Your Future, Your Super: 96 trustee directed products fail expanded APRA test

Almost one in 10 trustee funds have failed the regulator’s expanded Your Future, Your Super performance tests – including products offered by AMP, MLC, Bendigo Bank and QSuper.

Nearly 100 superannuation funds will write to their members in the coming weeks after failing to pass the expanded Your Future, Your Super performance test.

The Australian Prudential Regulation Authority (APRA) found that 96 trustee directed products — almost one in 10 — failed to meet test benchmarks in 2023.

That included 20 of 500 non-platform products and 76 of 305 platform products.

The test was expanded this year to evaluate the performance of 805 trustee directed products, a subset of the Choice sector. MySuper products were tested for the third year in a row, with one of the 64 MySuper products assessed failing.

Of those failed trustee directed products, 75 per cent were concentrated in products offered by four trustees: NM Superannuation Proprietary Limited, Nulis Nominees, Oasis Fund Management Limited and OnePath Custodians.

AMP, which had 26 funds under its NM Superannuation arm, said that in many cases investment options that haven’t met the test’s benchmark are legacy closed funds.

“Advisers and their clients have chosen to remain invested in these options because they have assessed that moving will not be in the member’s best financial interest due to capital gains tax, transaction costs and potential loss of valuable insurance arrangements,” the firm said.

Other players that failed included The Australian Retirement Trust’s QSuper Socially Responsible fund, which will shut down as a result, and two products from Bendigo and Adelaide Bank’s The Bendigo Superannuation Plan. Bendigo Bank declined to comment.

Insignia Financial was involved with most of the trustee directed superannuation products that failed with its ownership of the MLC Superannuation Fund, IOOF Investment Management and Oasis Fund Management, plus providing products for OnePath.

The group’s head of superannuation and chief distribution officer Mark Oliver said the findings represented around 5000 of its members with approximately $350m, which is less than 1 per cent of total members and assets in its superannuation funds.

“While this represents a small cohort of members, it is a disappointing outcome for them and we remain highly focused on delivering improvements while protecting members’ interests in this process,” he said.

“Our immediate priority is to assist members … and members who receive notification from their superannuation fund are urged to speak to a financial adviser before making an investment decision that may not be in their individual interests.”

APRA deputy chair Margaret Cole said expanded scope of this year’s test had significantly enhanced transparency over a wider range of super investment options.

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

“Members in trustee directed products make active decisions about their investment options and some might select products for reasons beyond performance. Nevertheless, all trustees must take responsibility for the products they make available and ensure the products they offer are in their members’ best financial interests,” she said.

AMG Super’s AMG MySuper was the only MySuper product that failed to meet the test benchmark, having done so for a third year in a row. It has been closed to new members since 2022 and the owner Acclaim Wealth announced last week it would shut the fund entirely.

Last year there five MySuper failures from Australian Catholic Superannuation fund, Westpac’s BT Super MySuper, Energy Industries Superannuation Scheme and AMG Super. In 2021 there was 13 that failed to pass.

Funds that fail the annual test – by underperforming a government benchmark by 0.5 percentage points – must notify their members by September 28. But if they get that result for two straight years the consequences are severe and the fund’s product must stop accepting new members.

APRA deputy chair Margaret Cole said the superannuation performance test holds trustees to account for product performance, fees and costs. Picture: John Feder.

Ms Cole said that some trustees with multiple failed products have rationalisation programs underway to improve member outcomes.

“APRA expects heightened focus on these underperforming products and will be monitoring the progress of product consolidation programs closely,” she said.

Super Consumers Australia director Xavier O’Halloran said consumers in funds that failed should consider whether they were getting value for money.

“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,” he said.

Mr O’Halloran added that it remained a major blind spot that the test did not apply to retirement products on the market.

“There’s little transparency over retirement products’ fees and performance, and no accountability for funds that poorly manage retirement products. Without this, how can the growing number of Australian retirees be confident that their fund is operating in their best interests,” he said.

Total assets examained by APRA include $911bn in MySuper products, $19bn in trustee directed products (TDP) platform and $341bn in trustee directed products (TDP) non-platform.

The test has been used to boost accountability for funds that have flailing performance and takes into account factors including net investment returns, asset allocation, fees and costs. It typically makes an assessment over an eight-year period, if the fund has been established long enough.

MySuper funds are a default option that are deemed to be simpler and lower-cost in the form of a balanced product.

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.

Since the introduction of the test in 2021, nine underperforming MySuper products have exited the market and a total of 800,000 members, with combined assets of $39bn, have moved to better performing products.

Originally published as Your Future, Your Super: 96 trustee directed products fail expanded APRA test