The final Financial System Inquiry (FSI) report, released on Sunday, contained a recommendation that the MySuper regime be dismantled by 2020 if it fails to make headway on member costs.
The recommended replacement would be a ‘formal competitive process’ (either a tender or an auction) to allocate new default members to funds, according to the report.
The FSI has also recommended the Productivity Commission review the current MySuper system between 2017 (when it has been in operation for four years) and 2020.
The concept of a tender process was championed in a number of submissions to the FSI – most notably by the policy think tank the Grattan Institute, which recommended a similar system to the current Chilean arrangement.
Speaking to InvestorDaily, Grattan Institute productivity growth program director Jim Minifie said he was surprised to see the concept of a 'market-based mechanism' receive so much prominence in the final report.
"The [superannuation] industry and regulators have got the wherewithal to squeeze quite a lot of additional efficiencies from current policy settings – but I also think that there will be quite a lot of juice left in the lemon once that is done," Mr Minifie said.
Consulting firm Rice Warner – which provided the bulk of the superannuation data relied upon in the FSI report – released its analysis of Mr Murray's findings yesterday.
Mr Rice said he believed Stronger Super would "eventually" lead to lower costs and – therefore – lower fees.
"However, its introduction has been turbulent and expensive for the industry," Mr Rice said.
SuperStream, in particular, has become a "labyrinth" that was unnecessary and could have been avoided, he added.
Nevertheless, the strong language contained in the FSI report means that MySuper fees "have to come down" unless the industry wants to face yet more regulatory upheaval, Mr Rice said.
"Those funds whose costs are not in the best 50 per cent of funds will be under pressure to improve," Mr Rice said.
"All funds should consider whether their pricing models are sustainable.
"It could be that the costs of additional insurance and Choice investment strategies need to be raised to allow a reduction in MySuper fees."
