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Industry needs to help form suitable MySuper model
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| Geoff Peck
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The superannuation industry needs to communicate with the Government on how MySuper will be implemented, otherwise it risks ending up with a model that is not ideal for either trustees or members.
With the introduction of MySuper, which is perceived as being the option for members who are completely disengaged, trustees may end up effectively dividing their memberships into those who are and those are not engaged with their super. It could also result in less engaged members effectively delegating responsibility for their super to trustees.
That raised questions regarding the Cooper Review’s recommendation for trustees to manage MySuper members’ investment risk “safely”, according to Geoff Peck, managing director of government and institutions at Russell Investments.
Peck said a current default fund would often be allocated around 70/30 to growth assets, which may not be suitable for a retiree, who has a greater need of capital preservation and regular income.
Currently trustees are able to mail information to members, who have the responsibility of changing their investment options when required, but the new arrangements could see more responsibility placed on trustees and could potentially lead to the use of products such as lifecycle investment strategies in MySuper funds, Peck said.
“Most super funds run as a series of investment options measured against benchmarks, they are not specifically set up where performance is measured against individual retirement outcomes,” he said.
Peck also questioned what other relevant personal factors aside from age could be known to trustees and could be used to make investment decisions on behalf of members. He then asked whether trustees would be obligated to take these factors into account as well.
While it was still too early to tell what form MySuper would take if it was implemented, Peck said he was trying to highlight some of the issues that could become a concern without sensible regulations and framework.
“The industry needs to engage with the Government around the next phase if the Government decides to support the Cooper regulations,” Peck said.
“We need to understand their intent and be prepared to engage with them if they support the recommendations. You need to consider the potential pitfalls when you create changes on this scale.”
AUTHOR
Mike Taylor
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