31 August 2021
Cliona O’Dowd – Journalist
More than a million workers have entrusted their retirement savings to a dud superannuation fund, the results of the government’s new performance test show.
The new test, brought in as part of the government’s Your Future, Your Super reforms, reveals that 13 of 76 funds — or 17 per cent of those assessed — failed the crucial evaluation and will now have 28 days to write to their members detailing their failure and suggesting they switch funds to get a better retirement outcome.
The named-and-shamed funds include AMG Super, LUCRF, Colonial First State’s First Choice Employer Super Fund, Maritime Super, Christian Super and Commonwealth Bank Group Super. (See the full list below.)
All up, $56.2bn of 1.1 million workers’ retirement savings are invested in the underperforming funds, Treasurer Josh Frydenberg said.
“As part of the most significant changes to superannuation in nearly 30 years, the Morrison Government is holding underperforming funds to account and strengthening protections for the retirement savings of millions of Australians,” he said.
“Superannuation members can now access a single, trusted and independent source of information to compare superannuation products, including whether they are in an underperforming product.”
The MySuper products were assessed on both investment performance and admin fees. But while the investment portion of the test spanned the past seven years, only the most recent year’s admin fees were included, after a government backflip just weeks ago.
The longer time frame for judging investment performance was to allow funds to target long-term returns and not blame “one bad year” for underperformance, according to the government.
But the last minute change to the admin fees could see some dud funds slip through the cracks, critics argue.
The named-and-shamed funds will in the coming weeks send letters to members stating: “Your superannuation product has performed poorly under an annual performance test that was introduced by the Australian government … we are required to write to you and suggest you consider moving your money into a different superannuation product.”
If they fail again next year, they will no longer be allowed to accept new members. What’s more, the funds aren’t told why they failed: they are simply given a pass/fail mark.
Commonwealth Bank Group Super, the $12bn default fund for staff of the nation’s largest lender, said it failed the test “due to a number of underlying factors”.
These included differences in its investments compared to the benchmark, as well as underperformance of some of our investments.
“Group Super focuses on taking appropriate levels of risk with our investments in order to produce certain returns,” a CBA Group Super spokesperson said.
“Consistent with this, the MySuper Balanced option has delivered on its objectives set by the trustee board, delivering a return of 13 per cent for the 2020-21 financial year and in excess of 7 per cent over 10 years, and with less volatility compared to peers producing a smoother return experience for members.”
The fund’s 13 per cent return last financial year compares to the 20 per cent-plus the best in the industry delivered for their members.
Christian Super CEO Ross Piper said the test didn’t take into account that the fund, which manages $2bn on behalf of its 30,000 members, was one of the fastest growing offerings in the market as Australians increasingly seek out more ethical investments.
“While its intent is positive, its blunt design means all products under a certain benchmark are being tarred with the same brush without consideration for how those returns have been generated and whether the fund is, in fact, delivering far more than just strong long-term financial returns,” Mr Piper said.
Colonial First State CEO Kelly Power said its MySuper product had “narrowly missed” the test benchmark and was confident it would not fail two years in a row.
“We have just announced a further reduction to the administration fee charged on this product of almost $8m per year, effective from October 2021,” she said.
“This means FirstChoice Employer Super will have one of the lowest administration fees of any MySuper product, putting it among the top 10 funds, based on our analysis of recent Chant West data.”
APRA executive board member Margaret Cole said the failing funds had an important choice to make.
“They can urgently make the improvements needed to ensure they pass next year’s test or start planning to transfer their members to a fund that can deliver better outcomes for them,” she said.
APRA had intensified its supervision of the failed funds, which will now have to detail to the regulator the cause of the underperformance as well as how it will be remedied.
“Trustees have to monitor their products closely and report important information to APRA – including relating to the movement of members and outflow of funds,” Ms Cole said.
The results of the test should be treated with “extreme caution”, according to super fund lobby group ASFA.
“ASFA has long supported the orderly removal of habitually underperforming products, however some of those called out by this test are in fact good products which have delivered excellent returns to their members over a long period of time,” ASFA CEO Martin Fahy said.
“This is a retrospective, relative performance assessment where the so-called underperforming products are compared against top performing products.
“Any product that falls 0.5 per cent below the median is labelled as failing. What the published test results don’t tell members is why, and by how much, their fund has failed the test.”
Dr Fahy said the results of the test were potentially confusing for consumers. Indeed, a glance at the ATO Your Super comparison website, which lists all MySuper products and the test results, shows that some funds passed despite having higher fees and lower returns than the duds.
IOOF Portfolio Service Super, for example, has an annual fee of $627 and a seven-year net return of 7.38 per cent and passed the test.
But the Victorian Independent Schools Superannuation Fund, with a fee of $577 and a seven-year net return of 7.58 per cent, failed.
“This is the tyranny of benchmarks. They fail to take account of risk, lifecycle, or ESG screening considerations and instead they preference hugging the index,” Dr Fahy said.
Ahead of the results, Maritime Super CEO Peter Robertson called for urgent change of the assessment.
Maritime and other named-and-shamed funds will in the coming weeks send letters to members stating: “Your superannuation product has performed poorly under an annual performance test that was introduced by the Australian government … we are required to write to you and suggest you consider moving your money into a different superannuation product.”
This is potentially giving members bad advice and could lead to people being financially worse off in retirement, Mr Robertson said.
“We didn’t wait for the results of the performance test to investigate better options for our members. They’re already in a new product. Legally it’s the same product but fundamentally it’s the Hostplus pooled superannuation trust.
“Our fund has been assessed on investment strategies and risk overlays that are no longer in place, which have no relevance to future returns for members.”
Industry Super Australia chief executive Bernie Dean said he supported the introduction of “fair and appropriate” annual performance tests. But he pointed to shortcomings in its current form.
“The performance test recently introduced by the Government contains deficiencies that are not in the best financial interests of all super fund members and that will lead to outcomes inappropriately favouring some funds over others.
“This is a matter that ISA will continue to seek to have remedied,” he said.
AMG Super – AMG MySuper
ASGARD Independence Plan Division Two – ASGARD Employee MySuper
Australian Catholic Superannuation and Retirement Fund – LifetimeOne
AvSuper Fund – AvSuper Growth (MySuper)
BOC Gases Superannuation Fund – BOC MySuper
Christian Super – My Ethical Super
Colonial First State FirstChoice Superannuation Trust –
Commonwealth Bank Group Super – Accumulate Plus Balanced
Energy Industries Superannuation Scheme Pool A – Balanced (MySuper)
Labour Union Co-Operative Retirement Fund – MySuper Balanced
Maritime Super – MYSUPER INVESTMENT OPTION
Retirement Wrap – BT Super MySuper
The Victorian Independent Schools Superannuation Fund – VISSF Balanced Option (MySuper Product)