Tailored MySuper products would lift retirement balances by 35%

It is inefficient and inappropriate for superannuation trustees to dump all their MySuper members in the same investment option when they could move disengaged member funds into tailored MySuper options, according to Tailored Superannuation Solutions (TSS).

A report by TSS and the Financial Services Council (FSC) found that tailored MySuper options would add $310 extra per year in each account, which was more than the average fees paid on a MySuper product.

Speaking at the launch of the report, TSS managing director and chief executive, Douglas Bucknall said: “So all of this argument about fees is completely outweighed by the benefits of tailoring investment options over time. Even if we could reduce fees between industry funds and retail funds by 20 per cent or 30 per cent it still wouldn’t come near the 110 per cent benefit tailoring can provide instead”.

Bucknall said trustees had been complacent and there had not been sufficient competition to push them into providing better investment options for disengaged members.

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“There’s got to be a more efficient way of doing that. And in fact, funds know that themselves because they tell their choice members to choose investment options based on their projected retirement outcome and based on how long it is until they retire,” he said.

TSS said the tailored approach could add $5 billion to super balances per year for 15 million MySuper accounts, and said this compared to the 2015/16 Age Pension cost of $44 billion and could significantly fill the impending retirement funding gap of $8.7 trillion over time.

It said it could improve MySuper inflation-adjusted returns by one per cent, and a 35 per cent improvement in retirement balances.

TSS also said the absence of competitive pressure in the default market allowed trustees to avoid considering which changes may be necessary to adopt to technological shifts that improved retirement outcomes for members.

“In this digital age, it’s no longer appropriate for MySuper trustees to just dump two 40-year-olds, one projected to retire on the Age Pension, the other with $1.6 million, in the same investment option for the next 25 years,” Bucknall said.

“Trustees tell their choice members to consider their investment horizon and projected retirement balance when selecting an investment option – but don’t follow their own advice when it comes to selecting an investment option on behalf of MySuper members.”

Bucknall noted that there had been some push back from trustees to move into a tailored solution.

“Some of the biggest funds have said ‘we don’t need to move because we’re going to win out of this consolidation, go and speak to our competitors’. Other funds have said ‘the biggest winner out of this is the Government, go and speak to the Government because ultimately it is the tax payers’, and other funds have said to us ‘why me first? This is new worldwide, why do we need to be the first people to move? What’s in it for me?’”