The 2019–20 year presented exceptional challenges to Australia – from widespread severe drought, destructive bushfires and then COVID-19. In addition, significant global geopolitical events happened including Brexit and the US-China trade war.
All these had a significant impact on the economy, our business and investment markets during 2019–20.
Many legislative and regulatory changes were made or foreshadowed in 2019–20 that have impacted significantly or will impact significantly all superannuation funds – for example, Member Outcomes, Protecting Your Super, the Financial Accountability Regime and data management.
CSC responded to all of these challenges and we have improved the ways we engage with and provide services to our customers.
We continue to operate in an uncertain environment. Infections from the COVID-19 virus continue, our workplaces are forever different and markets still have challenges pricing risk; and none of that will change quickly.
COVID-19 has resulted in change for our customers, our business and our investments. The way we operate CSC – we have done this “remotely” for some considerable time – and “bringing the future forward” with greater digital interaction with our customers are just two examples of how things have changed. The extent of that change is unfinished work.
Our investment strategy has not changed through COVID-19 – it is based on securing adequate retirement outcomes for CSC customers. It retains a capital preservation bias (with a lower weighting to risk assets), and a focus on liquidity management.
Our customers want to understand how their superannuation is impacted by COVID-19. People are seeking information about the performance of their fund and are looking for advice on the steps they might take to minimise the impact on their super balances. Our staff have responded to these and other customer concerns and enquiries, while also prudently managing our investment portfolios in a way that builds and supports better retirement outcomes for our customers and their families.
It is important to note the superannuation sector has played a key role during this crisis. It has supported government policy decisions (such as Early Release of Superannuation) and continues to make major investments into the economy, such as infrastructure.
Investment market returns were robust over the first 8 months of the financial year. This was dramatically upended by the global COVID-19 pandemic which resulted in the shutdown of economies all over the world. Financial markets fell in value as a result of concerns about the impact on household incomes, potential corporate defaults and recession.
We were pro-actively reducing risk in February in response to the initial economic shutdown in China because we were concerned about the impact of that on global supply chains, given its central role in manufacturing. This helped us avoid 40% of the downside in equity markets through February and March.
Policymakers around the world responded with speed, delivering very material fiscal support to “fill in” income lost by households and businesses in the shutdowns. Monetary policy was also swift to respond and alleviate the loss of liquidity in panicked financial markets. As a result, we determined to reduce our underweight to risk assets and carefully move back to a neutral portfolio setting. This ensured that we captured a large proportion, though not all, of the rebound in markets catalysed by policy responses.
Although short-term one-year results have been negatively impacted by COVID-19, they have been small losses compared to those recorded in equity markets over the period.
And over the medium and long term, investment returns for the 3, 5, 7, 10 and 15 years to 30 June 2020 for the Default, Balanced and MySuper Balanced options of the various schemes have continued to exceed their objectives.
Table 1. Investment returns to 30 June 2020 for CSC’s Default, Balanced and MySuper Balanced scheme options
AUM $ billion
1 year %
3 years % p.a.
5 years % p.a.
7 years % p.a.
10 years % p.a.
15 years % p.a.
PSSap MySuper Balanced
ADF MySuper Balanced
Note: Performance is presented net of fees and taxes.
CSC’s primary investment objective is to maximise long-term real (that is, above inflation) returns for customers, with a target of 3.5% p.a. over rolling three-year periods for our Default, Balanced and MySuper Balanced options while keeping risk to an acceptable level (defined as a probability of loss in no more than three to four years out of 20). This investment objective is designed to provide adequacy in retirement for our average customer. ‘Adequacy’ is defined by the Australian Superannuation Fund Association (ASFA) as a ‘comfortable standard’, which accounts for postretirement cost-of-living adjustments.
Member Outcomes is a new regulatory initiative that came into operation on 1 January 2020. It is a significant change to the way superannuation funds manage their business: how they plan, monitor, assess and report on how fund monies are spent. It is one of the most important changes to superannuation in the past decade.
Superannuation trustees must demonstrate objectively and transparently that the members and business initiatives they pursue and deliver are meeting the best interests of their fund members and groups of members within their funds. This is referred to generally as “Member Outcomes”.
For us, Member Outcomes is about holding ourselves to account for our vision, our customer promise and our customer commitments.
We deliver customers outcomes through three core functions:
Providing adequate retirement savings
Enabling customers to make informed and engaged decisions.
Embedding ease, efficiency and effectiveness into our products and services.
CSC has identified five core business capabilities that support the core functions:
People and culture.
Corporate effectiveness and infrastructure.
There has been increasing focus on fees from regulators, rating houses, superannuation providers and customers over recent years. To date, it has been difficult to accurately compare funds as there have been significant variations in calculation methodologies to report returns and fees. Efforts to standardise how returns and fees are calculated and reported will start to be implemented from the 2020–21 financial year. Importantly, super funds with lower fees don’t necessarily offer the best value as the real cost to the customer may not be fully captured. For example, some funds used crediting rate reserves to pay expenses, and disclosure of some market transaction costs varies depending on how much of the fund is invested in unlisted assets.
Even when costs were calculated consistently, what ultimately matters is that CSC customers’ retirement savings are not vulnerable to the condition of markets at the time that they choose to retire, and that they are getting value for money – i.e. the costs incurred deliver benefits through more robust and sustainable wealth accumulation – so that they have sufficient income in retirement.
