Watchdog threatens legal action against 'worst' super funds

The superannuation regulator is turning up the heat on superannuation funds, releasing new reporting standards it says will help it ‘more deeply’ scrutinise fund performance, costs and how trustees are spending members’ money.

The Australian Prudential Regulation Authority (APRA) is threatening legal action against eight underperforming funds and told a Senate Estimates committee it was reviewing their cases after issuing formal notices about their poor performance.

In December, APRA warned of legal action against eight super trustees when it released its latest heatmap, which is intended to lower fees and improve performance in the sector.

The worst funds for a six-year investment return at the end of 2020 were BT Funds Management Westpac Group MySuper (returns of 3.4 per cent per annum), followed by BT Funds’ Asgard Employee MySuper and BT Super MySuper (3.42 per cent and 3.43 per cent respectively). Equity trustees AON Master Trust MySuper delivered only 4.3 per cent.

Mercer Superannuation’s Mercer SmartPath had some of the worst fees, with a total 2.32 per cent, followed by BUSS (Queensland) and IOOF’s MySuper (2.2 per cent).

That report showed 71 per cent of MySuper members received a reduction in fees and costs in the year following the release of the first heatmap.

APRA is now reviewing the response of the underperforming funds to official notices “to determine the most appropriate next steps in each case”.

Meanwhile, financial services insights company Rainmaker, says that of the 692 superannuation products it recently reviewed, 29 per cent had received a AAA rating for 2021.

A full list of AAA-rated products can be found here; the 11 offerings added are: AMG Super’s Emplus Personal Super; Australian Catholic Superannuation and Retirement Fund’s RetireSmart; Colonial First State Rollover and Superannuation Fund; Military Super; Commonwealth Super Corporation retirement income; GESB West State Super; GuildSuper; Russell Investments’ Nationwide Super Personal Division; Spaceship; Suncorp Brighter Super for Business; and Bendigo SmartOptions Super – Employer.

“Members in a AAA-rated fund can be confident their fund will deliver on its promises,” said Alex Dunnin, executive director of research and compliance at Rainmaker Information.

“To achieve the AAA rating, superannuation products are independently assessed to ensure they meet high standards across investments, fees, insurance, communications and more.”

Read more: Common super mistakes

In other super news, an “enforcement blitz” by the Australian Securities and Investment Commission (ASIC) against some super funds may have unintended consequences, with lawyers concerned members’ own savings could be used to pay penalties.

ASIC is launching about two dozen civil and criminal cases against superannuation funds, including REST Super and Statewide Super.

But the AFR reports that an amendment moved by Labor late last year “allowed industry funds another year to dip into the pockets of savers to pay penalties, rather than finance fines through shareholder capital or other indemnification”.

As a result, trustees are now banned from using members’ money to pay fines from January 2022.

Read more: How SMSFs invested in 2020 and what it means for 2021

There are now 164 APRA-regulated funds, down on the 279 funds that existed when the Stronger Super reforms were introduced in 2013.

“This consolidation has helped drive better governance, stronger performance and lower costs, although we still see plenty of scope for further consolidation and efficiency within the industry,” said APRA chair Wayne Byres.

The regulatory moves come against a background of turmoil in the super industry, with Nine commentator Jennifer Duke saying: “The federal government, Labor and the super funds all appear to have a different view about the point of superannuation funds in the first place.

“There has to be a clearly defined objective for superannuation and for the retirement system more broadly,” she says.

“Enshrining an objective for superannuation in law would not be a cure-all, but it would help limit some of the frustrations the industry holds about how the government treats super.

“Defining a purpose for the current system would provide a solid ground for policymakers, the industry and the public to be able to talk about the future. It’s hardly surprising people are pulling super in multiple directions when there isn’t agreement on the fundamental purpose.”

Do you feel confident about the future of your super? Do you think the government will stop a rise to the superannuation guarantee?

Read more: How to grow your nest egg ethically

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

Written by Will Brodie