The Australian Prudential Regulation Authority (APRA) has put the superannuation industry on notice.
Speaking after the release of its annual super Heatmap appraisal, APRA deputy chair Helen Rowell said Australian superannuation was a good system but had “room to improve”.
Since December 2019, 11 of the 47 MySuper products that underperformed on APRA’s investment benchmarks have left the industry. And the regulator has warned that eight trustees who have failed their obligations to members could face “formal enforcement powers”.
Ms Rowell described the superannuation system as “… performing pretty well, delivering pretty good outcomes. But it is a bit high cost, investment performance is mixed across the board and there are scale and sustainability issues to be tackled.”
“In particular, we are concerned that some funds identified as the poorest performers 12 months ago remain in that position today,” she said.
“Overall, we estimate that 900,000 members (representing $31 billion in total assets at 30 June 2020) are invested in the six MySuper products with significant investment underperformance,” she said.
Ms Rowell believes the “name and shame” heatmap has been effective.
“The MySuper product heatmap shines a light on those trustees who are failing their members by charging high fees and not delivering good long-run returns,” she said.
“The impact has been immediate in the area of fees and costs, with MySuper members saving hundreds of millions of dollars in fees since the release of the first heatmap. And despite an immensely challenging year with COVID-19, more than half of MySuper products exceeded our investment benchmarks over six years.”
Ms Rowell said more than half the products (37) assessed were performing at or above the heatmap investing benchmarks over six years, and under 40 per cent (27) were underperforming by up to 75 basis points, and 9 per cent (six) underperformed by more than 75 basis points.
In the 12 months since the first heatmap was published:
- 11 of the MySuper products that underperformed the investment benchmarks have left the industry
- 71 per cent of MySuper members (10 million members) are paying less in total fees and costs
- an estimated $408m saving in total fees and costs has been achieved.
“Of the eight MySuper products with significantly high total fees and costs in the 2019 heatmap, eight have reduced their total fees and costs by an average of $166 annually and two have exited the industry,” Ms Rowell told The New Daily.
She said some trustees were “clearly modifying” investment decisions to manage their performance against the heatmap.
“Others have tried to rewrite history by resubmitting data to present their funds in a more favourable light. These kinds of games indicate poor leadership, are not indicative of a mindset that is genuinely seeking the best outcomes for members and certainly won’t get those trustees off APRA’s underperformer list,” she said.
“Products with higher fees are not necessarily delivering higher performance … In terms of what might happen to the structure of fees it’s a challenging issue. There’s no right structure for fees.
“We want to put the challenge back to the industry to think about if they have that level of structure right and what they can do to make sure they’re being equitable in the way they distribute fees across their members.”
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