The superannuation fund comparison tool proposed by the federal government in this year’s budget may have adverse, unintended consequences, an actuarial firm has said.
According to Rice Warner, the government’s commitment to implementing an online YourSuper comparison tool in order to provide consumers with greater choice and encourage fund competition is based on a questionable formula that provides inadequate benchmarking for measuring fund performance.
“While the aim of raising overall performance is sound, the implementation is flawed and may lead to unintended consequences unless significant changes are made,” the firm said in an update on its website.
Pointing to the new measurement structure, previously chosen by the Productivity Commission (PC) and expected to be used by the YourSuper online tool to compare fund performance, Rice Warner said the measurements deviated from industry norms that members would have found easier to understand.
Specifically, the firm voiced concern over the PC’s approach to measuring fund performance against the consumer price index (CPI) over a period of eight years rather than the widely accepted 10-year period.
“Most funds will want to keep their current targets based on CPI plus X per cent over rolling 10-year periods. This is an established metric and it is easy for members to understand. Further, the target can be reached by different strategic asset allocations,” it said.
“If the funds stick to their current investment goals and objectives, they will then have two different formulae to measure and to explain to members.
“There are many ways that funds will deviate from the new benchmark or encounter issues.”
It warned the new measurements could ultimately lead to funds being pressured to overlook long-term outperformance opportunities in order to mitigate the risks of underperformance against a nominated benchmark.
