Industry Super Australia (ISA) has called for the implementation of a more accurate way of measuring performance of superannuation funds. But your super fund mightn’t look so attractive if the test was applied across the industry.

Regulator APRA has waved through 96.9 per cent of superannuation assets as meeting its new performance standards, calling out only five funds as underperformers in 2022. That follows 13 dud funds in the first year of the test in 2021.

Using ISA’s preferred test, seven funds failed but another six passed with returns that were less than $1000 above the benchmark. It also highlights the divergence between funds – super performer Hostplus Balanced delivered $17,600 more over eight years than the ISA benchmark.

As the attached chart shows another four funds – AustralianSuper, Cbus, Meat Industry and UniSuper – returned at least $10,000 above the benchmark. Nine of the top 10 were industry funds performers.

Check the chart to see how your fund performed. Full details of the ISA performance table are shown here at figure 15 on page 27.

The biggest loser using ISA’s benchmark, was Energy Industry Super which fell $6845 below the benchmark over eight years. That shows there is a massive spread of $24,445 between the top and bottom performer.

ISA says outcomes using APRA’s test were more positive for many funds because a number of funds gamed the test before APRA introduced it in 2021.

“While some of those changes may have been legitimate they all increased their test score without increasing returns to members,” ISA said. Just before APRA first introduced its performance test in 2021, 35 super funds reclassified investments.

How is performance measured?

Many reduced their exposures to non-traditional investments which APRA expected an annual return of 5.1 per cent and increased their exposure to cash and cash-like investments which the regulator only expected 1.8 per cent in returns.

APRA’s test delivered a benchmark for different investment types and deemed funds failing if they returned 0.5 per cent or more below the benchmark for their investment type. This meant funds that moved to assets demanding lower returns could to a degree cover underperformance in previous years.

The test ISA supports and used to run its own fund performance evaluation creates a standard $50,000 portfolio of 70 per cent growth assets and 30 per cent defensive assets. Fund performances are measured by the dollar figures of returns above or below this average.

APRA’s test was inadequate to show members the real performance of their fund, said ISA deputy CEO Matt Linden. “This assessment has allowed too many dud funds to bend the rules, so they pass, leaving their members with the same lousy returns and high fees.

“Performance testing is a good thing, but to unlock its full potential funds should be measured on what value they are adding to their members’ retirements – not how they can game the system,” Mr Linden said.

Alex Dunnin, director for research group Rainmaker, said the action of funds to maximise their returns by taking advantage of the rules of APRA’s performance test was not a problem. “It’s like an exam – who doesn’t try to maximise their chance of passing?

“If they’re doing anything scammy like putting high performance funds in lower categories then that’s what we have a regulator for,” Mr Dunnin said.

However, Mr Dunnin said ISA’s call to change the APRA performance test was justified and the current test did not call out enough under-performers. In 2021, 84 per cent of MySuper products passed the performance test and this rose to 93 per cent in 2022.

Can it be that good?

“If 93 per cent of products are passing the test then either that’s wonderful and there is no problem, or maybe this test is so dopey it’s not measuring anything,” Mr Dunnin said.

Because the APRA test benchmarks different investment products rather than absolute returns it did not encourage funds to try new things to boost returns. Rather they should just stay close to the benchmark and not risk under-performance, Mr Dunnin said.

“Who cares about people getting their team together and actually coming up with a damn smart super asset allocation?” Mr Dunnin asked. Measuring actual dollar performance compared to a model portfolio would encourage fund managers to find ways to build a bigger dollar performance, he said, rather than just stay close to the APRA performance standard.

The New Daily is owned by Industry Super Holdings