient due to high expenses. Therefore, mandatory disclosure of fees and charges in a comparable manner may be necessary to justify fee payments and to address transparency and accountability issues, which are critical issues identified by the Cooper Review and the academic literature (Australian Government, 2014; Cooper et al., 2010; Gallery and Gallery, 2006).

Social implications

The issue of Australian superannuation funds concentrating the majority of fund assets in highly volatile investment vehicles such as the share markets has been in the spotlight in the aftermath of the global financial crisis. There have been proposals to better diversify superannuation assets in other asset classes (Cooper et al., 2010).

Originality/value

This study contributes to the current literature on superannuation funds by investigating efficiency. As efficiency studies using DEA have not been conducted on the Australian superannuation industry, this study also contributes to the academic literature on DEA and its extensive applications to various economic sectors. Efficiency scores using DEA, ranking, trends and shifts in the efficiency frontiers could be obtained for Australian superannuation funds on an on-going or annual basis.

Details

Journal of Economic Studies, vol. 43 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 2 March 2015

Laura de Zwaan, Mark Brimble and Jenny Stewart

Environmental, social and governance (ESG) risks have the potential to negatively impact financial returns, yet few superannuation funds integrate these considerations…

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Abstract

Purpose

Environmental, social and governance (ESG) risks have the potential to negatively impact financial returns, yet few superannuation funds integrate these considerations into their investment selection. The Cooper Review (2010) identified a lack of member demand as a key impediment to ESG investing by superannuation funds. Given this problem, the aim of this study is to explore superannuation fund members’ perceptions of ESG investing by their funds in order to identify reasons for the lack of demand.

Design/methodology/approach

An on-line survey was developed and distributed to assess possible reasons why members do not select ESG investment options. In total, 549 Australian superannuation fund members responded to the survey.

Findings

Results indicate that the majority of superannuation fund members are interested in ESG investing. Members lack awareness of their fund’s approach to ESG investing, and they do not perceive there to be a financial penalty from ESG investing. Finally, members show a preference for consideration of governance issues over both social and environmental issues.

Research limitations/implications

Respondents are well educated and the majority did not choose their superannuation fund. There was no measure of financial literacy included in the research instrument. There is also a general limitation in surveying superannuation fund members when they lack knowledge about superannuation.

Practical implications

The results indicate that superannuation members are interested in both superannuation and ESG investing. Given the low take-up of ESG investment options, this finding raises the question of how effectively funds are engaging their members.

Social implications

The results should be of interest to superannuation funds and may lead to renewed interest in promoting ESG products.

Originality/value

This is the first study to examine superannuation members’ attitudes and behaviours towards ESG investing in the context of superannuation. The study also adds to our understanding of member decision-making in the $1.8 trillion superannuation industry.

Details

Sustainability Accounting, Management and Policy Journal, vol. 6 no. 1
Type: Research Article
ISSN: 2040-8021

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Article
Publication date: 12 June 2017

Bernard Mees

The purpose of this paper is to analyse the emergence of organizational isomorphism in the industry superannuation sector in Australia. The largest not-for-profit private…

Abstract

Purpose

The purpose of this paper is to analyse the emergence of organizational isomorphism in the industry superannuation sector in Australia. The largest not-for-profit private businesses in the country, the industry funds were created in the 1980s in light of a broader union campaign to extend occupational retirement savings provision to all employees in Australia.

Design/methodology/approach

The emergence of organizational isomorphism among the industry funds is assessed from the perspective of institutional theory. The study is based on interviews with key players in the establishment of the industry superannuation sector, original archival research as well as contemporary public commentaries and more recent historical assessments.

Findings

The tripartite framework of institutional isomorphism established by DiMaggio and Powell is unable to explain the emergence of the widespread organizational isomorphism found in industry superannuation. Using the more recent notion of institutional logics allows a more satisfactory explanation for the convergence in models of retirement-savings provision in the industry superannuation sector.

Originality/value

Organizational isomorphism cannot be described simply in terms of a tripartite framework of professional normativity, state coercion and market-based mimesis. Alternatively governed organizations such as those created by trade unions may develop in a different manner than social enterprises founded by less powerful social actors.

Details

Journal of Management History, vol. 23 no. 3
Type: Research Article
ISSN: 1751-1348

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Article
Publication date: 1 July 1993

Kirk Mann

At a time when the future of the British state pension is being debated events in Australia provide an interesting example of an alternative approach. This article…

Abstract

At a time when the future of the British state pension is being debated events in Australia provide an interesting example of an alternative approach. This article examines the introduction in Australia of the 1992 Superannuation Guarantee Charge Bills (SGC). The article considers the key debates which accompanied the SGC along with the role of the Australian Council of Trade Unions (ACTU), the poverty lobby and employer organisations in the reform process. The Australian model can not simply be transposed to the UK but the politics of reform in this case illustrate the issues of equity, exclusion and social division that are likely to arise.

