Data has revealed that most of Australia’s Choice super funds would have passed the government’s performance test – had there been one for them.
Research house SuperRatings estimates that nine out of 10 Choice options would have passed the annual Australian Prudential Regulation Authority (APRA) performance test.
SuperRatings found 93 per cent of balanced options would have received a pass, including 69 per cent that met or exceeded the benchmark and 24 per cent that underperformed by 0.5 per cent or less (a deviation allowed under the test).
The findings are a bit of a surprise, considering SuperRatings’ own analysis just a couple of months ago predicted one in five Choice funds would fail the test.
Kirby Rappell, executive director at SuperRatings, says the result highlights the unpredictable nature of investment markets in the short term and that super should always be thought of as a long-term plan.
“The volatile market over the second half of the financial year emphasised the importance of diversification and long-term strategy within superannuation investments, as funds experienced unique conditions relative to earlier periods in the eight-year assessment,” he says.
“The shift in the proportion of options passing the test also highlighted the impact a single quarter can have on reported performance test outcomes.”
Currently, the Your Future, Your Super (YFYS) performance test only looks at MySuper products – default superannuation funds for people who don’t choose a fund when joining an employer.
The test was set to be expanded this year to include Choice super products. These are funds you have to actively join yourself and can’t be automatically defaulted into.
Super funds can offer many different Choice super products, but only one MySuper product.
But upon winning government at this year’s election, federal Labor decided to pause the expansion of the test for another 12 months so it can review the performance test as a whole. This means Choice funds will escape scrutiny for this year at least.
Minister for financial services Stephen Jones says the decision to pause the tests was made because of concerns some super funds were gaming the system to achieve better performance test results.
“Funds must always be held accountable for their performance. In doing so, accountability mechanisms must not simultaneously create perverse or unintended outcomes for members,” Mr Jones told Super Review.
“The government is aware of concerns that the YFYS laws have the potential to create such outcomes by discouraging certain investment decisions or certain infrastructure investments.”
Do you think the government was right to exclude Choice funds from this year’s performance test? Or do we need to make sure the test is fit for purpose first? Let us know in the comments section below.
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