Are new super funds ‘inefficient predators’?

Some new superannuation funds entering the market are actually “inefficient predators” which should be subject to an extension of the regulatory constraints which attach to the Stronger Super regime, according to actuarial research house, Rice Warner.

In a strongly-worded assessment of the new super funds entering the choice of fund market, Rice Warner said it believed it was time to consider extending part of the Stronger Super regime to Choice products, particularly elements such as the newly-slated “member outcomes test”.

A Rice Warner analysis of the new players entering the market in the context of default superannuation suggested many people being enticed into the new products were simply ill-informed.

“The increasing regulation and scrutiny of default superannuation has made Choice superannuation a more attractive target for businesses seeking to profit from superannuation through the provision of superannuation services, investments, administration and advice,” the analysis said.

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“Increasingly, Choice providers have engaged in aggressive marketing targeting those, typically younger, members with limited experience of making financial decisions. These members who may only engage with their superannuation briefly to make a Choice of fund or investment then forgo the protections afforded to them in MySuper.”

“There are many new funds (offered by a few trustees) who spend far more on recruiting members than delivering long-term value,” the Rice Warner analysis said and cited the example of a prominent new fund, as a warning of the potential dangers of Choice

It compared the new fund to Australia’s largest industry superannuation fund, AustralianSuper and concluded that people joining the new entity risked being left substantially worse off.

“So, what should be done to defend against these inefficient predators?” the Rice Warner analysis asked. “We believe it is time to consider extending parts of the Stronger Super regime to the Choice products, particularly elements like the newly slated ‘member outcomes test’. Increasing standards of Choice products and ensuring providers act in the best interests of members will ensure that the industry continues to deliver the performance of the past into the future.”