Budget 2020: Super funds ‘to face exacting benchmark’

The Morrison government has flagged super funds will confront a ‘demanding benchmark’.

The Morrison government has flagged super funds will confront a “demanding benchmark” as the sector’s regulator works out a test to compare investment returns and weed out poor performers.

Assistant Superannuation Minister Jane Hume said the key metric for a tool announced as part of the federal budget’s sweeping super reform package was a fund’s investment performance after fees and taxes.

She said the budget measures put poor returning super funds, and those with high fees on notice to lift their game. “Having a very demanding benchmark is really important … everyone is entitled to the odd year where they haven’t done as well as they can but they (super funds) still need to inform members that is the case.

“If they fail two consecutive years, perhaps it isn’t a coincidence … perhaps there are not managing money as well as they could, and we don’t want members to languish in an underperforming fund.”

MySuper products are meant to be low-cost and simple superannuation options. The latest regulatory data put Pitcher Retirement at 5.85 per cent, Energy Industries Super with 6.19 per cent and Maritime Super at 6.23 per cent among the worst performers for five-year investment returns.

Several of Westpac’s life-cycle super products, which change investment strategy and risk depending on a member’s age, also scored poorly on five-year ­performances.

The data reflects performance for the period ending June 30, 2019.

Labor signalled on Wednesday it could back the government’s budget measures if it received assurances Australians would not be forced to live with underperforming super funds.

Opposition superannuation spokesman Stephen Jones said Labor supported the “broad principles” of mooted changes and particularly backed benchmarks for funds. “The issue is performance and we’ve got to focus on performance. Poor returns, high fees, we need to stamp that out. Every worker deserves to be in a high-performing fund,” he said.

“Sequencing is critical. If they introduce stapling without dealing with performance, it’s a disaster.”

The budget’s package of super reforms aims to prevent creation of multiple super accounts by ­stapling an account to an individual so that it moves with them when they change jobs.

The banking regulator will from July next year also conduct benchmarking tests on the investment performance of MySuper products, blocking those that have poor returns over two years from receiving new members. The reforms include a new comparison tool called YourSuper for consumers to compare funds, and more scrutiny of how funds spend and manage members’ money.

As at June 30, MySuper balances stood at $731.3bn and the total super pool sits at almost $3 trillion.

KPMG head of wealth and asset management Linda Elkins said a new super benchmarking tool would help weed out underperforming super funds but there was also a risk it created short-termism. “The challenge with introducing a benchmarking tool is that retirement outcomes may be impacted if trustees focus on short-term benchmarks and league tables at the expense of long-term performance and outcomes,” she said.

Industry Super Australia hit out at the stapling part of the reform package, saying it could leave workers “stuck in a dud fund for life, costing hundreds of thousands of dollars at retirement”.