More than halfway through the Government’s review of our super system, it’s clear that Jeremy Cooper and his review panel have big plans for the super industry. While acknowledging that our compulsory super system has served its members well, Cooper has made no secret that he has little time for the “it aint broke, why fix it?” view of the world. But it is Cooper’s proposed model for super funds – as outlined in the panel’s preliminary report – that has many in the super industry scratching their heads. Cooper’s new architecture essentially involves four categories of funds for four types of investors – a no-frills “universal” fund to cater for disengaged investors; a suite of “choice” funds for “engaged” members (defined as those who make an active choice); a “conservative” fund for “disconnected” investors; and a self-managed fund for those who wish to direct their own retirement.

Rather than driving efficiency and reducing costs, our concern is that Cooper’s new proposed architecture could add additional layers of costs and complexity. Not only is it difficult to establish how the panel envisages the “universal” and “choice” options would operate in practice, but in an attempt to eliminate cross-subsidisation, the panel has proposed a rough model which perversely, may have the opposite effect. Many not-for-profit funds which currently offer low-cost, competitive choices to their members – including some of the country’s biggest funds – believe the proposed model involving the establishment of separate fund structures for each member type may make it too costly to continue to offer their members “choice”. There is also concern that the model could draw high-balance members – who are perhaps more likely to make a choice – away from the no-frills universal fund, thereby diluting the economy-ofscale benefits currently available to the trustees and managers of most ”balanced” fund options, where most members are invested currently.

In addition the proposed model appears to undermine the accountability of super funds and trustees by removing the level of responsibility trustees have for members who have made a choice. Should trustees have less responsibility for members who have made a choice versus those they have placed in a passively invested, defensive option? And where is the evidence to suggest that all those currently in a balanced or default fund are necessarily disengaged or that those who make a choice, are informed and understand the markets? Most super funds have offered their members investment choice for a significant number of years, typically providing guidance in brochures, on websites and other member material on how to exercise choice.

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