The extension of performance tests to a wide range of choice superannuation products has revealed that 12 per cent of the products on offer to the public have underperformed, according to APRA.

APRA’s 2023 performance test found that in the MySuper or default sector only one fund, AMG MySuper, failed the test and its trustees plan to close it down.

AMG has failed three years running.

The total number of choice products failing the test was 96 and these covered 60,000 individual accounts.

However, they only accounted for 1.08 per cent of the $360 billion held in member accounts for the sector.

The performance of MySuper shows the value of the performance tests, said Xavier O’Halloran, director of Super Consumers Australia.

“Our research has shown products which previously failed the performance test cut their fees by 20 per cent on average.”

When testing of MySuper products began in 2021, 13 funds failed. This fell to five funds last year and one this year.

AMG underperformed in all years.

Choice funds are those chosen by members who do not want to go into their employer’s default fund.

Overall they make up $360 billion in balances, compared to $911 billion for the MySuper sector.

The threat of performance testing affected the choice sector before it came in.

“People knew what was coming and trustees had time to reduce fees. We’ve even heard of trustees rebating fees to members to improve performance,” Mr O’Halloran said.

Choice fees higher

Generally, fee structures have been higher in the choice sector and this was pointed out by APRA.

“The median administration fees and costs for platform trustee-directed products were the highest at 0.54 per cent of assets, compared to 0.27 per cent for non-platform trustee-directed products and 0.26 per cent for MySuper products,” the regulator said in its report.

Platform trustee-directed products are products where trustees invest for members using a range of different investment platforms.

Trustee-directed products are those where the trustee designs and controls the investment allocations made through its investment pool.

The choice groups failing the test were concentrated in a small number of funds. About 75 per cent of failed trustee-directed products are concentrated in products offered by just four trustees.

They were NM Superannuation, Nulis Nominees, Oasis Fund Management and OnePath Custodians.

APRA deputy chair Margaret Cole said the expanded scope of this year’s test had boosted transparency across the sector.

“The annual performance test remains a powerful tool to help APRA hold trustees to account for product performance, fees and costs,” Ms Cole said.

“Since its introduction in 2021, nine underperforming MySuper products have exited the market and a total of 800,000 members, with combined assets of $39 billion, have moved to better-performing products,” Ms Cole said.

Ian Fryer, research director with Chant West, said some of the underperformance in platform-based funds was likely based on the fact that APRA’s test assumes balances of $50,000.

“Platforms are built to serve balances of $250,000, not $50,000, and often have flat dollar fees. They will look worse on a fund balance of $50,000 than $250,000,” Mr Fryer said.

Members of underperforming funds must receive a notice of the fact in writing by September 28.

If you want to see whether your fund was among the underperformers check here.

Left out

Although performance testing has been extended to part of the choice sector there are still significant areas of super not being scrutinised.

An important one is the retirement sector, where people hold their money while they draw down their retirement savings.

Mr O’Halloran describes this as a “blind spot” that leaves retirees without protection “when they need it most”.

In March 2023 there were 1.3 million member accounts in the retirement phase with accounts holding $396 billion in members’ money.

That segment will grow in coming years as the population ages.

Another segment left out of APRA’s drag net is the non-trustee directed platform sector.

This sector is driven by investment advisers who channel their clients into a range of platforms with different allocations and back in 2021 APRA estimated it accounted for $515 billion.

There are no plans to extend performance tests to this sector, and that leaves members exposed to poor performance.

Members in the $876 billion self-managed sector are considered to be responsible for their own fund performance.

If you are in an underperforming fund, SCA advises you take action now.

“We strongly encourage people with their retirement savings invested in these super funds to consider whether they’re getting value for money,” Mr O’Halloran said.

“Poorly performing funds are a drain on people’s retirement savings so the message from the public is clear: Lift your game, or leave the market.” 

The New Daily is owned by Industry Super Holdings