MySuper inconsistent with lifecycle strategies
The Government's MySuper proposals contain a fundamental flaw which could create inequities for members using lifecycle investment strategies, according to major financial services group, AON.
The Aon warning is contained in the company's response to an Australian Prudential Regulation Authority (APRA) discussion paper on prudential standards for superannuation which has that the imposition of a single price for all members of a MySuper fund risks creating the inequity.
AON Hewitt chief investment officer, Janice Sengupta said lifecycle strategies that shift a higher weight to fixed income as a member nears retirement usually resulted in lower costs associated with these members.
However, she said if a fund had to charge all members the same investment management fee, then older members would be subsidising younger members in the more growth-oriented strategies.
It was on this basis that Aon was calling on the Government to allow differential pricing for lifecycle-based MySuper products to reflect the different investment costs across asset classes.
The Aon response to the APRA discussion paper also called for Trustees' insurance policies to be taken into account with respect to determining the capital requirements of superannuation funds, and also warned about arrangements around insurance in superannuation.
Aon Hewitt's health and benefits principal Andrea McDonnell said removing the ability to self-insure might result in higher premiums and slower claims processing, while restricting members' ability to opt out of life and disability insurance to just 90 days failed to take account of the changing needs of members.
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