Government pauses Your Future, Your Super expansion

Federal Treasury will review the superannuation industry’s Your Future, Your Super performance regime, delaying a planned expansion of the scheme to more products.

The government will also pause the proposed expansion of the regime from the current MySuper products to the broader market for Choice superannuation products.

Federal Treasury will review the superannuation industry’s Your Future, Your Super performance regime, delaying a planned expansion of the scheme to more products for at least a year.

On Thursday, Financial Services Minister Stephen Jones said the government was aware of concerns that the YFYS laws have the potential to “create perverse or unintended outcomes for members” by discouraging certain investment decisions.

“With two rounds of annual tests completed, the review will consider whether the performance test has had any significant unintended consequences for MySuper products and assess how the test should be applied to other superannuation products,” Mr Jones said. “Having decided to review the operation of the performance test we will pause its extension beyond MySuper products for 12 months.”

The move was welcomed by the superannuation sector, which has resisted the changes introduced by the Coalition.

Financial Services Council policy director Spiro Premetis, said the group had “long advocated for a performance test for superannuation products that accurately reflects investment performance and member experience”. But he said pausing the expansion of the Your Future, Your Super regime to the choice sector was the “right outcome for consumers”.

“Proceeding with the test without further consultation could have resulted in consumers being given misleading information about their superannuation fund’s performance,” he said, adding that the broader review of the regime would “provide an opportunity to examine any unintended consequences of these … reforms, such as ensuring consumers have the option of selecting superannuation funds that align with broader goals such as ESG investing”.

Martin Fahy, the chief executive of the Association of Superannuation Funds of Australia, said the review was “timely and appropriate.” “It is a positive move that will help improve accountability and performance of the wider superannuation system,” he said.

Mr Fahy said ASFA had consistently raised concerns that the benchmarking approach adopted “would have unintended consequences and distort capital allocation in a matter which was at odds with delivering strong ­member outcomes”.

“If left unchecked, this would result in Australians having less in retirement,” he said.

But the move was criticised by Liberal senator Andrew Bragg, a member of government’s economics and corporations committees. “In his first act, Mr Jones has proven that he is going to be the Minister for Industry Super,” Senator Bragg said.

“In gutting the Your Future, Your Super reforms, Jones is simply working through the list of grievances of the super lobby.”

The performance testing regime came into effect on July 1 last year, putting poor performing funds under pressure to merge with larger funds because of the threat that consistent underperformers would be banned from accepting new members.

But the performance benchmarks have been criticised for having unintended consequences, including discouraging infrastructure and ESG-related investments which can take longer to generate positive investment results.

The regime was to have extended to the broader superannuation sector on July 1 this year.

“In addition, the review will also consider whether there have been any unintended consequences from other YFYS reforms,” said Mr Jones. “Unnecessary regulatory measures can impose a significant administration cost on funds and their members.

“In particular, the review will consider concerns relating to the regulatory complexity of best financial interests duty requirements,” Mr Jones said.

In August, the new test reveals that 13 of 76 funds – or 17 per cent of those assessed – had failed the evaluation and had 28 days to write to their members detailing their failure and suggesting they switch funds to get a better retirement outcome.

The named-and-shamed funds include AMG Super, LUCRF, Colonial First State’s First Choice Employer Super Fund, Maritime Super, Christian Super and Commonwealth Bank Group Super.

All up, $56.2bn of 1.1 million workers’ retirement savings were invested in those funds.

Originally published as Government pauses Your Future, Your Super expansion