Australian Prudential Regulation Authority (APRA) has named thirteen superannuation funds that have failed its inaugural performance test since the government’s “Your Future, Your Super” reform came into effect on July 1.
The 13 underperforming default Mysuper products, which collectively hold 56 billion in assets for 1.1 million members, include Colonial First State’s retail product Firstchoice fund, Christian Super’s MyEthical option, Commonwealth Bank’s super product for its employees and the industry fund for Victorian independent school employees.
APRA’s executive board member Margaret Cole said she was pleased to see that 84 percent of the funds have passed but highlighted the consequences for the underperforming funds.
The prudential regulator requires the trustees of the underperforming funds to send a Pro-forma letter to the members by the end of September, advising them of the result and suggesting they consider switching funds.
“As a result, we are required to write to you and suggest that you consider moving your money into a different superannuation product,” the letter will say.
The trustees will also need to provide APRA with a report identifying the causes of the underperformance complemented with an improvement plan and a contingency plan in cases where they will close the product. Funds that fail two years in a row will be banned from accepting new members.
Super Consumer Australia (SCA) welcomed the result, saying that the assessment was based on independent data over a long-term period.
The organisation’s director Xavier O'Halloran noted that all the underperforming products have failed by a fair margin of the benchmark.
“Funds have also had years of warning regarding their performance, dating back to the Productivity Commission report in 2017, if they haven’t improved their performance or lowered their fees by now it is only fair they are called out for it,” she told the Epoch Times on Sep.1.
Just one day before the release of the result, SCA published a report identifying 14 super fund products that are likely to fail APRA’s test, with ten turning out to be on the worst-performing list.
O'Halloran said the failed funds could improve their performance by reducing the fees or merging with other funds.
“Typically larger funds with more funds can lower cost per member, which translates to lower fees,” she explained. ,
For the consumers, the gains from switching funds could be substantial.
However, the Superannuation industry peak body Association of Superannuation Funds Australia (ASFA) urged members to “exercise caution” before switching funds.
ASFA’s chief executive Martin Fahy said that the results were “ potentially confusing” and “lacking transparency”.
“ASFA has long supported the orderly removal of habitually underperforming products, however, some of those called out by this test are, in fact, good products which have delivered excellent returns to their members over a long period of time, ” he said.
APRA’s annual performance test aims to weed out underperformers from the nation’s $3.3 trillion superannuation system and help lower the high cost of fees.
The test currently only covers the 80 products of the default MySuper sector, which hold $900 billion in assets for 14 million members. It will be expanded to tackle trustee-directed products from next year.