The Cooper Review – due to hand its final report to Government within the next two months – has also been grappling with this issue. Releasing its second preliminary paper last month – the MySuper proposal – the Cooper Review noted that direct engagement in superannuation decision-making was not a priority for a large proportion of Australians. As we all know, most members have their super invested in their fund’s default option. Typically a diversified ‘balanced’ option that invests across most asset classes, this is the option that most superannuation experts, behavioral finance gurus and other academics would probably agree as being the best place for a person with average risk-tolerance to park their super for the medium-, if not the longterm.
The Cooper panel thinks so too. Hence MySuper is designed as a low-cost vanilla ‘balanced’ option to cater both for those do not make an active choice about their super and simply end up in a default fund, as well as those who choose to be in the fund’s balanced option. Feedback from not-for-profit funds suggests that this latter ‘choice’ group is actually quite significant and much larger than many realise. Arguably the members of this group – which include myself and many of my work colleagues – are making an intelligent, informed choice to stay in their fund’s default option. This is why AIST has long argued that default options deserve special attention and strict criteria.
MySuper goes some way to deal with this and – and whilst you could argue that the Cooper Review has simply done a 360 degree spin to end up with a product that is strikingly similar to the low-cost high-performing default options currently offered by most not-for-profit funds – the proposal should still be seen as important step forward towards fairer, low-cost super for all Australians. As the report currently stands – if retail funds want to be in the MySuper space, many will have to restructure their products, stripping them of high fees and charges. More significantly, the Cooper panel has hinted that the MySuper ban on commissions and entry fees may be extended to apply in other super sectors, including self-managed super funds. If this happens, potentially billions of dollars will be re-directed into the super of ordinary Australians.