Super funds to be classified under new traffic-light colour coded system
A traffic-light style rating system for superannuation which allows customers to compare funds has been slammed by the nation’s top body as “irresponsible”. See how the new system works.
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THE nation’s new superannuation ratings system that classifies funds into red, amber and green based on their cost and performance has been slammed by the nation’s top superannuation body.
The Association of Superannuation Funds of Australia’s chief executive officer, Dr Martin Fahy, said it was “irresponsible” to rate funds in the new traffic light colour-boded system.
Fund’s MySuper products — default super products — will be classified on the basis of four criteria.
Green will be the best, while red the worst.
The banking regulator, the Australian Prudential Regulation Authority, will publish the ratings of 100 or more MySuper products after analysing their risks, fees, insurance and fund sustainability including net growth.
The results are due to be published later this year.
But Dr Fahy said the new ratings system was fraught with danger.
“Putting a heat map (of funds’ ratings) out into the public domain is irresponsible,” he said at the JANA conference in Melbourne today.
“Are all the funds that are green endorsed by the regulator and what’s the implication for the fund that’s red.”
The coloured system has been introduced in a bid to shame underperforming funds and would make it much easier for members to determine if their fund was doing well or not.
“The idea that we can reduce funds to good and bad, red and green in a binary manner is improvised, it sells us all short,” Dr Fahy said.
“The challenge here is to be able to signal and remove underperforming funds.
“What we do know is habitual underperformance does come through pretty clearly.”
Dr Fahy conceded while some funds had unperformed, “the system’s not broken”.
He said there was too much tinkering to superannuation in Australia and it needed to stop.
Industry funds came out with big winners following the financial services’ Royal Commission while their rivals, retail funds, were put under intense scrutiny for issues including fee-for-no service and underperformance.
In a speech delivered by APRA chairman Wayne Byres in Sydney today, he said the criteria to classify funds would expand to include insurance at a later date.
“Our goal here is pretty simple: to identify those trustees that, when looked at across a range of dimensions, do not seem to be delivering value-for-money outcomes,” he said.
“No doubt there will be fierce complaints — particularly from those at the wrong end of the scale — that the data is wrong, the metrics we use are wrong, or that the benchmarks we choose are wrong.
“We will be looking to highlight those funds who seem to persistently, across a range of metrics, produce poor returns and who, looked at in various ways, appear to have high costs.”
Industry Super Australia’s chief executive officer Bernie Dean said the problem of “chronic underperformance” needed to be addressed.
“The focus must be on ensuring consumers are connected to quality-checked, high performing funds with low fees and good returns, and we welcome this proposal by APRA as a step in the right direction,” he said.
“Consumers should be able to look at different funds and products, and have confidence they are comparing apples with apples with a standardised approach across the entire system.”
He said the classification of funds should not just be across default MySuper products but also those Australians opted into.