Speaking at the Financial Services Council annual conference in Cairns, Rafe Consulting principal Barry Rafe said one of the key criteria for the Fair Work Commission expert panel when it comes to selecting default funds on modern awards is investment performance.
“Out of the 80 or so MySuper products, there are about 50 industry funds that are already listed on awards. The rest are retail funds,” said Mr Rafe.
Nearly all of the industry funds have simply rebadged their balanced option as their MySuper option, he said – whereas the retail funds have tended to create new lifecycle or 'lifestage' funds.
Importantly, the new retail lifecycle funds have no past investment performance, said Mr Rafe – which makes it difficult for the Fair Work Commission to choose them over industry fund default options with their extensive performance history.
“To take an industry fund off [the modern award] you've got to have a better option available to replace it with,” he said.
To deal with the problem some retail funds have 'manufactured' past returns, said Mr Rafe – but that is itself is problematic.
In addition, there is the question of which age 'cohort' of a lifecycle fund should be used to compare investment performance, he said.
“One of the reasons that industry have not changed to lifestage products is technology,” said Mr Rafe.
“The other is that puts a barrier to them being listed on a modern award. So that's why most industry funds have kept their existing product, because a key criteria for selection is past investment performance,” he said.
“So if you work through the logic, what it basically means is that it's going to be very difficult for a retail master trust to get a listing on any award,” said Mr Rafe.
Mr Rafe was recently commissioned by the FSC to produce a report on the cost burden of the current default fund selection process – both for employers and consumers.
