APRA’s new super tool will reveal worst but not best performers

APRA’s new super tool is leaving some people scratching their heads.

traffic lights

A new tool to assess the performances of superannuation funds has drawn criticism even before it has been officially released.

A superannuation heat map, developed by the Australian Prudential Regulation Authority (APRA) and due for release in mid-December, was partially unveiled late last week. But already, critics say it falls short of what is required to allow super members to clearly and easily assess whether their fund is performing well.

The heat map focuses on underperforming funds but does not help to identify strong performers – a fundamental flaw, according to some industry experts.

APRA deputy chair Helen Rowell says the system is “not a traditional” heat map, arguing that it isn’t the regulator’s job to highlight positive performance.

“There are other surveys and publications out there that do their job of highlighting who’s top of the pops,” she says.

The tool will not indicate high performance. If a fund performs above the relevant benchmark in a specific area, it will be colour-coded white, yellow will indicate underperformance and red indicates substantial underperformance.

“This is not a traditional ‘traffic light’ system with three distinct and simple categories,” Ms Rowell says. “This is intentional. The heat map is designed to emphasise underperformance, it's not meant to give a pat on the back to better performing MySuper products, or be seen as a peer ranking mechanism.”

She says the heat map does not provide a complete picture of trustee performance, but rather focuses on giving members insights.

“There is no overall assessment,” she says. “Each MySuper product is assessed against each metric. So it is entirely possible for a product to be white for some investment performance metrics, yellow for others and red for fees and costs.”

A row of red across the heat map sends a message so clear and strong it nearly jumps off the screen, she argues.

“That message is hard to ignore, and exactly what we're counting on.

“As much as transparency is important, the ultimate purpose of the heat map is – to be blunt – to galvanise the trustees of underperforming products into action.”

Insight Investment director, Australia and New Zealand, Bruce Murphy says the heat map could give consumers a superficial understanding of super funds “with a single-minded focus” on returns and fees.

“Even though it’s well intentioned, to run and produce these heat maps, I think that there’s a few concerns in there,” he told investordaily.com.au.

“Will risk be taken into account? It’s very easy for consumers to look at just performance, but if you look out there in the marketplace, the definition of a balanced fund is very unclear. Some will have around 80 per cent growth assets, some will only have 60 per cent.

“I just want to emphasise that risk is a key part of it. It’s always very hard to explain that. It always has been – to explain it to consumers.”

Mr Murphy says he is concerned the heat map will cause a lot of churning in the industry.

He also says APRA should have a deeper insight into fees, especially given increasing costs and a wave of consolidation throughout the super industry.

Rainmaker’s head of superannuation research Jason Ross says that investment and administration fees collected by super funds went up from $16 billion in 2011 to $32 billion in 2019 – an area that super funds have the most direct control over.

Are you optimistic that the APRA heat map will make it easier for you to compare super funds and ensure your nest egg is in a fund that is performing well?

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    To make a comment, please register or login
    Horace Cope
    19th Nov 2019
    Am I optimistic that the APRA heat map will make it easier for you to compare super funds and ensure your nest egg is in a fund that is performing well? Not really. If one cares to check back on previous years to find out which was the best performer, it will be seen that the top 20 will have a number of similar funds but the one right at the top is never the same in consecutive years.

    Our fund has been top 10 for a number of years and gives a good return on average so chopping and changing won't alter the bottom line to any great degree. I agree with APRA that there are lists of top performers put out each year by various sites but nobody digs into those at the bottom that give investors a loss. This is a step forward in my opinion.
    19th Nov 2019
    Funds boasting low fees usually do so on the basis of their fees in the accumulation phse.

    Fees in pension mode can be quite different.

    And of course they are all hoping that you will lazily roll your super over in the "same" fund.

    Don't. Shop around once again.
    8th Dec 2019
    My rule of thumb is that our fund continues to rise while we receive our SF pension. Now that may not be as good as some but I can sleep eat and travel comfortably. Fees are fixed amount equivalent less than 0.5% pa on our balance.

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