Albanese government’s superannuation performance testing reforms criticised

The Albanese government’s super performance testing reforms have methodological issues that risk hurting workers’ savings, the financial sector industry body says.

The Albanese government’s super performance testing reforms are “defective” and have methodological issues that risk hurting workers’ savings, the financial sector industry body says.

The government is updating the benchmarks used to measure super funds’ performances and extending the scrutiny from MySuper options to Choice super products, which usually carry higher fees and have historically underperformed.

About one in five Choice investment options had a significantly poor performance over eight years, and about 30 per cent had a significantly high administration fees, according to APRA’s performance heatmap.

“Many members are at risk of poor retirement outcomes,” Financial Services Minister Stephen Jones said.

“Subjecting more superannuation products to performance testing means members can see how their fund is comparing to others. It also means members will be individually notified if their fund is underperforming.”

Following a review of the Your Future, Your Super testing regime, the government will increase the performance review period for all funds from eight to 10 years and broaden the range of benchmarks used to test super funds performance.

Introduced in 2021, the Your Future, Your Super testing regime initially applied to the default My Super option products and has seen several smaller underperforming super funds encouraged by APRA to merge with larger funds.

It is set to be expanded to the Choice sector in July 2023.

“The updated test will address unintended consequences identified in the Your Future, Your Super review, while ensuring it is more fit-for-purpose for Choice products,” Mr Jones said.

The changes also require assessments of a “representative administration fee (RAFE) that will be benchmarked against a median fee for trustee-directed products, platform and non-platform products.

They will also recalibrate or finetune benchmarks to ensure they are not “unintentionally” discouraging super funds from investing in certain assets.

The RAFE fee for platform products will be tested against the median fee of other platform trustee-directed products to compare a similar level of service, the release said. But the Financial Services Council said the proposed methodology to calculate fees was “defective”.

“The objective of these reforms is to raise investment returns for consumers and the parliament should reconsider the risks of the proposed methodology to prevent the test failing superannuation consumers,” FSC chief executive Blake Briggs said. “The government’s pursuit of rough justice for underperforming investment options … risks consumers becoming collateral damage.”

The industry body, however, supported the overall intention of the reforms and said it shared “their goal of delivering the best possible investment returns for the 5 million consumers who choose to invest in trustee-directed products”.

The FSC represents retail and wholesale funds management companies, superannuation funds, life insurers and financial advisers operating in Australia.