There has been a recent spate of feather ruffling directed at one area of superannuation not known for high levels of excitement. The area is MySuper and you can be forgiven for not knowing a lot about it.
So why all the noise? – simply, some changes are coming to upset a typically cushy segment of superannuates – namely the young ones – to help reduce the number of available ‘default’ funds down from around 110 to, wait for it, 10. Interestingly, the PC have a few views on the current situation:
The commission anticipates a backlash from the super industry in the draft report, saying the unanimous opposition of industry and retail super funds – which are normally at loggerheads – to “more-than-incremental reform” smacked of rent-seeking.
The report noted there was “near universal agreement among participants across all parts of the industry that [a tender process] would not be desirable.”
Some might say this could be fairly disruptive to the status quo, which currently enjoys a shared aggregate of nearly half a trillion dollars under management. The reasoning for the tinkering includes that the industry has had 5 years to adapt to the 2012 changes and instead of it becoming easier to select one, there are now more funds than you could shake a cattle prod at.
So why bother with new members? There are several reasons. Firstly, it’s a pretty plump patch to play in, with disinterested and unengaged investors that have 30+ years of mandated contributions ahead of them and the longest time horizon for withdrawal. Add to this the complete lack of inertia in changing funds for at least first decade, and the specter of being ‘locked’ in the fund if personal health changes and insurance becomes harder to get. The last point here is significant as insurers look to shore up rising claims through tighter definitions and blanket mental health exclusions.
Smarter funds have embraced the online engagement piece that is crucial for the segment, although it still has a fair way to go.
Of course, reducing the number of funds that can play in this space by 90% will create a pretty serious arms race amongst the big players, and it could be said this is happening already. Also here. You can bet that margins are going to need to be squeezed – a terrific outcome for customers – although I hope this doesn’t come at the expense of features and benefits for the end user. My guess is that in a few years the landscape will consist of big, cheap vanilla MySuper offerings that serve as a stock ramp feeder for more lucrative product suites.
Regardless it’s safe to say that if it all goes the way Karen Chester would like, this end of the market has been handed to the behemoths.
Tim Fuller is Head of Operations at the MB Fund launching in May 2017. Register your interest now (if you haven’t already):
- MB Fund Podcast: Coronavirus to kill Australian property (updated with podcast version) - July 3, 2020
- MB Fund Podcast: Is the recovery driven by Robinhood & Robots? With Kevin Muir (The Macro Tourist) – Updated with podcast audio - June 26, 2020
- MB Fund Podcast: Quantifying the Bubble (updated with podcast version) - June 19, 2020