Finance Your Super APRA’s Heatmaps see low-performing superannuation funds to quit the industry
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APRA’s Heatmaps see low-performing superannuation funds to quit the industry

Leaving out administration fees from super controls could cost retirees. Photo: TND
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Financial regulator APRA has boosted the performance of MySuper funds, with 11 out of 47 underperforming funds exiting the market over the past year under scrutiny generated by its product Heatmaps.

APRA is also reviewing eight underperforming funds to see if their trustees have breached obligations to members, which could result in prosecution.

In its latest MySuper Product Heatmap released on Friday, the regulator reported that 71 per cent of MySuper members were paying less in fees and charges than when the first Heatmap was released in December 2019.

“Fees and costs continue to trend down overall, with MySuper members saving a total of $408 million in disclosed fees and costs since the first Heatmap was published. That’s an average of $47 per member for members in products with decreased fees and costs,” APRA deputy chair Helen Rowell said.

“Of the 11 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.”

Meanwhile, in its annual superannuation statistics publication APRA also reported that only 44 funds out of 141 had recorded positive returns over the year to June 30, when COVID was having its worst impact on the market.

Out of the larger superannuation funds, the top performer was ANZ’s Australian Staff Superannuation Scheme, which saw its asset base grow from $4.64 billion to $5.36 billion over the year.

“However, the news is not all positive. In particular, we are concerned that some funds identified as the poorest performers 12 months ago remain in that position today,” Ms Rowell said.

As a result, the regulator “is now reviewing whether, in relation to 10 MySuper products, eight trustees may have failed in their obligations to members of these products, including possible breaches of the Superannuation Industry (Supervision) Act 1993,” Ms Rowell said.

APRA would not tell The New Daily which funds were under investigation.

APRA turns up the heat

David Knox, a partner with superannuation and actuarial specialists Mercer, said the introduction of the first Heatmap last December had led to positive results.

“APRA is increasing the pressure on underperforming funds with 11 leaving the industry in the last year,” he said.

“We are going to see more fund mergers and more exits as a result and that will be a good outcome.

“The Heatmaps can be seen as a contribution to the [Your Future, Your Super] reforms announced in this year’s budget, which will review performance.”

Under those reforms, APRA will conduct annual performance reviews of MySuper funds, informing members if their fund fails the review and barring funds that underperform two years in a row from accepting new members until their performance improves.

The new reviews come into effect next July.

However, choice funds (mainly from the retail, for-profit sector) will not be introduced into the system until 2022, and the government currently has no plans to introduce non-trustee-driven funds (i.e. those operating on investment platforms) into the system.

That means at least $881 billion in superannuation savings will be excluded from the performance review system – affecting some 8.4 million Australians.

APRA’s performance reviews will take into account investment costs but leave out administration costs, which can be significant, especially for retail funds.

As the above table shows, the funds with the highest admin fees are retail funds.

Industry funds in the same APRA table generally had admin fees of between 0.2 per cent and 0.3 per cent.

Industry Super Australia said that leaving out admin fees made APRA’s job of enforcing high performance more difficult.

“APRA has strongly expressed how excessive administration fees can impact returns. It found some members with a $50,000 balance are paying more than two and a half times higher administration fees than members in other MySuper products,” ISA said in a statement

“ISA analysis also shows that the average worker in MySuper products with the highest administration fees will have $158,000 less than those with the lowest fees.

“The retail sector generates much of its $10 billion annual profit from its lucrative administration fees, and by deliberately carving them out from the performance benchmarks in the Your Future, Your Super legislation, the government risks undermining the entire reform package.”

The New Daily is owned by Industry Super Holdings