Introducing a national default superannuation scheme is a good idea in theory, but in reality would present numerous issues for the super sector, an industry executive has warned.
“While it would have some benefits, it would create a number of problems for the super industry,” Plenty Wealth co-founder Greg Einfeld said.
Firstly, it would reduce competition and innovation in super in the medium to long term, Einfeld said.
“While costs to members might reduce in the short term, the national super fund will have no incentive to adopt new technologies, which further reduces costs and improves customer experiences,” he said.
“The Australian super industry will be stuck with 2017 technology for decades in an era where technology is evolving at the fastest pace ever.”
The second problem was that investment managers would have so much money to invest that they will be forced to invest in many asset classes passively, that is, they will follow the index, he pointed out.
“With so much money following an index, markets will not price asset correctly,” he said.
“Not only could this impact returns for members, it could also result in asset bubbles.”
Einfeld said a better solution is to compel super funds and life insurance companies to provide “open data”, in line with the view of opening up banking data, which is the subject of a federal government review being led by King & Wood Mallesons partner and financial services law expert Scott Farrell.
Open super data could result in the greatest move forward for competition in the history of the Australian super industry and life insurance should be included in the scope due to the close link between super and insurance, he said.
Plenty Wealth co-founder Josh Golombick added that as digital advice evolves and its take-up improves, the way people select their super fund will be turned on its head.
“Super funds will be forced to be competitive,” Golombick noted.
“Funds that are overpriced or have inferior service propositions won’t survive.”
Einfeld’s comments came in response to a suggestion made by former treasurer Peter Costello at last Thursday’s SuperRatings and Lonsec Day of Confrontation event in Melbourne.
Costello said he believes setting up a superannuation guarantee (SG) agency, pooling the funds of inactive default fund members, will have enormous economies of scale and will promote industry competition and market discipline.
“My personal view is that instead of the government arbitrating to industry funds, there’s a fair argument this compulsory component – the so-called default fund – should be allocating to a national savings administrator, let’s call it the ‘SG Agency’,” Costello said.