Closed-end defined benefit (DB) funds could come under pressure from the MySuper requirements on efficiency, if they were to split out their accumulation section.
"I could envisage some situations where they choose not to go down the MySuper path, or to go down the track of a separate MySuper fund, and just leave the defined benefit section stand on its own," Towers Watson Australia managing director Andrew Boal told Investor Weekly.
"What happens in that situation is that that defined benefit section that is standalone could lose some of its own scale."
Most DB plans in Australia are hybrid funds and have an accumulation section and, therefore, they will have to face the question of whether to continue to run them together or split them out.
Splitting out the sections has benefits, because ultimately the DB scheme will be closed down, while DB funds are also likely to be exempt from the MySuper legislation.
But under the proposed legislation, trustees will be required to assess periodically whether their fund has sufficient scale to be cost effective for members.
Boal argued that it might be worth considering to continue running both DB sections and MySuper-compliant sections under the same plan in order to support the DB membership.
"Having a compliant fund might help to create some of those efficiencies for the defined benefit fund as well, whereas if it stands on its own, then it loses some of the scale advantages and that makes it a little bit more difficult to run off," he said.
DB funds were likely to be exempt from MySuper, because that model already had cost-effective regulations in place, he said.
"Defined benefit funds: essentially what happens there is that an actuary confirms that the defined benefit meets the superannuation guarantee commitment and it is regulated how that is achieved.
"You can't improve the cost effectiveness of the defined benefit model, because there is no cost that is explicitly deducted from [members]. It is all implicit in the formula and the formula is regulated."
Under this model, any additional costs, for example, costs associated with running a multitude of managers, would come at the expense of the employer or sponsor, he said.
However, for DB funds that are still open to new members, the impact of the MySuper legislation will be very different.
Education industry fund UniSuper is one of the few funds that still have an open DB plan, and it has more than 70,000 of its 470,000 members in its DB division.
The super fund argued that because the DB fund was the default fund, it would not have to move its members to a MySuper-compliant accumulation fund, and therefore changes would be minimal.
"UniSuper members who have chosen not to be in the defined benefit division will be considered to have made a choice, so they will not be transferred to a MySuper product unless they choose to do so," UniSuper chief executive Terry McCredden said.
New UniSuper members are automatically entered into the DB fund, but have 12 months to switch to an accumulation fund. If they do, they are considered to have made a choice.
"They have a choice of: 'no, thank you, I don't want that' and will go into Accumulation 2 and that is an elected choice, so it won't have to be a MySuper product," McCredden said.
But UniSuper is still planning to apply for a MySuper-compliant fund, because members have to work full-time to be eligible for the DB fund.
It plans to make changes to its Accumulation 1 product, which has more than 100,000 members in it, to make it fit with the MySuper legislation.
"For casuals, annual contracts, short-term contracts - especially around exam time they have people who check if students don't cheat, so you get casual workers like that - they all go into Accumulation 1, which will have to have a MySuper product at 9 per cent," McCredden said.
