Choice of fund and choice of investment strategy have been widely heralded as a triumph for superannuation investors.
But so far members had made little use of their ability to choose, while they had been paying for the availability of this wide range of options, according to University of Technology adjunct professor at the Centre for Capital Market Dysfunctionality Jack Gray.
"Choice of fund has been an enormous cost to no benefit," Gray said at the IQPC Mergers and Acquisitions for Super Funds Conference last week.
"This enormous burden of cost to the members, of course, was precisely exercised by 1.5 per cent of the members. That is the bollocks of choice: 'We've got to have a choice.' No, you don't. Choice comes with enormous costs. It is not a free good and it is not necessarily better."
He argued members would be better off if there were fewer super funds, because most funds had similar ways of operating.
"There is overcapacity in the system. There has obviously been a dramatic reduction of funds in all sectors, particularly in the corporate sector," he said.
"The period from 2001 to 2006, the consolidation was going on [in] about 25 per cent [of the market]; quite a lot. It was driven by the regulatory [changes].
"In the next period, from 2006 to now, the consolidation has dropped to 16 per cent. In recent [times], it has dropped even more; it has been around 12 per cent and that is including a little bit of a kick from the Cooper report.
"But if you took 16 per cent and projected it out, there is still going to be 85 funds left in 2020. It doesn't make sense; they are not doing anything different."
He argued there was little evidence smaller funds had any advantages over larger ones, other than that their members might have an affinity with a certain industry or religious group.
"In superannuation you don't get specialisation. That is one of the reasons for being small: you get specialised. Superannuation is not like that," he said.
Gray also said the range of investment strategies that members could choose from - whether it be conservative, balanced or growth - detracted from making the system efficient.
"Then there is member investment choice, what a waste that is," he said.
"Not only is there the direct costs of having it there, there is also the indirect cost of all the time and effort having been taken away from where the bulk of the money is onto these auxiliary and margin funds."
He argued that members should not be asked to choose their own investment strategy, because the average member lacked the knowledge and interest to make such a choice.
"When even the experts struggle, it is a form of cruelty to expect the average person to be able to," he said.
"It would be more sensible to say 'we want you to choose your medical procedures', because at least there past performance is a reasonable indication for future performance."
He advocated the creation of an independent body that would oversee the superannuation industry and potentially force consolidation of funds.
"You need an independent superannuation authority. The authority should probably be in the Reserve Bank; one, because the Reserve Bank has maintained true independence, and two, because it attracts high-quality people," he said.
The establishment of an authority would be an important step in representing the interest of members, he said.
"The members don't get represented. At the moment, the unions get represented, the employers get represented, but the members don't get represented," he said.
