Proposed MySuper regime may prompt short-termism
The Federal Government has been warned that elements of the proposed regulatory arrangements around the introduction of MySuper may prompt fund trustees to pursue short-term outcomes to the ultimate detriment of fund members.
In a submission filed with the Federal Treasury this month, the Association of Superannuation Funds of Australia (ASFA) has warned that the proposed wording of the legislation with respect to an annual determination of a fund's scale may prompt trustees to make decisions to achieve short-term outcomes.
"ASFA submits that the tests contained in paragraphs 29VN(b) and 29VN(c) (of the legislation) may drive trustees to make short-term decisions in how they operate and invest the fund which may not be in the best long-term interest of members," the submission said.
It pointed out that the key obligation of a superannuation trustee was to ensure it was able to continue to act in the best interest of its fund members, including those fund members in the MySuper portfolio.
"As such, in our view, the obligation should be along the lines that trustees of a MySuper product must implement a process whereby, on an annual basis, it is confirmed that the size of the pool of assets enables the Trustee to act in the best financial interests of members," the ASFA submission said.
It said that by framing the obligation in such a manner it would allow trustees to set a minimum asset or membership amount that could be confirmed annually.
"Accordingly, funds with very large scale will only need to proactively determine whether scale is sufficient if the assets fall below a certain amount," the submission said.
However, it argued that how compliance with such an obligation was measured would need to be determined by a number of factors.
"By limiting the test to an annual comparison against other providers, the legislation will drive behaviour to meet that test only," the ASFA submission warned.
"Measures should be along a 'balanced scorecard' approach that take into account both short and longer term factors. The measures should be developed by the regulator and industry so they remain relevant."
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