Big super funds ‘cashing in’ on positive reviews? 

The federal government’s annual review of superannuation funds, now in its second year, appears to have produced an unwanted side-effect, with members of the better-performing funds noting an increase in fees.

Research from financial analyst Rainmaker says that Aussies stuck in funds charging high fees could be missing out on hundreds of thousands of dollars in retirement. So ensuring fees are reasonable is important.

According to a submission made during a review of the Your Future, Your Super performance tests – a review initiated by the Albanese government – the funds that have received good scores have increased their fees by almost 6 per cent.

The submission was made by Super Consumers Australia (SCA), a self-described “people’s advocate in the superannuation sector”. The SCA submission states: “Among funds that passed the test by a significant margin, we found a 5.71 per cent average increase in fees on a $50,000 balance asset weighted basis. A subset of funds was responsible for the weighted rise in fees.”

Read: Five super funds fail performance test

Such an increase, SCA says, may be a sign of complacency among those funds, and highlights a potential drawback of the annual test.

“This [fee increase] is perhaps indicative of a lack of competitive pressure in this segment of the market. There is a risk that attempting to use the test to solve all problems in the industry will water down the clear impact it has had on weeding out underperformance.”

Among the funds to have raised fees are AustralianSuper, Rest and Insignia.

On the other side of the coin, SCA’s submission notes that the performance test has been effective in reducing the fees paid by members in poor funds: “We looked at changes to MySuper fees that have taken place since the test was announced and found that failed products have on average experienced a 20.64 per cent reduction in fees.”

While that is good news, those who have invested in underperforming funds have been warned that fees are only part of the equation. A media release from Industry Super Australia (ISA) is scathing of what it terms “dud super products”.

Read: Victims of crime call for superannuation loophole to be closed

The release says: “The 850,000 members who failed to leave their dud super product that failed a performance test lost $1.6 billion in just 12 months.” 

Analysis conducted by ISA found that despite these funds’ underperformance, very few members moved away, suggesting that it’s not only funds, but members themselves, who are showing signs of complacency.

“Only about 10 per cent of members switched out of the super funds that failed the inaugural 2021 Your Future, Your Super performance test, despite receiving a letter encouraging them to change,” the ISA says.

Thirteen products failed the inaugural performance test in 2021, with that number dropping to five this year.

Read: Most funds would have passed super performance test

Super Consumers director Xavier O’Halloran told the Australian Financial Review that the performance test was just one aspect driving better performance among super funds. 

“If you go back to the Productivity Commission, and look at what they recommended, the performance test was really about chopping off the tail of underperformance,” he said. “If you’re going to drive good performance in the rest of the market, then you need to look at other things.”

The SCA submission made a slew of recommendations, 26 in all, including seeking an expansion of the test to include ‘choice’ products, which are specific investment options actively selected by super fund members.

With a stronger focus on performance, underperforming funds are increasingly finding themselves with nowhere to hide, which is good news for members.

How has your super fund scored in the first two performance reports? Have you made a change as a result? Why not share your experience in the comments section below?

Andrew Gigacz
Andrew Gigacz
Andrew has developed knowledge of the retirement landscape, including retirement income and government entitlements, as well as issues affecting older Australians moving into or living in retirement. He's an accomplished writer with a passion for health and human stories.
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