No-frills superannuation forced on funds

EVERY major super fund will be forced to offer a low-cost, no-frills fund under a radical overhaul.

Super funds will have to offer a vanilla product under a raft of radical changes to the industry / File

EVERY major Australian superannuation fund will be forced to offer individuals a low-cost, no-frills fund called MySuper under a radical overhaul of the $1.2 trillion industry.

The Cooper review into superannuation will propose that superannuation funds "build in" a MySuper product that offers members no real investment choice, limited flexibility and reduced levels of disclosure but is aimed at bringing down fees, The Australian has revealed.

According to a confidential discussion paper circulated to industry representatives and obtained by The Australian, the Cooper inquiry has backed off its original December proposal to establish a separate universal default superannuation fund.

But the eight-member Cooper panel says the inclusion of a new "base case" product within existing funds would still make a real impact on whether the majority of members with modestly sized super accounts could have a comfortable retirement.

It has already trademarked the MySuper name.

"It is designed to cater to the large number of Australians who would prefer to delegate the task of designing and maintaining an investment strategy for their super to someone else," the paper says.

"It is a 'vanilla' option that can act as a low-cost alternative to existing superannuation offerings."

The Cooper review into the super industry was commissioned by the government last year and is due to present its report by June 30.

The MySuper proposal is similar to the very popular default investment option already offered by many super funds - particularly the industry funds - and which currently attracts 80 per cent of super members.

But the Cooper review has found some of these default options have features that are "inconsistent" with MySuper and should have to comply with the proposed new rules.

According to the confidential findings, MySuper will include extra regulatory protections to ensure the trustee is truly accountable to members and is "unfettered" in pursuing their interests, while the costs of delivering MySuper are contained.

"They also ensure that members do not inadvertently pay for 'bells and whistles' they either don't want or don't know about," the paper says.

The Industry Super Network, an umbrella group of industry funds, recently infuriated the retail industry by claiming that members of retail funds had lost $47 billion since 1996 because of higher fees and poorer investment returns.

According to the paper, personal financial advice could not be bundled with MySuper products and it would be up to members to request individual advice on a fee-for-service basis.

This request would have to be renewed annually by members with no use of trailing commissions or ongoing payments.

Alternatively, the paper says general high-quality advice must be available on fund websites.

Read the full story in The Australian.