The MySuper pricing issues faced by life-cycle fund providers are unlikely to be resolved other than through legislative means, the Australian Prudential Regulation Authority's (APRA) chairman has said.
Asked whether APRA deputy chair Ross Jones saw any solutions to the pricing problem, he said: "There would be, but they would be legislative.
"If you simply change legislation and say that you could have differential pricing."
But he also warned that might create a new set of problems for life-cycle funds.
"You could have different pricing at a different stage in the life cycle, but how that would work then for members to compare [MySuper options] I don't know," he said in an interview with Investor Weekly.
It would also raise questions about the standardisation of life-cycle products, which potentially meant all life-cycle products would have to have the same length of stages during the cycle, he said.
The pricing requirements of MySuper have made it nearly impossible for super funds to implement such a strategy within the design of a default option.
The problem lies in the cost of investment portfolios at various stages during their life.
As a member moves through the different life stages, the asset allocation gradually shifts to incorporate more fixed income and becomes less expensive to manage.
But the MySuper legislation prohibits providers from charging different fees for the individual stages, despite the fact the MySuper legislation explicitly states these default options can take the form of a life-cycle strategy.
"The Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 provides that the investment fee charged to each member in a MySuper product must either be the same flat fee or calculated on the same basis in accordance with the legislation (including where the member is in a life-cycle product)," APRA noted in its frequently asked questions section on MySuper.
Jones recognised the contradiction in the legislation, but said it was the only position the prudential regulator could take at the moment.
"I do understand the issues associated with life-cycling and the fact there might be different approaches," he said.
"But that is what the legislation says and so that is what APRA says," he said.
Providers of life-cycle funds cannot avoid the issue by charging an average fee across all portfolios, because this would involve cross-subsidisation, and this is also not allowed by the legislation either.
"Yes, it probably is [cross-subsidisation]. It is complex," Jones said.
Discussions between the prudential regulator and the industry about possible solutions to the pricing problem are continuing.
