Consolidation hands MySuper to the behemoths

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):

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Tim Fuller

Head of Operations at Nucleus Wealth
Financial adviser seeking to make quality investment solutions more accessible to everyday Australians.
Tim Fuller

Comments

  1. >…. to help reduce the number of available ‘default’ funds down from around 110 to, wait for it, 10.

    Sooo… you’re telling me that now we have too much choice… too much competition. Seems to me that there are at 10 interested parties asking for this reduction, no?

  2. Hill Billy 55MEMBER

    Time to mandate the formation of Sovereign Wealth Funds for Australia on a State or, better and more efficiently, National level. We have one in the Future Fund, it should be open to all, and any new entrants (i.e., people with no previous Fund in place) should have accounts set up within the Future Fund with no other choice. Only the initial 3% has been forgone wages, so the furphy that its all “my money” can be debunked straight away.

    I would also mandate that the existing Super Funds be transferred to the Future Fund as a way of ensuing that we maximise the value to Australia of all superannuation. That’s probably taking it too far for the pollies, let alone the fundies, as it would give them both less to do.

  3. arescarti42MEMBER

    Any further word on the MB fund?

    I notice the launch date has been pushed back to may from April.

  4. ErmingtonPlumbingMEMBER

    Privatised pension scheme,…what a fucking scam!
    How we justify this theft of 100s of billions of dollars is beyond me.
    80-90% of the population are gona be worse of from this total Nation wide con job,…like life long sports betting where even the kids know the odds.
    Pathetic.
    Pensions should be payed by the state via the printing press,….like this UBI, silcone valley billionaire poster boy Elon Musk is on about.

    Of you wana save and be proudly “Independant” then do it yourself without the tax dodge.
    At current rates of return you could have 20% of your working lifes income “invested” and still be worse off on the stipend annuity they trickle feed you from 70!

    WAKE UP!!!!
    ITS A CON!!!

    • Public pension Ponzi schemes are dieing with an ageing population. Printing press to pay for it will lead to Zimbabwe although sounds like an nice easy idea.

      Public pensions were overcommitted and never going to work unless they generated very high low risk returns. The QE environment and low rates has caused unintended, or intended but a sacrifice, consequences to maintaining the public pensions.

      If you look globally, the Australian Super system is pretty good. It has been improving with fee compression and choice over time.

    • TailorTrashMEMBER

      Many things before we even meet the black swans on the river ahead …underfunded (particularly US) pension funds being a big one ..then student debt ( with no earning power to pay off ) and subprime auto loans ..but not to worry…..strayan houses will see us good in retirement…Bonza …….Maaaaaate !

  5. This is indeed a superb proposal, as far as clients are concerned.

    The weeding out of ‘marginal’ players … with emphasis on ‘players’, is hopefully to be achieved as well. ‘Players’ to my mind is the increasing amount of novices trying their hand, just ‘playing’ around with clients funds = they just not expert enough to manage money, although would attempt to mis-direct/- inform otherwise.

    arecarti42 …. the push back may be a sign of what I refer to above. MB is onto a very wrong direction, I believe, with attempts to introduce portfolio management – from a fundamental, basic-skill perspective. Also, they are coming in at the end of the sectoral growth phase, as these rationalisation proposals may indicate. Also, the equity bull market has just about 12 months to run, then it’s all over, for a long while, I believe.

    If one is concerned about returns only – that is,of hedge fund nature, which should be the ideal given equity/property markets peaking in 12/18 months, then the character of the MB fund strongly suggests it’s not the place to be … simple !!!

  6. The only way to get out of this successfully as a cuntry is to tax the people with money.

    • TailorTrashMEMBER

      …….and before you tax the people with the money …..determine how they got the money …….some worked for it …some did not ..
      …lets tax those that did not …..