Government proposes simplified MySuper account, leaves self-managed alone
But while the accounting industry has welcomed the review's support of the current self-managed super system, a spokesperson for CPA Australia says it is offering "cautious support" for the MySuper option.
The new MySuper account would be available to all employees as a low-cost fund, based on the current default option offered by other super funds.
The review suggests the default fund is needed because Australian workers don't necessarily have access to easily understandable super accounts, and the information that goes along with them.
Additionally, the report also suggests a number of recommendations to improve back-office super procedures, in a package of reforms called SuperStream. The review suggests these are in "urgent need" of an upgrade.
The report suggests that the MySuper and SuperStream schemes will save about $1.55 billion annually, in the short-term, and about $2.7 billion in the long-term.
Financial services minister Chris Bowen said in a statement that the MySuper and SuperStream initiatives which could lower fees for a typical superannuation member by 40%, lifting their retirement savings by $40,000.
As part of the reasoning for introducing a default super fund, the report highlights a number of issues challenging the current superannuation scheme, and issues that will affect its ongoing viability.
These include the fact funds will much larger, asset-based fees will continue to grow, member account balances will be larger and the overall super scheme will play an increasingly more important role in the county's economy.
The report says that MySuper is a "simple, well-designed product suitable for the majority of members."
"The MySuper concept is aimed at lowering overall costs while maintaining a competitive market‐based, private sector infrastructure for super."
"The concept draws on and enhances an existing and well‐known product (the default investment option). MySuper takes this product, simplifies it, adds scale, transparency and comparability, all aimed at achieving better member outcomes."
It also suggests competition among existing super funds hasn't delivered a solid option for the average consumer. A lack of price awareness, lack of interest and the overall complexity of the super industry are some challenges.
"The MySuper component of the choice architecture model aims to provide a simple, cost-effective product with a single, diversified portfolio of investments for the vast majority of Australian workers (roughly 80% of members) who are in the default option in their current fund."
"MySuper is designed with two large groups of members in mind: those who take no real interest in their super (at least not initially) and those who choose to be in a large, low‐cost and well‐managed product where the investment strategy is designed and implemented by the trustee."
The report says the MySuper offering is designed to "sit within" the existing superannuation structure.
But while CPA Australia senior super policy adviser Michael Davison says the idea of a default option is an attractive one, his organisation has only offered "cautious support" initially.
"Some of the principles are very sound, in order to make sure the bulk of consumers have simple, easy to understand super. But we believe that's already provided by a lot of funds out there."
Nevertheless, Davison says the report's relatively quiet stance on self-managed super funds is a testament to their strength.
"It's basically saying our managed funds are well run, people have a reasonably good level of knowledge when running them and they have an important place in the landscape. We think it's very positive for self-managed funds, considering the negative press they've had over the past few years."
The report states that "the SMSF sector is largely a successful and well‐functioning part of the system".
Financial services minister Chris Bowen said in a statement today the Government will work with the super industry as it considers some of the review's recommendations.
"The Government looks forward to working with the superannuation industry as it considers the recommendations and commends the industry on the interest it has shown in the review process to date," Bowen said.
"A considerable amount of consultation went into the preparation of the report, as demonstrated by over 450 formal submissions. The Government will now consider the final recommendations of the report before providing its response and looks forward to consulting the industry on the key proposals."
The review also recommends a number of measures in:
- Improving trustee governance
- Investment governance
- Outcomes transparency
- Super insurance
- System integrity
- Retirement issues
- Self-managed super regulatory improvements
- Regulatory settings.