The superannuation industry has not performed to the expectations of its members and the MySuper proposals are aimed to get funds back on the right track, according to Stronger Super Peak Consultative Group chair Paul Costello.
"We are all part of a system that has sub-optimally managed assets," Costello said yesterday at an Association of Superannuation Funds of Australia (ASFA) presentation.
"There needs to be a better discussion about the absolute level of risk taking."
He said funds should be measured by the Australian Prudential Regulation Authority (APRA) against a risk target as well as a performance target.
The return target should be an absolute long-term objective, in the form of a yet to be defined risk-adjusted return above inflation over a 10-year rolling period, rather than the short-term returns published in league tables on a monthly basis.
The risk target is also important because it will give funds an indication of how much risk they can take in achieving the performance objective.
"The trustee offering of MySuper should be required to set out what they determine an acceptable level of risk is and set out what they expect to be the risk-adjusted 10-year rolling return," Costello said.
He also said trustees should make better efforts in communicating the risks to their members and tell members what performance they could expect.
In addition, trustees should also have conversations with their members about how their risk appetite changes as their account balances grow and as members get closer to retirement.
"With a little bit of direction and clarity from the government, nothing too heavy-handed, we can deliver a world class DC (defined contribution) system," Costello said.
ASFA chief executive Pauline Vamos the Australian Prudential Regulation Authority, ASIC, the Financial Services Council and ASFA had written a joint paper that addressed how funds should measure risks.
"The work on risk has been done. We are just waiting for it to become public," she said.
Vamos, who is part of the consultative group, said Costello's criticism of the industry should be seen in the context of the fiduciary duty of trustees.
"Paul's message was that there hasn't been consistently good performance across the industry, particularly in terms of volatility. And as fiduciaries should you have limitations on risks?" she said.
The consultative group had its last meeting on 30 May and is now in the process of handing over its results to Treasury.
Costello said he expected to see MySuper legislation coming through in the second half of this year.
"The minister has made it clear he wants to move quickly on this," he said.
