APRA data shows super fund underperformance endures but fees have fallen

Australia’s finance regulator says that fees have dropped across MySuper accounts even as most funds continue to underperform.

New data from the finance regulator shows more than half of people with a MySuper account – the default funds for people who don’t choose a superannuation account when starting a new job – have experienced fees and costs dropping this year.

The Australian Prudential Regulation Authority has released its 2022 MySuper Heatmap, which assesses investment returns, fees and costs.

The data shows fees and costs on 56 per cent of accounts, totalling 8.1 million members, fell to the combined equivalent of $210m in savings.

The heatmap showed median annual fees and costs of $143 disclosed for a $50,000 balance for administration and total fees of $488.

APRA deputy chair Margaret Cole said the heatmap, introduced in 2019, had helped to uncover “unacceptable product performance” and hold the industry to account.

“Since its introduction, we have seen costs to members reduced, many underperforming products closed, and a drop in the number of members in funds with significantly poor investment performance,” Ms Cole said in a statement.

APRA will continue to push RSE licensees to “prioritise delivering reduced fees and costs” and in particular for those with more expensive MySuper products.

APRA deputy chair Margaret Cole. Picture: Britta Campion

According to the Insights paper accompanying the heatmap, APRA said RSE licensees needed to show members why these products were worth the higher fees, or “consider alternatives which may include transferring members to better-performing, lower-cost products”.

While the heatmap is a useful tool for calling out substandard behaviour, most super funds still produced negative returns over the past three years across APRA’s sustainability metrics.

“There are still hundreds of thousands of members in funds with sub-par investment performance, and the industry has serious sustainability issues to address,” the paper said.

During the year 2022 there were 350,000 fewer people with “significantly poor” MySuper products than the previous year, although 800,000 people still have funds in these underperforming funds.

“Investment performance is the key driver of net returns generated for members,” according to the Insights paper accompanying the heatmap. “Poor investment performance compounded over time will result in detrimental outcomes for members in retirement.”

Over eight years, the heatmap showed six products accounting for 5.5 per cent of member accounts had “significantly poor” investment returns over eight years.

During this time period, returns relative to portfolio benchmarks showed 37 per cent of MySuper products had Net Investment Returns (NIRs) below the Strategic Asset Allocation (SAA) benchmark.

Over three years, 7.3 per cent of member accounts fell into the “significantly poor” category.

Earlier this year, APRA called out five super funds for failing its annual performance test.

The regulator tested 69 funds across 14.4 million member accounts and said four funds would have to be closed to new members after failing the test for the second time.

Westpac Group’s Retirement Wrap had its first strike, while BT Super’s Retirement Wrap (BT is owned by Westpac), AMG Super, MySuper, Energy Industries Superannuation Scheme – Pool A, and Australian Catholic Superannuation and Retirement Fund, LifetimeOne all failed for the second time.

Those four funds that will now be closed to new members had funds under management of close to $25bn.

“APRA expects that trustees with underperforming products will consider options to transfer members or otherwise restructure their businesses, particularly where sustainability pressures are significant,” Ms Cole said.

The heatmap showed 28 MySuper products have been closed since 2019, resulting in 1.5 million accounts, containing $51.6bn of funds, being transferred to other products.

MySuper accounts make up about a quarter of Australia’s superannuation pool, accounting for $884bn of funds, according to APRA data for the year ended June 30, 2022.