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.
“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.”
There is a need for Australia’s superannuation funds to simplify their investment menus, according to the firm, given over a third of funds have more than 30 options, of which one or more are “arguably subscale”.
The research house is set to offer research ratings of superannuation funds for the first time amid growing demand from financial advisers.
Treasury is calling for submissions on its draft regulations in relation to the calculation of the proposed Division 296 tax.
Initially intended to offer a “simple, cost-effective” option for Aussies invested in default fund options, a super consultant has weighed in on what the scheme has actually done for members.
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