Superannuation fund concerns rejected

Federal minister rejects concerns of major fund managers about plans to benchmark the performance of MySuper funds.

Senator Jane Hume speaks to the media during a press conference in Melbourne, Victoria. Picture: NCA NewsWire / Daniel Pockett

The federal government’s minister in charge of superannuation, Jane Hume, has rejected concerns expressed by major fund managers about the government’s new plans to benchmark the performance of MySuper funds.

“It’s inevitable a bright line underperformance test will make life uncomfortable for some in the super industry,” Senator Hume said in a statement to The Australian. “But it is not the government’s role to fulfil a wish list for super fund managers.

“Our role is to ensure that for Australian workers, the nearly one in ten dollars in wages they are compelled to forgo for up to 40 years is invested in an efficient and fit-for-purpose superannuation sector.”

Senator Hume was responding to a letter sent by chief investment officers of funds managing some $500bn to Josh Frydenberg and other government ministers this week, warning that the benchmarking proposals outlined in the October budget for the $750bn MySuper sector could have unintended consequences.

The chief investment managers from funds including industry funds UniSuper, Hostplus, HESTA, REST, Aware Super and MTAA Super, as well as Telstra Super, Statewide Super, the Capital Group, Mercer, Aberdeen Standard Investments, Wellington Management and JPMorgan Asset Management, have called for more consultation with the government over the indices used in benchmarking super fund performance.

Senator Hume’s forthright rejection of the concerns of the chief investment managers of some of the biggest funds in the nation about the details of the proposed changes could set the government up for a clash with some major industry players over the legislation.

The new regime, which is aimed at weeding out chronically underperforming super fund products from the low-cost MySuper sector, is set to come into force from July 1 next year.

Under the new proposals, a super fund with two consecutive years of significant underperformance could be blocked by the Australian Prudential Regulation Authority from accepting new members.

Senator Hume said the new regime would mean that “life will get much tougher for underperforming funds as a result of the government’s reforms”. But she rejected suggestions that the new regime would drive super funds towards passive investing.

Some fund managers have expressed concern that they could be forced into passive investing rather than take the risks of seeking above-average returns that could also involve some periods of underperformance.

Senator Hume said underperforming super funds were “unlikely to find salvation in simply choosing to be an index-hugging fund”. But funds that wanted to attract new members would need to show they could generate above-average performance over the medium to long term.

She said funds in the MySuper sector, which currently has 85 different products, would be unable to attract new members if they only generated middle-ranking returns after fees.

“If they want to survive and prosper, super funds are going to need to show an ability to invest to continue to generate alpha over the medium to long term,” she said.

“With the advent of ‘default once’ stapling of a super fund to a member, a good ranking on the YourSuper website ranking will be key to attracting new members for most super funds,” she said.

Industry Super Australia, which represents the $750bn industry super fund sector, has said it supports the government’s Your Future, Your Super package and its crucial benchmarking tool, but says there needs to be “sensible changes” to some aspects of the model proposed to prevent members being worse off.

ISA says the measurement of performance should include fees and other charges to produce a net return benchmark.

ISA chief executive Bernie Dean said “dud funds must lift their game or face closure, no matter where they are. We want to work with the government to clean up the system.”