Details

International Journal of Sociology and Social Policy, vol. 13 no. 7
Type: Research Article
ISSN: 0144-333X

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Article
Publication date: 4 July 2016

Wejendra Reddy

Property is a key investment asset class that offers considerable benefits in a mixed-asset portfolio. Previous studies have concluded that property allocation should be…

Abstract

Purpose

Property is a key investment asset class that offers considerable benefits in a mixed-asset portfolio. Previous studies have concluded that property allocation should be within the 10-30 per cent range. However, there seems to be wide variation in theory and practice. Historical Australian superannuation data shows that the level of allocation to property asset class in institutional portfolios has remained constant in recent decades, restricted at 10 per cent or lower. This is seen by many in the property profession as a subjective measure and needs further investigation. The purpose of this paper is to compare the performance of the AU$431 billion industry superannuation funds’ strategic balanced portfolio against ten different passive and active investment strategies.

Design/methodology/approach

The analysis used 20 years (1995-2015) of quarterly data covering seven benchmark asset classes, namely: Australian equities, international equities, Australian fixed income, international fixed income, property, cash and alternatives. The 11 different asset allocation models are constructed within the modern portfolio theory framework utilising Australian ten-year bonds as the risk free rate. The Sharpe ratio is used as the key risk-adjusted return performance measure.

Findings

The ten different asset allocation models perform as well as the industry fund strategic approach. The empirical results show that there is scope to increase the property allocation level from its current 10-23 per cent. Upon excluding unconstrained strategies, the recommended allocation to property for industry funds is 19 per cent (12 per cent direct and 7 per cent listed). This high allocation is backed by improved risk-adjusted return performance.

Research limitations/implications

The constrained optimal, tactical and dynamic models are limited to asset weight, no short selling and turnover parameters. Other institutional constraints that can be added to the portfolio optimisation problem include transaction costs, taxation, liquidity and tracking error constraints.

Practical implications

The 11 different asset allocation models developed to evaluate the property allocation component in industry superannuation funds portfolio will attract fund managers to explore alternative strategies (passive and active) where risk-adjusted returns can be improved, compared to the common strategic approach with increased allocation to property assets.

Originality/value

The research presents a unique perspective of investigating the optimal allocation to property assets within the context of active investment strategies, such as tactical and dynamic models, whereas previous studies have focused mainly on passive investment strategies. The investigation of these models effectively contributes to the transfer of broader finance and investment market theories and practice to the property discipline.

Details

Journal of Property Investment & Finance, vol. 34 no. 4
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 3 July 2017

Scott Niblock, Elisabeth Sinnewe and Panha Heng

The purpose of this paper is to showcase empirical findings in the literature relating to Australian superannuation fund performance in the pre-reform period, from 2000 to 2014.

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1191

Abstract

Purpose

The purpose of this paper is to showcase empirical findings in the literature relating to Australian superannuation fund performance in the pre-reform period, from 2000 to 2014.

Design/methodology/approach

The authors synthesize Australian superannuation performance studies in an attempt to identify empirical approaches employed in the academic literature, showcase findings and uncover themes for future research.

Findings

The review highlights the following findings in the literature: actively managed “retail” superannuation funds appear to underperform passive index and/or portfolio approaches; high management fees and preference for liquid, less growth-orientated assets may be further undermining performance. It also reveals the need for future research to assess whether the recent government inquiries and the related reformative measures have achieved the desired effect of improving the Australian superannuation system. The authors therefore identify three areas of investigation that will cater for this research need: the fund performance of not-for-profit fund and self-managed super fund; the efficiency of super funds; and the appropriateness of wholesale fund benchmarks.

Originality value

It is expected that superannuation fund performance will be subject to heightened scrutiny to assess the effectiveness of recent legislative changes resulting from the Stronger Super reform and other public inquiries. This study provides a timely, substantive and informative review of empirical findings pertaining to Australian superannuation performance in the pre-reform period to assist researchers looking to conduct further empirical research on this topic.

Details

Accounting Research Journal, vol. 30 no. 2
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 1 July 2006

Gerry Gallery and Natalie Gallery

The recent decline in funding levels of defined benefit pension plans (DBPs) has attracted the attention of regulators in Australia and other jurisdictions. In light of…

Abstract

The recent decline in funding levels of defined benefit pension plans (DBPs) has attracted the attention of regulators in Australia and other jurisdictions. In light of such scrutiny, this study provides timely empirical evidence of the economic and regulatory implications of the recent change in the financial position of DBPs sponsored by Australian listed companies. We identify that over the four‐year period from 2000 to 2003 the frequencies of both accrued benefits deficits and vested benefits deficits increased sharply after 2001. Coinciding with the increased incidence of deficits, the time lag in measuring accrued and vested benefits declined significantly. Controlling for firms taking contribution holidays, we find that the market prices vested benefits surpluses and deficits, and accrued benefits deficits, but not accrued benefits surpluses. This asymmetric treatment of firms’ superannuation funding positions is consistent with accounting conservatism theories and, as a consequence, has implications for recent adoption of IFRS accounting standards requiring Australian companies to recognise both accrued benefits surpluses and deficits.

