The implementation of MySuper is likely to ease the liquidity constraints of superannuation funds because members in the default no-frills product will not have the option to switch between asset classes or investment choices as is currently the case.
As part of the MySuper proposals, trustees must formulate "a single diversified investment strategy aimed at optimising members' financial interests as reflected in long-term net returns".
Industry Funds Management chair Garry Weaven said that in a conversation with Australian Prudential Regulation Authority deputy chair Ross Jones he was told the single investment strategy meant MySuper members would not be able to switch options.
"I only got this out of Ross Jones on Monday . I didn't fully understand that the single investment strategy, single asset allocation strategy, meant that the members don't have any switching at all within them," Weaven told delegates at the Conference of Major Superannuation Funds (CMSF) 2012 in Brisbane this week.
"That is not a bad thing because it is actually member switching that is causing liquidity constraints right now."
Weaven gave an example where funds could not invest in infrastructure because a large number of members had switched to the cash option within the fund.
It is likely that under the new rules, members who do want to switch between asset classes would have to exit the MySuper option and sign up for a different investment option with the fund.
The constraints on switching in MySuper would enable super funds to continue to have a reasonable allocation to illiquid assets, which generally delivered higher returns, Weaven said.
"I think we will be able to accommodate pretty substantial infrastructure portfolios within MySuper," he said.
Concerns have been raised that the focus on costs in MySuper would affect the ability of super funds to use the more costly illiquid and alternative assets and instead they would have to incorporate more index strategies. But Weaven said that was unlikely to be the case for industry super funds.
"I think the regulator has backed off a fair way. I'm very confident that there will be very modest changes to fee regimes for industry funds," he said.
