APRA performance tests have dramatically cut the number of underperforming funds
There was a big improvement in outcomes of APRA's superannuation performance tests this year. Photo: Getty
Close scrutiny of superannuation funds by APRA is paying dividends, with the regulator’s latest performance test revealing significant improvements for members.
For the first time in 2024, APRA reported that in the crucial MySuper category, where 65 per cent of Australians have their superannuation, there were no underperforming funds with all products passing the test.
This compares with one fail in that category in 2023, five fails in 2022 and 13 fails in the inaugural test in 2021.
That’s great news as it means that financially unsophisticated Australians can safely leave their super decisions in the hands of their bosses or industry arrangements without worrying they are getting sub-standard super returns.
MySuper all performing
“At the end of June, all 15.7 million MySuper member accounts, with combined assets of nearly $1.1 trillion, were invested in performing products,” APRA deputy chair Margaret Cole said.
In the choice area where people select a fund or options they like, things were a little different.
Of 590 trustee-directed choice products, where fund trustees select products within the member’s parameters, 37 failed the performance test.
If you have invested in an underperformer there are a few actions to take.
Firstly, call the fund to get an explanation of what has happened and what they plan to do about it.
Following that you can decide to hang in and back their recovery measures or choose another option from the platform.
It may be that you need to do nothing because the fund will choose to close the option and move you to another investment.
Platform failures
Interestingly, the failures were all platform products that can be selected from among myriad highly specific asset options rather than general classes like “high growth” or “international shares”.
There was a marked improvement in non-platform choice products where none of the 398 products assessed in that class failed to meet the benchmarks.
In 2023, the first year that choice products were included in the test, 76 platform and 20 non-platform trustee-directed products failed the test.
APRA’s stick approach to regulation came to the fore with 27 of those platform underperformers doing so for the second year in a row. That means they are now unable to take in new members until their performance lifts.
In turn it means those serial failures are likely to be closed down and their members must then choose new possibilities for investment.
Although no MySuper or tested non-platform choice funds failed the test, Chant West research director Ian Fryer said one influence of the performance testing was a growth in uniformity with all funds having to follow APRA benchmarks.
An alternative for funds could be “to reduce exposure to a market they saw as overvalued which could lead to higher returns,” Fryer said.
However funds are less likely now to take that risk because if their timing is wrong they could pay a price in terms of performance measures.
The platform underperformers were confined to two providers. NM Superannuation scored 36 failures with another from IOOF Investment Management.
Cole said the results were pleasing, but the regulator would continue to take a hard focus on performance.
“This year’s results demonstrate the progress being made to address underperformance,” Cole said.
However, Fryer said the performance test was not well suited to a number of platform funds in part because the test assumed a balance of $50,000.
However “platform products tend to have an average balance of $250,000 on which a dollar-based fee is typically charged,” Fryer said.
That dollar-based fee might be a small amount on $250,000, but if it is applied to $50,o00 then it seems very expensive and can trigger a verdict of underperformance from APRA.
APRA’s oversight of the platform sector was actually very limited with the vast majority of funds left out.
“APRA are only including trustee-directed products in their performance test and they might be 10 per cent of all choice options in the diversified products space,” Fryer said.
Lots not tested
For the myriad products that aim at specific investments rather than diversified allocations the situation is even worse.
“If you include all choice products, then the performance test only includes 2 per cent of available choice options,” Fryer said.
The Australian super system got a vote of support from former White House communications director and investment manager Anthony Scaramucci at the Association of Superannuation Funds of Australia conference last week.
He described Australia’s compulsory superannuation system, as a “fortification of economic security for people”.
“Superannuation not only helps to look after your people when they retire, but it also guarantees a pool of capital that can be used to grow your economy,” Scaramucci said.
The New Daily is owned by Industry Super Holdings
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