Details

Pacific Accounting Review, vol. 18 no. 2
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 2 August 2013

Wejendra Reddy, David Higgins, Mark Wist and John Garimort

To achieve long‐term performance, superannuation balanced funds typically invest in a range of defined asset classes based on a strategic asset allocation approach. In an…

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1790

Abstract

Purpose

To achieve long‐term performance, superannuation balanced funds typically invest in a range of defined asset classes based on a strategic asset allocation approach. In an Australian context, the purpose of this paper is to examine the performance of the balanced investment option against eight different investment strategies and how the property allocation changes with different asset allocation models.

Design/methodology/approach

The analysis is based on ex post data covering 17 years (1995 to 2011). The selected passive and active allocation models are set within the modern portfolio theory framework utilising Australian ten year bonds as the risk free rate. The Sharpe ratio is used as the key risk‐adjusted return performance measure.

Findings

Property provided the second highest risk adjusted return profile behind the alternative asset class. The different asset allocation models perform as well as the conventional strategic approach and in many instances property allocation is found to be under‐allocated on a return optimisation basis. Depending on the asset allocation model, property when included within a multi‐asset portfolio improves the portfolio risk‐adjusted return profile by 2 per cent to 28 per cent.

Practical implications

For an Australian superannuation balanced fund, the empirical results show that there is scope to increase the property allocation level from current 10 per cent to 23 per cent. This knowledge will be beneficial for funds currently re‐profiling investment portfolios to achieve stable risk‐adjusted returns.

Originality/value

The research contributes to both practical and academic fields, as it offers a methodological approach on how allocation to property assets can be improved using a series of passive and active asset allocation strategies.

Details

Journal of Property Investment & Finance, vol. 31 no. 5
Type: Research Article
ISSN: 1463-578X

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Book part
Publication date: 21 October 2013

Suzanne Young

Purpose – The purpose of this chapter is to explore the role and influence of Australian institutional investors in Australian company decision-making…

Abstract

Purpose – The purpose of this chapter is to explore the role and influence of Australian institutional investors in Australian company decision-making and performance; and in particular their role in monitoring companies’ ESG performance.

Approach – The research uses interviews of a range of key executives in Australian companies and other bodies. Interviews were conducted in 2007–2008, 2009, and 2010 totaling 18 in number.

Findings – The data finds that institutional investors priortise engagement rather than exiting the market and this engagement tends to occur through discussion, behind-the-scenes, and covertly. This engagement is primarily focused on governance issues such as succession planning and remuneration, secondly on environmental considerations and thirdly on occupational, health, and safety (O, H, & S). There is evidence of engagement with supply chain issues which signals the importance of social risks becoming more important.

Research implications – From this work further research is highlighted, namely to conduct through qualitative methods a broader survey of the range of Australian institutional investors and companies to investigate the range of factors that investors take into account, their methods of engagement and the effect on company decision-making and ESG performance.

Value – The chapter concludes that the power of institutional investors is recognized and the evidence presented here points to scope for investors through their fund managers and their own actions to be more active and in the future to use their power in a more transparent manner.

Details

Institutional Investors’ Power to Change Corporate Behavior: International Perspectives
Type: Book
ISBN: 978-1-78190-771-9

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Article
Publication date: 15 May 2017

Janice Redmond, Elizabeth Anne Walker and Jacquie Hutchinson

Becoming self-employed has appeal to both genders. For many women, balancing work and family is a key motivator. However, businesses owned and operated by women are often…

Abstract

Purpose

Becoming self-employed has appeal to both genders. For many women, balancing work and family is a key motivator. However, businesses owned and operated by women are often very small, with limited turnover. This potentially can have disastrous consequences when these women come to retire, unless a solid retirement savings strategy has been considered. The purpose of this paper is to outline many of the issues and implications of a lack of research in this area.

Design/methodology/approach

Data were collected from 201 small business owners via a convenience sample derived from various databases. The survey was completed on-line and analysed using SPSS.

Findings

Many self-employed women in Australia have neither enough savings for their retirement, or an actual retirement plan. This is exacerbated by the lack of regulation requiring mandatory contributions into a superannuation (personal pension) fund by small business owners, unlike pay as you go employees, whose employers must contribute a certain about on their behalf.

Social implications

Middle-to-older aged women are the biggest cohort of homeless people in Australia. This is likely to grow as self-employed Baby Boomers stop working and find they do not have sufficient personal financial resources to fund their retirement.

Originality/value

Whereas there is much written about gender and small business ownership, as well as retirement and savings planning, these two areas have not been researched before in Australia. Yet it is an issue for the majority of small business owners, particularly women.

Details

Equality, Diversity and Inclusion: An International Journal, vol. 36 no. 4
Type: Research Article
ISSN: 2040-7149

Keywords

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