Four super funds fail performance test for the second time: is it time to check your fund?
The second annual superannuation performance test from the Australian Prudential Regulation Authority (APRA) has seen outcomes generally improve for MySuper superannuation members, though there are still some repeat offenders in the mix.
The annual performance test was introduced in 2021 to help protect members from poor super outcomes. This year, APRA assessed 69 MySuper products with at least five years of performance history based on their investment performance, as well as their fees and costs. According to APRA, the performance test "assesses products’ long-term performance against a clear and objective benchmark tailored to each product’s asset allocation."
The performance test in 2021 consisted of an assessment of investment performance over a 7-year time horizon in 2021 (over eight years thereafter) and an assessment of administration and advice fees, costs and taxes charged to a representative member with a $50,000 account balance over the previous financial year (RAFE). If a product’s combined result was -0.50% or lower, the product failed the performance test.
In 2021, 13 out of 76 MySuper products failed the test, of which four have since exited. In 2022, five products out of 69 failed to meet the benchmark, including four that failed for the second time:
Registrable Superannuation Entity (RSE)
No. of failures
|Westpac Group Plan MySuper
|Australian Catholic Superannuation and Retirement Fund
|Energy Industries Superannuation Scheme-Pool A
|BT Super MySuper
The four products that failed the test for a second time are now closed to new members. Of those four products, three were offered by trustees with plans to exit the industry. Trustees of the product that failed for the first time are to notify their members of the result by 28 September 2022, while plans are underway for the over 500,000 members of the other three products to transfer to new MySuper products before the 2023 performance test.
Acording to APRA, super funds that fail the performance test for the first time are required to:
- Identify the causes of underperformance, and develop and implement a plan to rectify this underperformance.
- Assess the potential implications of failing the test on the fund and the sustainability of business operations.
- Develop a plan to, if it becomes necessary in the best financial interests of members, close the product, transfer members to another fund/product and/or exit the industry.
Super funds that fail the performance tests consecutively are required to:
- Ensure the product is closed to new members on the day following the notification.
- Return any contributions from new members (if made after 31 August 2022 ).
Outcomes improve overall for super members
But it’s not all bad news. The 2022 results also found that:
- Five products that failed last year’s performance test passed this year.
- Almost 96 per cent of MySuper superannuation members were found to now be in a performing MySuper product, equating to 13.1 million member accounts.
- Over 5.1 million MySuper members (just over 38 per cent) were found to now be paying lower fees than they were last year.
APRA member, Margaret Cole, described the results as “the culmination of APRA’s intensified supervisory approach, driving trustees to take meaningful action to improve member outcomes. APRA encourages superannuation trustees to continue to explore ways to improve the efficiency of their MySuper products.”
Expansion of performance test to be paused
The performance test had been slated to be rolled out beyond just MySuper products. However, the federal Treasury is understood to be putting this extension on pause for 12 months while it conducts a review of the processes involved to ensure the test is fit for purpose.
The review is also expected to consider concerns relating to the regulatory complexity of best financial interests duty requirements, reasoning that “Unnecessary regulatory measures can impose a significant administration cost on funds and their members.”
What can you do if your super fund isn’t up to scratch?
Whether you’re a member of a MySuper fund that didn’t meet the APRA performance standards, or you’re otherwise unsatisfied with your current fund, it may be worth comparing alternative super funds to find an option that better suits your financial situation and personal goals. You may be able to compare alternative super products from the same super fund if your current super product has failed the APRA test, or look at switching super funds entirely.
The Australian Taxation Office (ATO) offers a tool for quickly comparing MySuper products based on their performance over seven years. Based on this tool, here are the common 5 super funds:
7-Year Net Return
|HOSTPLUS Superannuation Fund
|Local Government Super
|Australian Retirement Trust
|Construction and Building Unions Superannuation Fund
Source: ATO YourSuper Comparison Tool.
Note: Rankings based on an average 30-year-old Australian with a $50,000 balance (excluded any restricted funds).
It’s important to remember that a super fund’s past performance is not a guaranteed indicator of its future performance. It’s also essential to compare a super fund’s fees, investment options, customer service, insurance options and other features and benefits before making any switches, to ensure that the super fund will meet your needs now and in the future.
Compare super funds
Product database updated 04 Mar, 2024
Get updates on the latest financial news and products