Superannuation review proposes simpler system for default super funds

The first report from the Rudd Government’s Super System Review has recommended the development of a new class of basic super funds for the estimated 90% of superannuation fund members who don’t want to choose the type of fund they invest in.

The new type of fund, which Review chair Jeremy Cooper suggests could be known as “universal” funds, would offer few of the “bells and whistles” currently offered by most super funds.

In return for less features, the fee structure of the universal funds would be a lot lower than the current average of around 1%.

”Most members don’t really engage with super, and for them we envisage a fund where the product is much simpler and cheaper for them,” Cooper said yesterday.

Under the two-tier system, workers who want to choose their super fund and nominate particular investment strategies would still be able to, although their fees would be higher than under those paid by members of the “universal” funds.

However, “universal” funds would still take into account a member’s lifecycle as it relates to investment strategies – for example, employing a more conservative strategy as a member approaches retirement.

This phase of the review does not deal with the cost structures of Australia’s super system, which is worth about $1.1 trillion and is expected to grow to a nominal $3.2 trillion in 15 years.

The full report from Cooper is expected in the middle of next year.

The super industry has welcomed Cooper’s suggestion of a “universal” fund, with the chief executive of the Investment and Financial Services Association, John Brogden, saying “it could be quite a good outcome for consumers”.