One-in-five choice super products significantly underperforming, triggers greater APRA scrutiny

About 20 per cent of choice superannuation products with eight years of history significantly underperformed benchmarks, sparking more intense scrutiny of laggards. | FULL LIST

APRA deputy chair Margaret Cole has put poorly performing choice superannuation providers on notice. Picture: John Feder

About 20 per cent of choice superannuation products with eight years of history significantly underperformed the prudential regulator’s benchmarks, sparking more intense scrutiny of fund laggards.

The Australian Prudential Regulation Authority (APRA) on Wednesday released a heatmap report for choice super products, which are those where members choose their option rather than defaulting into a fund. It focused on products where the member was in the accumulation phase.

While it showed improvement from the previous review, the results were still unacceptable to APRA’s deputy chair Margaret Cole, who said the performance of choice products showed “still far too many products delivering sub-standard investment returns”.

“As a result, APRA’s supervision of poorly performing choice products will intensify, and trustees can expect even greater scrutiny of their product offering,” she said. “Trustees with products that are underperforming or have unjustifiably high fees – or both – will need to explain why they haven’t already moved their members to products with better performance and better fee structures.”

Ms Cole said some members might choose to stay in closed options because of other benefits, such as insurance, or based on financial advice. “Even so, APRA encourages all superannuation members to check whether they are satisfied with the outcomes they are getting,” she said.

APRA’s heatmap showed of 407 investment options, 182 underperformed the benchmarks over the assessment period ending June 30, 2022, including 80 options that underperformed the benchmarks by more than 0.5 per cent.

In the 2021 heatmap report, 25 per cent of choice investment options significantly underperformed the APRA benchmarks.

The heatmap report covers 163 choice products, representing $292bn in members’ benefits as at June 30, 2022 – almost half of funds under management in the choice accumulation part of the sector.

The review compares products across key metrics, including investment returns, fees and costs, and product sustainability, but only gauges options that are multi-sector and not offered through investment platforms.

The heatmap assesses investment performance over three, five and eight-year periods using different benchmarking methods, including net returns against a reference portfolio and a strategic asset allocation portfolio.

Products labelled as performance laggards by APRA with “significantly poor” returns over eight years included those provided by Mine Superannuation, Colonial First State, BT Funds Management and the Energy Industries Superannuation Scheme.

“Poor investment performance compounded over time can result in significant detriment to retirement outcomes for members,” APRA’s report said.

The review also assessed choice product fees and costs as at October 1, 2022. It highlighted stark differences between choice products that were closed to new members and those that remained open. It found the median administration fee for closed choice products was $350 per annum for those with a $50,000 balance, almost double the median fee for choice products open to new members of $177. MySuper products, which are typically simpler, lower-cost and are often a default super option, had an even lower median fee of $143.

APRA identified products that had “significantly high” disclosed administration fees, including Verve Super Accumulation, Cruelty Free Super, Spaceship Super, Retirement Security Plan, Zurich Superannuation Plan, ANZ Super Advantage, Suncorp Brighter Super and DC Division.

In February, Ms Cole said APRA was working closely with individual and groups of super trustees to understand how they were navigating the more difficult economic and operating climate. The regulator embarked on a push for the super sector to conduct detailed stress tests of investments.