Crunch time has arrived for super funds. Of the nation’s 80 MySuper products, 13 have just been publicly named and shamed as “underperformers” – and the unlucky 13 include some of the industry’s biggest names. Here’s what you need to know.
Are you in a MySuper product?
Vast numbers of Australians – 14 million of us – have our nest egg in a MySuper product. You may already know if you’re in a MySuper account. As a general rule, if you haven’t nominated a fund for your employer’s compulsory contributions to be paid into, chances are you’re in a default super fund, and that’s likely to be a MySuper product. If in doubt, just ask your super fund.
It’s not a bad thing to be in a MySuper product. They’re designed to deliver healthy returns plus low fees. You won’t get all the ‘bells and whistles’ such as a variety of investment options. And you’ll likely have a minimum level of insurance, typically basic life cover plus Total and Permanent Disability (TPD) insurance. The upside is that you won’t be paying high fees for features you neither need or want, which can eat into your retirement savings over time.
→ Related: What fees do Australian super funds charge?
The downside of MySuper
The sheer weight of money invested in MySuper accounts – $900 billion in total – has attracted the attention of regulators.
In 2018, the Productivity Commission looked at how MySuper products were performing. It found the top 10 funds had a track record of good past performance. These funds manage the nest eggs of 6.1 million Australians.
On the downside, one in three MySuper products had dished up lacklustre returns. We’re talking about the retirement savings of 1.7 million Australians, and according to the Commission, being in an underperforming MySuper product over the course of a working life can leave members worse off in retirement to the tune of $375,000.
MySuper benchmark tests
To encourage super funds to lift their game, the 2020-21 Federal Budget announced a raft of Your Future, Your Super reforms.
One reform that’s attracting plenty of attention right now is the introduction of annual performance tests conducted by super fund watchdog APRA. The test has two components – how well your MySuper fund has performed based on its strategic asset allocation relative to a particular market benchmark and the fees the fund charges.
If a fund underperforms APRA’s benchmark by just 0.5%, it scores a “fail” result and your super fund is required to let you know in writing by 27 September, 2021. MySuper products that fail two years in a row aren’t allowed to accept new members.
Where can you find APRA’s test results?
There’s no need to wait for a letter to know if your MySuper fund is among the 13 that failed APRA’s testing. The YourSuper comparison tool on the Australian Taxation Office (ATO) website includes the test results for 76 MySuper funds (four weren’t assessed as they didn’t have a sufficient track record of returns). Funds that scored a pass are listed as “performing”. Those that failed are labelled “underperforming”.
Who made the list of underperformers?
Details of the 13 MySuper products that failed APRA’s performance tests are set out in the table below.
Underperforming MySuper products
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|Fund and MySuper account||Annual fee||7-year net return (%pa)|
|AMG Super – AMG MySuper||$350||6.92%|
|Commonwealth Bank Group Super – Accumulate Plus Balanced*||$438||6.26%|
|Energy Industries Superannuation Scheme Pool A – Balanced (MySuper)||$445||6.02%|
|Colonial First State FirstChoice Superannuation Trust||$450-$505||4.54%-7.8%|
|Labour Union Co-Operative Retirement Fund – MySuper Balanced||$497||7.22%|
|Maritime Super – MySuper Investment Option||$533||6.21%|
|Retirement Wrap – BT Super MySuper||$558-$573||3.63%-8.51%|
|ASGARD Independence Plan Division Two – Asgard Employee MySuper||$558-$573||3.54%-7.95%|
|Australian Catholic Superannuation and Retirement Fund – LifetimeOne||$558-$573||5.86%-7.14%|
|The Victorian Independent Schools Superannuation Fund – VISSF Balanced Option (MySuper Product)*||$577||7.58%|
|Boc Gases Superannuation Fund – MySuper*||$604||6.95%|
|AvSuper Fund – AvSuper Growth (MySuper)||$605||7.53%|
|Christian Super – My Ethical Super||$610||6.93%|
Source: Australian Taxation Office YourSuper comparison tool. *Restricted membership.
