“It would be disappointing if an unintended consequence of MySuper was to stifle innovation and discourage trustees from seeking the best risk-adjusted investment returns for their members,” managing director of Towers Watson Australia, Andrew Boal, says. Cooper also recommends a high level of disclosure, which some consultants have said is onerous and unnecessary, and Mercer’s Knox says could raise costs for funds. “There is a suggestion that every fund has to disclose their full portfolio on their website, down to the stock level, and that is a very complicated thing to do. This is an area where there will be added costs because the level of detail is unnecessary,” he says. “There is a desire in the review overall for greater transparency which is great, but there are costs that come with that. There is a debate to be had about the cost benefit.”
However, Mercer finds projected cost-savings in other recommendations. It estimates the introduction of SuperStream, for example, could potentially reduce administration fees by up to 20-30 per cent. Cooper also recommended that funds should create capital reserves to offset the risks of operational errors. Mercer recommends this cushion should amount to about 0.5 per cent of total assets and be held in cash or short-term debt securities. This measure, combined with another recommendation that funds provide retirement income products, could see Australian funds move more of their assets into fixed-income, Knox says. “When you move into retirement income products, annuities and risk protection, you are promising certain payments in certain years, and cash and liquidity becomes an issue. We would expect there could be funds moving into fixed income marketable securities.
“There are a number of reasons Australian funds have had higher allocations to equities – the system is relatively new and the funds are predominantly definedcontribution,” Knox says. “We’ve also been in accumulation so there has been a higher allocation to equities. In the retirement years that will change.” Other recommendations, particularly those relating to liquidity management and investment governance, have been well-received. Turning to investment governance, one of the key recommendations involves requiring trustees to consider the impacts of costs, tax and the availability of independent valuation services when setting their investment strategies.
It also recommends new and enforceable performance-based fee standards, which should be developed by the superannuation regulator, APRA. “We believe the recommendations made will enhance the investment governance of super funds, and look forward to the industry consultation in developing the performance-based fee standards to be developed by APRA,” Boal says. The review also says investments should be managed with tax considerations in mind, and that a requirement for funds to run a proxy voting policy and disclose their votes on their websites be made.