We invest in high-quality assets and strategies that we expect will assist the achievement of retirement goals, but this investment strategy comes at a cost. Examples of such assets include private infrastructure and property assets, where the costs of actively managing the asset are higher than generic exposures to very small shares in such assets through listed markets.
We believe net returns, taking into account risks incurred in investing customers’ savings, is the most appropriate measure of success.
FAR (Financial Accountability Regime)
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry made numerous recommendations aimed at increasing transparency and accountability in the banking and superannuation sector.
One of the more significant recommendations was for the existing Banking Executive Accountability Regime (BEAR) to be extended to all APRA-regulated entities, including superannuation funds. The new industry-wide program is called the Financial Accountability Regime (FAR), and whilst CSC is supportive of its intent, it may lead to some unintended consequences. The primary of these is the impact onerous personal accountabilities and severe penalties will have on attracting and retaining executives and non-executive Directors.
CSC is well progressed to implement the future obligations that will most likely be a part of FAR. We have used the BEAR regulations and obligations to start preparing for the implementation of FAR, which we expect will impose the following:
accountability map and accountability statement obligations
key personnel obligations
deferred remuneration obligations.
Protecting Your Super and Putting Members’ Interests First
On 1 July 2019 the Government’s Protecting Your Super (PYS) package was put into place. The purpose of the PYS legislation is to protect superannuation accounts from unnecessary erosion caused by insurance premiums and particular fees. CSC is supportive of the changes PYS has brought about, including:
the transfer of inactive superannuation accounts with balances under $6,000 to the Australian Taxation Office (ATO)
an annual cap of 3% of a customer’s account balance on investment and administration fees for all customer accounts with balances less than $6,000
the banning of exit fees
customer accounts with insurance and that are inactive for 16 months having their insurance cancelled, unless the customer requests for the insurance to be maintained.
CSC successfully made the necessary administrative and technical changes to ensure all elements of the PYS package were in place and ready by the 1 July 2019 start date.
In the lead-up to the PYS implementation we undertook an extensive communications campaign to all CSC customers that were to be potentially impacted by the changes, either through having their low-balance account transferred to the ATO or by having their insurance cancelled because of an inactive account.
In late 2019 legislation for the Putting Members’ Interests First (PMIF) package was passed by the Parliament. PMIF requires all superannuation funds to cease the provision of insurance to customer on an opt-out basis where:
the customer has an account balance below $6,000 (active low-balance accounts)
the customer is a new customer who is under the age of 25.
The PMIF reforms build on the PYS package and are intended to protect customers’ account balances from erosion from unwanted/not needed insurance cover.
Like we did for the PYS package, CSC successfully implemented the requirements of PMIF and communicated the changes to impacted customers.
ADF Super Choice
To make the process of transition out of the Australian Defence Force (ADF) simpler for our customers, during 2019 we proposed a change to ADF Super to enable those leaving the ADF to retain ADF Super as their superannuation fund of choice, post-service.
In early 2020 the changes were made, with the introduction of ‘ADF Super Choice’ for customers leaving the ADF, from early July 2020.
Those changes to ADF Super will allow veterans with at least 12 months’ continuous service to keep their ADF Super account for life.
Board Director and CEO changes
Sunil Kemppi left the CSC Board in November 2019 and on behalf of the CSC Directors I thank Sunil for his contribution. CSC directors Peggy O’Neal, Winsome Hall and Nadine Flood completed the legislated maximum of nine years continuous service as directors on 30 June 2020. Each has made a great contribution to CSC and I want to record my thanks for their efforts. Our customers are much the better for their work.
In February the CSC Board welcomed a new non-executive Director, Alistair Waters. Alistair is National President within the PSU Group of the Community and Public Sector Union (CPSU) and has held various governance, taxation and policy positions at the CPSU.
The Board also welcomed Melissa Donnelly as a non-executive Director in July 2020. Melissa is the National Secretary of the CPSU. In her time there she has occupied a range of roles, including leading the national political, industrial, research and legal team prior to joining the national Executive Committee in 2015.
On 1 July 2020 the number of Directors on the CSC Board reduced from eleven to nine.
CSC’s CEO, Peter Carrigy-Ryan retired in July 2020 following a long and distinguished career at CSC. CSC’s staff, the Board of CSC and I thank Peter for his extraordinary contribution to CSC. Peter’s leadership, his values, his command of complexity, and his total customer and member focus will be very much missed, and we wish him all the very best in his retirement.
In June this year, after a comprehensive recruitment process, the Board appointed Damian Hill as CSC’s new CEO. Damian took up the position in July this year. Damian has a proven track record, having performed successfully as the CEO of one of Australia’s largest superannuation funds, and has been a highly regarded and active participant in the industry over many years.
I would like to thank CSC’s staff and my fellow Directors for their commitment and effort during a year that has seen our organisation face many significant and unprecedented challenges.
Our commitment is to ensure that everything we do has a customer focus. Despite the challenges we encountered this year, CSC continued to deliver and improve the services our customers need; something of which I am very proud.
On behalf of all the staff at CSC I want to thank the thousands of frontline staff and volunteers – many of them customers of CSC – that stepped forward and supported Australia during the bushfire and COVID-19 crises.
Despite the challenging times we are all facing, we are committed to implementing our significant program of change, improving the way we deliver products and services to our customers.