Funds failing super performance test cost members $1.6 billion

several funds failed the super performance test

Members who failed to move from super funds that failed a government performance test lost $1.6 billion in just 12 months, new analysis shows.

Research from Industry Super Australia (ISA) shows there were around one million members in funds that failed the inaugural 2021 Your Future, Your Super performance test.

Of that million, just 10 per cent switched to a better performing super fund. That is despite all being informed in writing of their fund’s failure and being encouraged to move.

Collectively, the approximately 850,000 members who remained with their poor-performing fund lost a total of $1.6 billion over the past year. This equates to around $1900 per person.

Read: Super returns will rally after bumpy year

It’s a timely reminder that simply doing nothing with your super can end up costing you tens of thousands of dollars by the time you retire.

ISA chief executive Bernie Dean says the losses could grow even further, as the previous government’s super stapling reforms now tie members to dud funds unless they proactively move out of them.

“This is a reminder that there is huge cost to doing nothing if you are in a dud super fund,” he says.

“Lots of people don’t know you can be stapled to a super fund that has failed the government’s performance test, and that could punch a huge hole in a person’s nest egg.”

Read: Big super funds ‘cashing in’ on positive reviews?

To highlight the point, Mr Dean says if a member on the median wage, with a balance of $50,000, stayed with one of the poor performers for the next 10 years he/she could be about $25,000 worse off.

If a 30-year-old was stapled to a dud fund for the rest of their working life, they could be $225,000 worse off at retirement.

“Switching out of a dud fund and into a good one is easy, but plenty of people don’t think about it until it’s too late.

“It’s up to the government to tighten consumer protections, so people are only stapled to the best funds that have passed the performance tests.”

The super performance test was introduced to provide members with an independent assessment of how their fund has performed over the year, so they can make any necessary changes.

But if, as it seems, most customers are ignoring this advice, it’s hard to see how the performance test will ultimately achieve its goal of making Australians more aware of their super.

Read: What to consider before switching super

It’s a point not lost on Australia’s $3.3 trillion super industry, which tasked the new Labor government with conducting an inquiry into the performance test.

But Paul Schroder, the head of AustralianSuper, the country’s biggest super fund, told an Australian Securities and Investments Commission (ASIC) conference that struggling funds pushing for changes to the performance test should leave the industry rather than complaining about the test.

“Should we, as funds, make more money than a passive benchmark? Of course,” he said.

“Should we make more money than the median? Of course. If we can’t keep doing that, we should stop and give the money to someone else.”

Did your fund pass the performance test? Would you switch funds if your fund failed the test? Let us know in the comments section below.

Written by 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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