Fundamentals drive third generation master trusts
Longer term benefits will drive superannuation growth, not tax breaks, AXA New Zealand chief executive Ross McEwan says.
Tuesday, May 2nd 2000, 12:00AM
Fundamentals drive third generation master trusts>
While the Government's tax break for high earners will clearly benefit the superannuation business, longer term growth will be driven by the underlying advantages of third generation master trusts such as the recently launched AXA Business Superannuation.
"We’re expecting renewed interest in business superannuation based on tax management as people react to higher marginal rates on incomes above $60,000," says AXA New Zealand chief executive Ross McEwan.
"But it won’t be a primary driver in the longer run. Given the 5 per cent penalty on making early withdrawals from employers contributions, it is likely that ‘tactical’ streaming of income through employer super schemes will be relatively limited."
That’s largely because people looking for longer term retirement savings options regard tax efficiency as just one of a mix of factors to consider in meeting their needs.
Of more fundamental importance are scheme design issues. These include the flexibility of investment options, the line up of investment managers, and the ability to access fund and investment asset manager options easily.
The quality and cost employee group insurance opportunities, offered as part of the package, are also important for people looking for a genuine long-term retirement savings and protection solution.
"With the arrival of third generation superannuation master trusts, employers and employees can create packages which suit individual circumstances," McEwan says.
As a third generation master trust, AXA New Zealand’s recently launched AXA Business Superannuation provides a wide range of investment options and asset manager choice.
Investors can select from ready-made risk-graduated portfolios. Or, they can take a building block approach and invest in a broad range of asset classes and investment asset managers. AXA Business Superannuation offers 28 investment options and 12 leading investment asset managers.
Meanwhile, investors can move their contributions around and mix and match investment options and fund managers.
"Real choice and flexibility is what the business superannuation market has been seeking for some time. Lack of this has inhibited customer appeal and growth of the master trust market," McEwan says.
Latest Government Actuary figures show that stand-alone employer super schemes declined in number by 58 per cent between 1990-1998, from 2,242 to 943.
AXA New Zealand expects this trend to accelerate now that employers can replicate – and in fact go way beyond – the degree of choice created for them by the asset consultants who designed their current or former stand-alone schemes.
"Now they can, while enjoying the added benefits of professional administration and trustee services, also offer employees a menu of choice from today’s sophisticated range of fund and asset management options," McEwan says.
It’s an option that AXA New Zealand sees employers taking in increasing numbers. The company projects last year’s 22 per cent growth in the master trust market will be roughly maintained over the next three years. Demand will also push funds under management in master trusts from today’s $2 billion to at least $3.2 billion by 2003.
AXA New Zealand’s confidence stems both from the longer term trends evident in the employer superannuation market and the way in which it has worked with the market’s advisers to put its master trust together.
"Asset consultants and financial planners work directly with employers. They are the key influencers. They advise employers about which features to look for and which schemes to invest in.
"So we asked them the same questions and built our business superannuation package around the answers. It came down to providing a wide range of quality funds and quality investment asset managers. And to giving investors the flexibility to sit back and watch their savings grow in a managed portfolio, or to get actively involved through exercising choice over where their savings are invested, and who manages them.
"We believe AXA Business Superannuation offers the perfect balance between flexibility and user," McEwan says.
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