Shock number of super funds failing to meet APRA's benchmarks

A staggering number of super funds are failing to meet the performance benchmarks laid down by the industry regulator, according to the latest data.

The Australian Prudential Regulation Authority (APRA) released its annual heatmaps on Thursday, sounding the alarm on many underperforming funds.

APRA published two heatmaps, the MySuper Heatmap, which has been published annually since 2019, and for the first time a Choice Heatmap, which capture products and options in which members have made an active decision to invest in these funds.

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APRA said that around 60 per cent of choice superannuation products delivered returns below its seven-year benchmark and around 45 per cent of MySuper products failed to meet the benchmark as well.

Over 25 per cent of the choice super products assessed by APRA delivered significantly poor returns.

APRA said that 22 MySuper products have closed since the release of the first heatmap in 2019 and that of those 22 products three of them had failed the Your Future, Your Super performance test this year.

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APRA explained that the performance of choice products varied considerably more than MySuper products and that the fees and costs of choice products were considerably higher than MySuper products without an obvious benefit in financial outcomes for members.

APRA executive board member Margaret Cole said the regulator would now further intensify it supervision on the trustees of the products that had been shown up on the heatmaps as delivering substandard member outcomes.

“Superannuation members deserve confidence that their retirement savings are being well-looked after, regardless of what type of fund or product their money is invested in,” Ms Cole said.

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“Although there have been benefits generated for members from industry consolidation and reductions in fees in recent years, these heatmaps show there remains considerable room for improvement in member outcomes.

“In particular, a sizable proportion of the choice sector has been exposed for delivering poor outcomes, especially considering these products generally charge higher fees than their MySuper equivalents.”

Ms Cole also said that just as the first publication of the MySuper heatmap had contributed to fees falling in that sector, she expected the same thing to happen in the choice sector.

“With a legal duty to act in their members’ best financial interests, all trustees should now be scrutinising the heatmap findings to assess the outcomes they are delivering members, better understand any drivers of poor performance and then taking prompt action to address areas of concern,” Ms Cole said.

“If they are unable or unwilling to do so, they need seriously to reconsider whether their members would be better served with their money elsewhere.”

The Australian Institute of Superannuation Trustees (AIST) general manager of advocacy Mel Birks welcomed the release of the first choice products heatmap and said some of the results were alarming.

“It is disturbing to see the levels of underperformance in the retail superannuation sector,” Ms Birks said.

“While all the political attention has been on MySuper products – which have, on average, always clearly outperformed the choice sector – the retirement savings of millions of Australians in the choice sector were being held back by poor performance.

“The heatmap only considers a small fraction of the available choice investment options – just 727 out of 40,000, in fact. So there’s a lot more work to do to make sure scrutiny is extended to cover all APRA-regulated superannuation products.”

Super Consumer Australia director Xavier O’Halloran said the APRA results highlighted the need for better financial advice.

“We also need to ask how people ended up in such poor performers; we know many people choose based on financial advice,” Mr O’Halloran said. “The quality of financial advice review slated for 2022 must investigate how this happened.

“Blaming consumers for poor choices has become an industry pastime. Given both the super and advice sectors have a duty to act in the best interests of their members and clients, this buck-passing has to stop.”

You can see how your super fund performed by checking out the heatmaps here.

How did you super fund perform against the seven-year benchmarks? Why not share your thoughts in the comments section below?

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Written by Ben

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