Australia's 'Universal Fund' Plan Encounters Criticism

(April 6, 2010) — Australia’s ‘universal fund’ proposal — a plan to set up a new default-type category of low-cost funds with limited features for disengaged investors — has been criticized by the $1.2 trillion superannuation industry.

The recommendations have been suggested by the long-running Cooper Review of Australia’s retirement savings industry, chaired by Jeremy Cooper, designed to overhaul the governance, efficiency, structure and operation of Australia’s Superannuation System.

Under the proposal for low-cost funds, the universal fund would have less features than existing funds and would be the default for people who are disinterested in selecting the type of fund they invest, according to The FT. An overwhelming majority — approximately 90% — of investors would currently fit into that category.

In response to the Cooper proposals, a coalition of five superannuation industry organizations have argued that creating a regime for universal funds would result in higher cost for users and greater complexity.

Other critics of the universal fund argue that the Cooper proposals are simplistic, confusing fund choice with investment choice and forcing people into specific categories. Pauline Vamos, chief executive of the Association of Superannuation Funds of Australia, said to The FT that the superannuation industry “should be set up for all types of members”, and also reflect the fact that people shift their focus on retirement savings as they get older.

Industry analysts say the federal government’s Cooper review to streamline Australia’s superannuation system, mandating the use of electronic transactions for example, could save $1 billion a year in unnecessary costs.

The Cooper Review of superannuation may also result in banning financial advisers from taking commissions when selling investments and pensions, as well as requiring financial advisers to set their commissions completely in dollar terms, The Australian reported.

The review changes could be introduced as soon as the end of 2011.