MySuper is not about cost; it is about better retirement outcomes for members, proponents of the federal government’s Stronger Super proposals argue time and again.
Stronger Super committee chair Paul Costello reiterated this standpoint at an Association of Superannuation Funds of Australia (ASFA) presentation earlier this month.
“We’ve tried very hard to turn it away from a narrow product definition, largely around its costs, into a much wider discussion about what kind of product, what kind of approach from a trustee, what kind of duty of care from a trustee should be captured around this challenge of how to optimally serve the interests of these people who put their faith in us,” Costello said.
Yet, despite any noble intentions to create thoughtful retirement outcomes for those who do not care, the debate on MySuper since day one has focused on cost: the cost of investment management, cost of advice and cost of governance.
But more recently the debate has focused on the ability to offer different cost structures.
The Cooper review worked under the assumption that there will be one price per MySuper product per responsible entity, but there are good arguments for allowing multiple pricing levels for the same MySuper product.
Corporate super plans on master trusts are currently using different pricing levels, depending on the size of the contract. More contributions means lower pricing.
But the government has left the option open to ban this practice for MySuper products.
During a hearing of the Senate Economic Legislation Committee at the beginning of June, Treasury’s markets group indicated the government regarded a mandatory single pricing structure still as a viable option.
“It remains an option,” markets group principal superannuation adviser Jonathan Rollings said.
“There is a spectrum of options here for the government to consider, ranging from uniform price through to allowing multiple pricing.”
Asked by opposition financial services and superannuation spokesman Mathias Cormann whether this would create an anti-competitive environment, Rollings acknowledged that could be an effect of the pending legislation.
“There are policy trade-offs on this issue,” he said.
“Obviously, a product that is required to be offered at a single price could provide greater simplicity and potentially greater competition around a smaller number of products in the market.”
But an unintended effect of legislating a single MySuper pricing could be that employers on master trusts who face price hikes will establish their own funds to keep fees low, leading to more funds and more inefficiencies.
The other obvious question is: what is this pricing level likely to be?
Former Super System Review chair Jeremy Cooper said earlier in an interview with Investor Weekly that MySuper would not dictate any fees.
“There is absolutely nothing preventing a MySuper fund charging whatever it likes,” Cooper said.
Yet, Financial Services and Superannuation Minister Bill Shorten must have had a pricing level in mind when he estimated MySuper will save Australian workers $33,000 in additional savings over a 35-year working life.
The truth is that the success of MySuper will largely depend on the product’s flexibility towards costs. This will largely determine the level of competition in the industry and, at least partly, a member’s investment outcomes.
Legislation is expected to be passed around September. We will then see whether the attempt to steer away from a narrow product focus has been successful.
