title: Superannuation Governance and Fees
Creators: name: Hodgson, Leeanne
Publisher: name: Griffith University
Year: 2022
Subjects: subject: governance
subject: superannuation
subject: fees

description: Recent reforms recommended in the Cooper Review (2010) and later in the Murray Financial Systems Inquiry (2014) have endeavoured to ensure that the superannuation system that exists for its members operates in the most cost-effective manner and in the best interests of its members. The Cooper Review in 2010 made a series of recommendations to improve governance practices in a bid to reduce superannuation fund fees. Since then, limited investigation has been conducted to determine how governance could be enhanced to mitigate the huge fees burden in superannuation funds. Research conducted by Tan and Cam (2015) examined the impact of fees in industry and public service funds, whereas Liu (2014) focused on the impact on outsourcing fees in all superannuation funds and Yang (2019) examined the impact of fees and performance, and pay–performance links, for chief investment officers for all retail and industry funds. This research aims to extend the frontier of knowledge and update the literature on Tan and Cam’s (2015) and Yang’s findings (2019) by examining the impact of governance on fees in the Top 100 Australian superannuation funds as of 2018 for the period from 2014 to 2018. It provides further insights into the reactions of the governance variables on superannuation fund fees in different contexts as opposed to the extant literature. The concept of the principal-Agent problem in superannuation funds have also been tested for its impact on fees. To be able to better inform the body of literature on this subject, three empirical studies have been conducted as part of this research. The first study extends Tan and Cam (2015) by examining several new governance variables in light of the recommendations for improved governance made by Cooper (2010) and their impact on fees. This upholds one of the recommendations made in the Cooper Review (2010) that there should be more women on the boards of superannuation funds, which is investigated in the second study for its impact on fees. The third study examines whether independence of boards, which is one of the most significant controversial recommendations to emerge from the Cooper Review (2010), impacts fees. The findings of the research suggest mixed results in Study 1, similar to the results in prior literature. There was some evidence in all superannuation funds and industry and public service funds that stronger governance does increase fees when more committees are introduced and the number of directors on these committees increases. There was no support for the hypothesis regarding expertise of directors increasing fees. In Study 2, the results supported the hypothesis that women on boards would reduce fees for industry and public service funds only, when the time factor is not considered. There was support for the hypothesis that women directors with government associations would reduce fees in all types of funds when time was not considered. There was no support for the expertise of women directors increasing fees, with the results often showing a negative impact on fees in both the OLS and panel regressions. The hypothesis that women directors with political associations would have no impact on fees was only supported in all superannuation funds and industry and public service funds in the panel regressions only. In Study 3, the hypothesis that independence of directors reduced fees was supported for all superannuation funds pooled together when time is not considered, and for non-industry and non-public service funds in both the OLS and panel regressions. There was support for independent directors’ expertise increasing fees for all types of funds when time is not considered and for industry and public service funds only in the panel regressions. Conflicts to independence represented by government associations confirmed the hypothesis that fees reduced when considering all superannuation funds together and industry and public service funds separately. The hypothesis that directors with political associations have no impact on fees was not proven for all funds in the OLS regressions but was accepted in the panel regressions for all superannuation funds when pooled together and for non-industry and non-public service funds. The thesis contributes to the body of literature on the governance of superannuation funds in several ways. First, it has updated the findings of Tan and Cam (2015) by reinvestigating the variables in a different context and extended this literature by investigating new variables not considered by extant studies on the governance of superannuation funds and the impact on fees. Second, the thesis addresses the recommendations of governance reforms introduced after the Cooper Review (2010) in all types of superannuation funds and increases our understanding of the effectiveness of these recommendations on the different categories of fees. Of particular interest was the introduction of the MySuper default strategy that came into effect on 1 July 2013 with the expectation of reducing fees. During the period 2014–18, the results showed a positive impact of MySuper on fees, which is likely due to implementation costs being absorbed into fees during this period. The research findings also provide further understanding of how principal and agent problems impact the different fees when more governance is introduced in funds. The contributions of this study have important implications for policymakers and regulators, the government, and professional practitioners. This study also has limitations in that it only analyses the Top 100 superannuation funds, and different governance practices may apply for smaller superannuation funds. The lack of disclosure and transparency of governance information causes challenges for regulatory bodies, members and researchers in gaining a full understanding of how superannuation funds are being managed.