Australia's largest superannuation fund is taking issue with the proposed stapling regulations, arguing that the model is backwards and will not protect members from being stuck in dud funds.
AustralianSuper chief executive Ian Silk shot down media speculation that the $203 billion super fund is advocating for a top 10 best-in-show MySuper list to be embedded in the pending Your Future Your Super bill.
He told yesterday's Senate Economics Legislation Committee discussing the new legislation that members must be protected from being stapled to underperforming funds. He is not confident that the bill is able to do so.
The problem with the model is that it operates in the reverse way that the Productivity Commission envisaged, he said.
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The Productivity Commission proposed a quality filter, which ultimately led to the top 10 best-in-show funds and got rid of poor-performing funds, and members therefore are only stapled to a set of high-performing funds. In Silk's mind, this is a "logical sequence".
The proposed bill does not follow this sequence, he said, adding that members may be stapled to a poor-performing fund - which in a sense is a "life sentence".
"This is because many are disengaged and won't engage with their super fund and appreciate the 'sentence' they receive until they retire to find that they have been in a poor-performing fund all that time," he said.
While a pool of 10 is a small number, Silk said getting rid of poor-performing funds so that members are stapled to high-performing funds is a critical improvement that would "do wonders for this bill and superannuation fund members".
Silk also argued for the inclusion of administration fees in the new benchmark tests.
In the October 2020 federal budget, Treasurer Josh Frydenberg introduced a test for MySuper. Such products that underperform their benchmark by 0.5 percentage points over an eight-year rolling period for two consecutive years will be barred from taking on new members. Critics in the industry pointed out why administration fees were excluded in accounting for total expenses.
Silk said: "Members are entitled to strong investment performance, but at the end of the day it is the net returns to members - that is, what they receive in their accounts after investment performance, fees and charges are all applied - that is most important to them."
He also called for all APRA-regulated superannuation products to be subject to performance benchmarking and the annual performance test - not just MySuper products.