ASFA warns on MySuper legislation

The Federal Government has been warned that legislative amendments intended to improve corporate governance and prudential standards within superannuation funds delivering MySuper products may, in fact, encourage behaviour based around short-term objectives.

The warning is contained in an Association of Superannuation Funds of Australia (ASFA) submission to the Parliamentary Joint Committee reviewing the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill.

In that submission, ASFA points to the proposed sub-sections dealing with scale and whether beneficiaries may be disadvantaged.

It said that given that superannuation trustees are under a duty to act in the best interests of members, the scale test was unnecessary.

"Further, it may drive trustees to make short-term decisions on how they operate and how they invest the fund which may not be in the long-term interest of members," the ASFA submission said.

It said that by limiting the test to an annual comparison against other providers, the legislation would drive behaviour to meet that test only.

The ASFA submission said it was worth noting that, while scale was relevant, it was not the only indicator of likely success. There were cases where smaller, appropriately resourced and skilled funds were able to demonstrate that they were capable of meeting the trust law requirement to provide optimal benefits to members.

"Funds with relatively small assets and\or members can achieve economies of scale through outsourcing operational and other functions to service providers, and through combining with other trustees when acquiring services or in developing product or service offerings," it said.