MySuper: Who will be left standing?29 June 2012
The MySuper start date is 1 July 2013, and all superannuation funds wanting to accept Superannuation Guarantee contributions after that date must first have their MySuper product approved by the Australian Prudential Regulation Authority (APRA). I recently looked through APRA’s MySuper application form, and was surprised by the amount of effort and skill that will be required to complete it.
In order to gain approval, trustees will need to do a lot of thinking, research and planning. Most will also need specialist assistance from external advisors.
A detailed business plan forms part of the application, and I think that the hardest part of this process may turn out to be the projections that trustees need to make about their future member numbers and ongoing contribution income streams – required to demonstrate that their MySuper product will have ‘adequate scale’.
Auto-consolidation is confidently predicted to reduce the number of member accounts across the industry by 30 per cent, but what will the effect be on individual funds? Can anyone be confident of losing only 10 per cent, and who is in fear of losing 50 per cent?
With the Productivity Commission not due to “…design transparent and objective criteria” for eligibility for “…nomination as default funds” until October, and a federal election on the horizon, it’s hard to predict whether those that come out on top will mostly be the existing default funds (those funds having strong relationships with large employers and unions), or those with brand names that appeal to the mass market.
I’m thinking that the MySuper application process may be too much of a burden for some smaller funds. Even if the trustees do go through the onerous and costly process of preparing a MySuper application, there are no guarantees that APRA will approve it – especially if trustees cannot demonstrate that the fund will have ‘adequate scale’.
As trustees come to grips with the full implications of the MySuper application process, more than a few may decide that it’s all too hard – which may lead to far more fund merger activity than has been predicted.
And so the burning question is ‘how should smaller funds manage their applications for MySuper?’
For a start it will be an imperative to have the right resources in place; a team that knows the requirements, and will work effectively with APRA through the application process. Funds need to carefully weigh up the effort involved. Outsourcing and partnering with external parties will likely be the most viable and cost effective option for many.
Funds with efficient business processes, accurate data and reliable systems will be best placed to achieve adequate scale in their MySuper product by protecting their existing member base and attracting future contribution flows. Partnering with a reliable systems provider – one that understands the needs of trustees and administrators– will go a long way towards securing the necessary confidence to tackle MySuper.
So, who will be left standing in July next year? How are you preparing your MySuper application?