Super choice is the wrong path, retail funds cannot control their costs enough to compete with not-for-profit funds and the industry needs to get a handle on longevity risk, according to an overseas academic.
"The local industry was too fixated on super choice," Maastricht University finance professor and European Centre for Corporate Engagement director Rob Bauer told a Centre for Investor Education event in Melbourne recently.
Bauer said funds should be designing better modularised default structures - not only for investment, but for drawdown.
In particular, he advocated the development of age-based or life-cycle fund structures. He said that would be a "much lower-cost way of organising superannuation than having every individual having financial planning advice", the source of the high cost structures of many retail funds.
He said good governance was the only way a fund could limit or minimise its agency costs. The board and executives of a superannuation scheme should act in the interests of the members, he said, but at a retail fund that was not easy because "you have shareholders and members fighting for their attention".
The Australian super industry focused too much on the wealth accumulation phase, he said, to the detriment of the payout stage.
He said board members and fund executives had a responsibility to look beyond investment to member communication and product development.
For a start, he said, what members really needed were 'smart' products that helped with the drawdown of funds and solved the problem of longevity risk, for example, annuities.
