MySuper is an integral piece of the Stronger Super reforms announced in 2011 by the Gillard Government for the Australian superannuation industry.
From 1 January 2014, if an employee hasn’t exercised a super choice, their employer must pay the employee’s super contributions into a super fund with an Australian Prudential Regulatory Authority (APRA) approved MySuper offering.
MySuper investment legislation states that super funds have to align with a regulated set of features, including:
- a single investment option
- a minimum level of insurance cover
- an easily comparable fee structure with a short prescribed list of allowable fee types
- restrictions on how advice is provided and paid for; and
- rules governing fund governance and transparency
MySuper products allow trustee flexibility within the investment and asset allocations. The options allowed are diversified or age-based investment. A number of super funds have applied for their existing diversified default option typically the balanced fund to become MySuper compliant. The alternative is the age based investment strategy which utilises a lifecycle approach for asset allocation.
In applying the lifecycle approach members are segregated into age based cohorts of typically five to ten year brackets. Allocation of assets is then tailored to each cohort based on assumptions of the average investor’s profile. The intention of the lifecycle approach is to ensure a reduction in higher risk growth assets as a member transition through their working life to retirement.
The benefits of lifecycle investing include:
- set and forget approach – the fund changes members’ allocation as they age leading to reduction in growth assets over time
- takes a long term view of investing
- generally suits the asset allocation of the average member at that a particular age
The disadvantages of lifecycle investing including:
- no consideration for risk profile, super balance, wealth, retirement date, investment outlook or spouse super
The benefits of diversified investment strategy include:
- certainty around your current and future asset allocation
- the trustee isn’t timing the age based transition dates
The disadvantages of diversified investment strategy include:
- members will be exposed to same asset allocation throughout their working life
- there is no reduction in risk profile closer to retirement
All super fund members can opt out of the MySuper investment option into others provided by their fund, including allocations to cash, fixed interest, property and shares.
