A narrow focus on fees and costs and promoting these as key drivers of superannuation outcomes is misguided and is likely to lead to lower super balances in retirement, the Australian Investment Council believes.
In a submission to the Retirement Income Review, the council said it was supportive of initiatives that increased efficiencies such as the consolidation of underperforming funds.
However, it noted that fees and costs were only one part of the performance equation and that super fund performance was a product of both a fund’s returns and its costs.
“Put simply: fund performance equals returns less expenses,” the submission said.
“An investment option that is ‘low cost’ may not be ‘high performing’ due to having low returns. Policy settings, including commentary by regulators, can encourage or nudge superannuants to myopically focus on a fund’s expenses. This could lead to the suboptimal outcome of lost returns.”
The council recommended the government enhance its policy settings to include disclosure settings for super funds that encouraged members to focus on their net retirement income, rather than fees.
It also recommended the Government enhance financial literacy programs and produce more user-friendly material in “plain English to help education and inform superannuation fund members on how to plan for retirement and the choices, risks and outcomes they can prepare for”.
The council noted that balancing the need for liquidity against long-term investment needed to be addressed.
“The Australian Investment Council recommends consideration be given to balancing the need for low-cost and liquid investments and the benefits, both to superannuants and the nation more broadly, of longer-term investment options,” the submission said.
It said Government and regulators needed to support the capacity of the domestic super funds to allocate larger amounts of capital to support the growth of businesses in the unlisted business sector of the economy.