Rice Warner has made several recommendations to the Your Future, Your Super package of reforms that the government and superannuation industry should not overlook.
Under the new stapling measure, Rice Warner has two areas of concern. The first is that employer schemes are potentially under threat.
Prior to industry funds and master trusts, most pensions were provided by employers as a staff benefit that were typically tailored to their demographic and subsidised fees and premiums, the submission document shows.
Such employer schemes "will be starved of new members and will inevitably dwindle", Rice Warner said, anticipating that most employers will over time will have little interest in their employees' super arrangements.
The second concern involves first-time entrants to the workforce and new immigrants.
Super funds will likely position themselves favourably to these potential members but will need to be careful they don't breach anti-hawking legislation. Rice Warner suggested trustees be exempt from such regulation given that the performance test will weed out underperformers with little risk that potential new members will end up in underperforming funds.
Rice Warner thinks the YourSuper comparison tool will not be able to accurately and equitably compare performance given its simple metric.
"Setting YourSuper in a ranking order will mean that most people using the comparator will pick the top-ranked fund. They will do this without any knowledge about the structure of the fund, nor its relevance to their own circumstances, nor the impact of administration fees on outcomes for the amounts which they will be investing," it said.
Consequently, the firm recommends that funds are grouped in blocks of five to avoid the idea that a fund appearing at the top is ranked the best. Performance results should also be over a seven and 10-year period as this is the industry norm.
In terms of the underperformance test, the proposed benchmark will miss the impact on member outcomes for asset allocation - usually the most important source of investment returns.
"It would also fail to measure methods of reducing risk other than asset allocation, for example hedging against tail risk within asset sleeves," Rice Warner said.
"Funds will know now whether they are going to fail the test in a year or two. Many will be unable to turn around their performance in this period without taking excessive risks. These funds could run campaigns to convert members into choice products that are very similar in structure to the MySuper product. This will mitigate the effectiveness of the legislation."
Alternatively, trustees can potentially establish and promote platforms for SMSFs, hence nudge members into products without performance measures.
Finally, the increased transparency and accountability measures can lead to potential inequity.
Retail funds with backing from a parent company with a strong capital position could be promoted without using member funds. Conversely, an industry fund can only use member funds for promotion (which might now be illegal in some cases).
"We have argued in the past that all funds should hold capital to support some activities (for example, inorganic growth) and recommend that this be considered as part of these changes," Rice Warner said.