Watchdog’s super tests reveal the products that are under-performing

The latest Australian Prudential Regulation Authority (APRA) super performance test results have been released. Which fund products were winners and, just as importantly, which were duds?

First introduced in 2021, the annual test is designed to improve members’ retirement outcomes by assessing the longer-term performance of superannuation products against tailored benchmarks.

And there are consequences for those that fail.

Funds offering products that fail to pass the APRA benchmarks must notify their members of that outcome by no later than 28 September 2023. Trustees of those funds also cannot accept new members into products that have failed for two consecutive years.

Initially only measuring the performance of default MySuper products, the 2023 test was expanded to evaluate 805 ‘trustee-directed products’, a subset of the ‘choice’ sector – superannuation products chosen by members.

APRA defines trustee-directed products as ‘multi-asset products where the trustee has control over the design of the investment strategy of the product.’

Products that failed

This year’s results showed 96 trustee-directed products failed to meet the test benchmarks, with 75 per cent of those failed products offered by just four trustees: N.M. Superannuation Proprietary Limited, Nulis Nominees (Australia) Limited, Oasis Fund Management Limited, and OnePath Custodians Pty Limited.

All those entities are in turn owned by financial giants AMP and Insignia Financial.

In contrast, just one of the 64 MySuper products tested, AMG MySuper, was failed. Five MySuper products failed in 2022 and 13 failed in 2021.

Unfortunately for AMG MySuper, this is the third year in a row this particular product has failed. The product has been closed to new members since 2022, and the company has plans to close this product soon.

APRA deputy chair Margaret Cole said the expanded scope of this year’s test had significantly enhanced transparency over a wider range of super investment options.

“The annual performance test remains a powerful tool to help APRA hold trustees to account for product performance, fees and costs,” she said.

“Since its introduction in 2021, nine underperforming MySuper products have exited the market and a total of 800,000 members, with combined assets of $39 billion, have moved to better performing products.”

Warning on super fees

Chris Brycki, founder and CEO of Stockspot, says the test results demonstrate the oversized role fees can play in overall performance.

“We applaud APRA for this work and for bringing to light these underperforming funds,” he says.

“This work is especially important as the fees that are charged have a big impact on fund performance.

“Our advice to members is look for a superannuation fund charging less than one per cent in fees – including investment performance fees, fund performance fees and administration fees.”

But Blake Briggs, chair of the Financial Services Council, says the harsh consequences for trustee-directed funds are not reasonable.

This is because unlike MySuper products, there can be serious tax implications for some people switching out of trustee-directed products, which the generalised test doesn’t account for.

“Consumers in impacted products will be told their investment is underperforming, however many will be unable to move out of that investment due to tax reasons,” he says.

He says the only way to make this outcome fairer is through altering tax legislation and government support of members wishing to switch.

“The government is encouraged to support consumers by offering capital gains tax rollover relief to facilitate the transition to contemporary investment options,” says Mr Briggs.

Ms Cole acknowledged some trustee-directed products might have different goals and be more nuanced than MySuper products, but that they still need to adhere to APRA performance guidelines.

“Members in trustee-directed products make active decisions about their investment options and some might select products for reasons beyond performance,” she says.

“Nevertheless, all trustees must take responsibility for the products they make available and ensure the products they offer are in their members’ best financial interests.”

Did your super product pass the performance test? Do you follow the APRA tests? Let us know in the comments section below.

Also read: Too many super funds slow to embrace retiree needs

Brad Lockyer
Brad Lockyer
Brad has deep knowledge of retirement income, including Age Pension and other government entitlements, as well as health, money and lifestyle issues facing older Australians. Keen interests in current affairs, politics, sport and entertainment. Digital media professional with more than 10 years experience in the industry.
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