APRA heatmaps raise pressure on shrinking superannuation funds

Several smaller union and employee-backed industry superannuation funds are bleeding mem­bers.

APRA’s analysis has sparked a fierce response from some sections of the superannuation industry

Several smaller union and employee-backed industry superannuation funds are bleeding mem­bers, raising pressure on sub-scale retirement savings man­agers to merge or exit the industry.

According to the latest performance statistics for the $500bn MySuper sector, a number of funds that were put in the cross hairs by the Australian Prudential Regulation Authority’s new super fund heatmap are also presiding over shrinking numbers of member accounts.

This includes Australia’s first industry fund, LUCRF Super, which lost 20 per cent, or 29,760 accounts, over the year to the end of June.

While over the same period, LUCRF’s pile of MySuper member benefits rose 6 per cent to $5.1bn, APRA’s heatmap put its performance and administration fees among some of the worst in the MySuper sector.

The $6.5bn fund, previously known as the Labour Union Co-operative Retirement Fund, recently overhauled its investment management after commissioning a review by Jana Investment Advisers that included the departure of its head of investment strategy. LUCRF Super has also launched a national brand awareness and membership drive.

APRA’s statistics run up until the start of July, meaning that recent reforms that passed parliament in March to consolidate lost and forgotten member accounts would not have taken effect yet. Those laws became effective in October.

First Super, a $3bn fund managing the savings of workers in the timber, pulping and furniture industries and co-chaired by CFMEU national secretary Michael O’Connor, lost 19 per cent, or 10,910 of its member accounts. Over the same period, First Super’s member benefits rose 6 per cent to $2.6bn.

According to APRA’s heatmap, First Super had some of the worst administration and total fees on offer, with total fees on a hypothetical $10,000 account reaching more than 3 per cent. The small fund, which has resisted pressure from APRA to merge, has routinely achieved high returns.

APRA’s new landmark ratings looked at MySuper products across the industry separately assessing fees, returns and sustainability of member outcomes. The so-called heatmaps gave a detailed assessment and colour coding to identify the regulator’s concerns.

APRA also used the release to warn funds they were on notice to address weaknesses and underperformance or seek to merge or exit the industry.

The APRA analysis sparked a fierce response from some sections of the superannuation industry on Tuesday as they questioned the regulator’s methodology and assumptions.

The APRA heatmap — which is colour-coded so that dark red denotes lower performance and higher fees — provided an assessment of MySuper products, which are meant to be low-cost and simple superannuation options. Products coded white are performing above a determined benchmark.

Club Super, a $600m fund that now no longer exists after completing a merger with the $40bn Hostplus, saw accounts under its management shrink 16 per cent, or 3800 accounts, in its last full year of operation. Club Super was accused of having high levels of fees by APRA’s heatmap.

Energy Super, which appeared before Kenneth Hayne’s royal commission to answer questions over a failed merger with rival fund Equip Super, lost 10 per cent of member accounts over the year, or 3263 accounts. At the same time, member benefits rose 7 per cent to $2.2bn.

TWUSuper, a $6bn industry fund aligned with the Transport Workers Union, lost 9 per cent (9700) of its member accounts. APRA accused TWU of having a plethora of issues, including poor investment performance, which was also under­performing relative to a bench­mark portfolio, and of having some of the highest fees in the sector.

Australian Catholic member accounts fell 9 per cent to 6000.

Several for-profit retail funds were also among the funds that lost the most member ­accounts over the year. AMP MySuper No 3 Super Directions Fund lost 8 per cent, or 6800, of its member accounts. Member benefits shrunk 1 per cent to $1.2bn.

BT Business MySuper accounts shrunk by 7 per cent, or by 10,500 accounts. Its member benefits rose 5 per cent to $4.5bn

IOOF MySuper lost 7 per cent, or 10,100, of its accounts. Its assets rose 6 per cent to $3.2bn.