The super funds that are likely to be shut down regardless of the election result
Underperforming superannuation funds will face the chop following the election, with Labor and the Coalition pledging to increase the powers of the regulator, the Australian Prudential Regulation Authority, if they form government.
Shutting down poor performers was put firmly on the agenda recently, when the Productivity Commission said low performers were costing their members about $188,000 through their working lives and recommended they be closed.
Following the report, Treasurer Josh Frydenberg and Shadow Treasurer Chris Bowen both went on the offensive over poor fund performance.
Mr Frydenberg said the industry needs “a culture of compliance and accountability, regulators fit for purpose, and an acknowledgment by the sector that people must be put before profits”.
Mr Bowen, meanwhile, was more direct, saying “regardless of the structure of the fund or the sector that the fund’s in, poor-performing funds should be dealt with”.
Which funds will go?
The question in the minds of members will be “Is my fund going to be closed?”
It’s too early to answer that question definitively, but we can get some clues through what industry participants have been saying recently.
The PC initially called for a list of 10 top-performing funds to be used as options for default funds. However strong objections from political and industry sources means this is likely to be abandoned in favour of a “member outcomes test” that would see APRA force serial under-performers to close.
Underperformance, the PC said, could mean lagging an industry benchmark performance by 0.5 percentage points.
Martin Fahy, CEO of the Association of Superannuation Funds of Australia, said a more reasonable figure would be 1 percentage point.
Ian Fryer from research house Chant West said a reasonable aim would be to see the industry “ending up with say 30 or 40 really good funds”. The PC said as many as 93 out of almost 200 mainly small funds could be forced to close.
Analysis of APRA figures by The New Daily demonstrates the strong performance of the 14 top-ranking funds over five years to June 2018. All bar two are industry funds.
A list of the lower end of performers over five years to June 30, 2018, looks like this. It is made up entirely of for-profit retail funds.
To give some context to those performance figures, Chant West found the average balanced or growth super fund that invests between 61 per cent and 80 per cent in growth assets returned 9.1 per cent annually over the five years.
The top 15 funds in the above table comfortably fit that benchmark, but the 13 funds towards the bottom of the table fell two percentage points or more below the Chant West benchmark. They were chosen from funds falling between 118th and 188th position on the APRA performance table.
Big funds owned by the top four banks figure they would be unlikely to be knocked out by APRA action, as the regulator has talked about closing smaller funds. They could, however, be forced to change their business model to improve their performance to be near an APRA-imposed benchmark.
APRA can’t act
APRA’s powers need to be upgraded to allow it to force fund closures, however.
“Under the current legislative framework, APRA does not have the power to force a superannuation licensee to merge or wind up – other than cases where APRA believes there is a material concern, for example a significant risk to the safety of members’ investments,” an APRA spokesman said.
Legislation before Parliament would, if passed, “strengthen APRA’s power to intervene at an earlier stage and direct licensees to take specific actions, including merging or winding up should that be in the best interests of its members”, he said.
The New Daily is owned by Industry Super Holdings