Regulator names and shames underperforming superannuation funds

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The financial regulator has revealed the full list of how default MySuper funds fared in its performance test, with many that did not fail only just scraping a pass.

Earlier this year it was revealed that more than 1 million Australians who are members of underperforming superannuation funds would get letters urging them to switch where they invest their retirement savings.

A total of 76 MySuper investment options had been graded as either “pass” or “fail” — based on the Australian Prudential Regulation Authority’s (APRA) test of comparison of fees versus performance over seven years.  It found that 13 funds failed to pass its test.

The public naming and shaming of underperformers formed part of the federal government’s Your Future, Your Super reforms, designed to weed out underperformers from Australia’s $3.4 trillion super system and help lower the high cost of fees.

At that time APRA graded MySuper funds as either a “pass” or “fail”, but the regulator did not include the actual test scores or give an indication of those funds that narrowly passed the test.

On Thursday APRA has made the scores fully available to the public. Its “heatmap” data analysis covers about 60 per cent of Australia’s super industry.

It shows that one of Australia’s biggest funds $67 billion industry super fund REST Super, which currently has about 1.8 million members, was among seven default superannuation products that “marginally passed” the performance test in August.

Others included TWU Super and BT’s Westpac Group Plan MySuper.

APRA’s test expanded

While the majority of working Australians hold their superannuation in MySuper investment options, APRA’s performance test has now been expanded to include more than 700 choice products.

It found that 60 per cent of investment options in the choice category delivered returns below APRA’s benchmarks over seven years, with 25 per cent of options delivering significantly poor returns.

Funds listed under “products with multiple options with poor 7-year heatmap performance of -0.50 per annum or worse” included IOOF’s OnePath OneAnswer Frontier, Zurich Superannuation Plan, Perpetual Wealth Focus, Westpac’s BT Super’s Super for Life, AMP Signature Super, Aware Super -Tailored, Energy Industries Superannuation Scheme Super, Christian Super and Australian Catholic Superannuation – Personal Plan.

APRA’s report said the fees and costs of choice products were considerably higher than MySuper products, without obvious benefit in financial outcomes for members.

Three of these funds – EISS, Christian Super and Australian Catholic Super – also failed APRA’s first performance test in August that named the country’s 13 worst performing MySuper products.

Super funds told to lift their game

APRA executive board member Margaret Cole said the regulator will now “intensify” its supervision on the trustees of products that have been shown to deliver “sub-standard member outcomes”.

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

These funds had a legal duty to act in their members’ best financial interests, and Ms Cole said all trustees should now be taking “prompt action” to address poor performance.

“If they [super funds] are unable or unwilling to do so, they need seriously to reconsider whether their members would be better served with their money elsewhere,” Ms Cole added.

Australians pay $30 billion a year in fees, according to the Productivity Commission, and that is excluding insurance premiums.

Super Consumers Australia director Xavier O’Halloran said members of funds that have failed APRA’s performance test should check if there is a better fund for their retirement savings.

Members could lose out on hundreds of thousands by retirement if they stay in a poor performing fund.

APRA revealed that 22 superannuation funds merged or exited the market as result of the publication of the performance tests.

“The regulator draws attention to fact that really high fees being charged in choice sector and they can’t see justification for this in terms of better outcomes for members,” Mr O’Halloran said.

He said funds need to take “drastic action” to lift their game.

“They [super funds] need to be looking at merging, exiting the market or significantly reducing the fees.

“And longer term, they need to think about what value they are giving in terms of investment performance.”

By business reporter Nassim Khadem (Original ABC Article)