Australia’s 13 worst superannuation funds

More than one million Aussies have their retirement money sitting in funds that are underperforming and they are being urged to find an alternative.

More than one million Aussies will receive a letter from their own super fund urging them to switch where their retirement money is held after 13 big name funds failed the financial watchdog’s test.

The Australian Prudential Regulation Authority (APRA) assessed 76 MySuper products based on a comparison of fees versus performance over seven years.

While 84 per cent of the funds passed, the 13 funds that failed collectively hold $56 billion of Aussies’ investments.

APRA executive board member Margaret Cole said she was concerned by the number of failures.

“Trustees of the 13 products that failed the test now face an important choice: They can urgently make the improvements needed to ensure they pass next year’s test or start planning to transfer their members to a fund that can deliver better outcomes for them,” she said.

The 13 failed funds collectively hold $56 billion in investments. Picture: Getty Images

THE FAILURE LIST

The largest funds to fail were Colonial First State FirstChoice Superannuation Trust and BT Super’s Retirement Wrap, who between them manage retirement funds for 777,000 Aussies.

Other funds on the list included Commonwealth Bank Group Super for in-house employees which boats 54,000 members, AMG MySuper, Labour Union Co-Operative Retirement Fund which has over 115,000 members and Maritime Super.

The 13 failed super funds must write to members by September 27 telling them their super sits in a product that has “performed poorly”.

The letter will also suggest Aussies could boost their retirement pot by thousands and will include the line “by earning 1 per cent higher net return over a 30-year period, you could be 20 per cent better off at retirement.”

Funds were also warned by ASIC senior executive leader for superannuation Jane Eccleston that the text in the letter was mandatory and could not be changed to be “misleading” or “deceptive” about their performance.

A report identifying the reasons for their underperformance is also required to be sent to APRA and how they plan to fix it.

Other funds that failed the test included ASGARD Independence Plan Division Two that includes 73,000 members, Australian Catholic Superannuation and Retirement Fund which has more than 52,000 members and The Victorian Independent Schools Superannuation Fund for independent school employees.

Also on the list were Boc Gases Superannuation Fund and AvSuper Fund which between them have around 5000 members, Christian Super which has 20,000 members and Energy Industries Superannuation Scheme-Pool, which holds over 11,000 accounts.

Overall, there is around $3 trillion in assets sitting in the super system and experts believe these new report cards will see funds closing down or merging in the coming years as pressure builds to lower fees and perform better.

Overall, there is around $3 trillion in assets sitting in the Australian super system. Picture: iStock

REFORMS AIM TO SAVE $17.9 BILLION

The Productivity Commission found in 2019 that switching from the worst performing fund to the best could boost a worker’s retirement money by a whopping $660,000.

Publicly naming and shaming the worst performing Aussie super funds is part of new federal government reforms, which are estimated will save Australian workers $17.9 billion over 10 years, and included the introduction of a super comparison tool launched in July.

While this was the first report to out poor-performing super funds, the regulator has warned that if a fund fails for two consecutive lists, they will be banned from taking on any new members until they lift their performance.

Xavier O’Halloran, director of Super Consumers Australia, said the performance test is a basic fitness test that shows whether super funds are doing a good job adding to our retirement savings.

“It is the first time people have easy access to clear, independent information about how their fund is going,” he said.

Superannuation funds have a legal duty to deliver the best financial outcomes for their members, he added.

“Funds have had ample warning and time to fix their flaws. They have been given plenty of leeway in the way the test works. If the fund has failed, then people really have to weigh up whether the fund is the right one for them,” he said.

The test is part of the Government’s “Your Future, Your Super” reforms, which are a set of consumer protections that the industry predictably tried its best to sink, he claimed.

“We looked at a sample of 42 super funds and found they all gave themselves a pass mark in self-reporting last year. This is despite 11 of the funds we looked at going on to fail the performance test,” he revealed.

“This is why we need independent tests, because without them the industry can’t be trusted to tell the truth.”

Xavier O’Halloran, director of Super Consumers Australia, said it was the first time Aussies had easy and independent information about their super fund’s performance. Picture: Supplied

Superannuation Minister Jane Hume said eight products had already exited the market since the performance test was announced by the Government.

“The Australian Prudential Regulation Authority has now also written to superannuation funds whose products fail or marginally pass the performance test, setting out their supervisory expectations, including to assess the credibility of funds’ plans to improve their performance,” she said.

CRITICISM OF THE RESULTS

But the Association of Superannuation Funds of Australia (ASFA) urged consumers to exercise caution in how they interpret the report’s results and think carefully before making important decisions about their superannuation.

While ASFA has long supported the removal of habitually underperforming products, according to ASFA CEO Dr Martin Fahy, some of those called out by this test are in fact good products.

He urged consumers to consider the returns their product has delivered over five, 10 or 15 years – not just whether they have fallen one basis point below an arbitrary cut-off point in the performance test.

“Among these so-called ‘underperformers’ we have products which have doubled people’s investments over the past decade,” he said. “The irony is that the financial performance of these so-called ‘underperforming’ products would be in the top quartile in many OECD countries,” he said.

“No one test is perfect but this one ranks products on only one measure, when there are other important factors to consider, such as appropriate levels of risk for different age groups, the insurance coverage implications and whether you align with a fund’s investment ethos on issues such as climate change.”

ASFA CEO Dr Martin Fahy urged consumers to look at funds returns over five, 10 and 15 years before making a decision. Picture: Supplied

Any product that falls 0.5 per cent below the median is labelled as failing, he said.

“What the published test results don’t tell members is why, and by how much, their fund has failed the test,” he said.

Dr Fahy said the results of the test are potentially confusing for consumers – some products with high average returns over 7 per cent have failed the test, while other products with different asset allocations but also 7 per cent average returns over 10 years, have passed.

He questioned why APRA has not provided the transparency necessary to determine why, or by what amount, a product has fallen foul of the bright line test.

“This lack of transparency is very worrying – stamping a product with a fail, without any context, is the fastest way to spark fear and confusion among members,” he said.