What should you keep in mind when looking at the results?
Dr Martin Fahy, CEO of the Association of Superannuation Funds of Australia (ASFA), pointed out some shortcomings in APRA’s benchmarking tests that MySuper account holders should be aware of.
One of the drawbacks is that the performance test focuses solely on the financial results of a fund’s investment strategy, but fails to take into account the level of risk involved for different age groups, or the environmental, social or governance (ESG) impacts of funds’ investments. This has the potential to deliver results that can be confusing.
For example, as ASFA pointed out, some products with average returns of over 7% have failed the test, while other products with different asset allocations but also 7% average returns have passed.
Other anomalies can occur. As Dr Fahy noted, the members of some funds can be older, on average, and a lot closer to retirement than members of other funds. This can see the fund invest conservatively with a view to maintaining members’ capital. It’s a strategy that could see a fund score a “fail” under APRA’s benchmarking even though it’s an approach that may work in members’ favour.
“This is the tyranny of benchmarks. They fail to take account of risk, lifecycle, or ESG screening considerations,” said Dr Fahy. “ASFA has long supported the orderly removal of habitually underperforming products. However, some of those called out by this APRA test are good products, which have delivered excellent returns to their members over a long period of time.”
What if your fund is an underperformer?
If it turns out your MySuper fund is among the underperformers, the letter you receive before the end of September may be confronting. According to ASFA, the letter will explain that your MySuper account has performed poorly, and state, “As a result, we are required to write to you and suggest that you consider moving your money into a different superannuation product.”
If you receive this letter, Dr Fahy said it’s important “not to panic”. “You don’t have to take your super savings elsewhere, though it is a cue to take a look under the hood of your MySuper account to get a feel for why it has been marked as an underperformer,” he said. “Look at whether the fund fees are going up or down over time, and if the fund is a habitual underperformer.”
If you’re thinking of switching, the YourSuper tool offers a handy way to see how your fund stacks up against other MySuper products. Remember, your super also generally offers low-cost insurance. Jumping ship to a new fund may make it harder to get insurance especially if you have a pre-existing health condition.
What will underperformers need to do?
“Trustees of the 13 products that failed the test now face an important choice. They can urgently make the improvements needed to ensure they pass next year’s test, or start planning to transfer their members to a fund that can deliver better outcomes for them,” APRA Executive Board Member, Margaret Cole, explained.
Ms Cole added that APRA has intensified its supervision of underperforming funds. These funds need to report to APRA on why they failed the test and what’s being done to improve their results.
Good medicine even if it tastes bad
While the APRA testing regime has its faults, it may be the industry jolt that benefits more Australians in retirement.
Super Consumers Australia recently released results of a self-assessed survey by 42 super funds. “Disappointingly, every fund gave themselves a pass mark, and half deemed themselves so perfect they didn’t need to improve in any area at all. This is despite many of the same funds being highlighted by the regulator as having high fees or poor performance,” Director of Super Consumers Australia, Xavier O’Halloran, said.
The Super Consumers survey revealed other areas of concern. It found documents were overwhelmingly hard to find on fund websites, 69% of funds surveyed made up their own target investment return metrics to satisfy their assessments and only 24% of funds were able to break down how they worked in the best interests of members from different demographics.
“We think it is appropriate that APRA forces funds to use independent metrics. The current round of self-reporting would have led people in the worst-performing funds to believe their fund was a gold medallist,” said Mr O’Halloran. “The best funds reflected on areas that needed improving and committed to do better. It’s this kind of honest engagement we want to see more of in the superannuation industry.”
At present, APRA’s inaugural test covers only MySuper investment options. From the middle of next year, the performance test will be expanded to a wider range of options. So, if your super fund wasn’t assessed this year, it’s only a matter of time.
Cover image source: alexmillos/Shutterstock.com