Almost $900 billion in super assets could be exempt from crucial performance tests

Industry Super Australia

Almost half of the super system may could be exempt from a crucial government performance test that would reveal to workers if their fund is a dud, new analysis from Industry Super Australia (ISA) shows.

An eyewatering estimated $881 billion in retirement savings belonging to 8.4 million member accounts or about 47% of the APRA regulated system could be exempt from the government’s new Your Future, Your Super performance benchmarks.

And there is no timeframe for performance tests to be applied to three quarters of the nearly $1.13 trillion in assets not in MySuper.

Failing the critical benchmark test means members are warned about a fund’s poor performance, a second consecutive strike bars the fund from accepting new members.

Among those currently out of the test are notorious dud investment products whose poor performance and fee gouging Banking Royal commissioner Kenneth Hayne savaged in his final report.

The government will only initially test the performance of MySuper and “trustee-directed products” in the Choice sector, excluding hundreds of products and investment offerings.

Trustee-directed products is not a term currently defined in legislation, but it would capture only Choice products that invest in multiple asset classes and the trustee has “control” of the investment strategy.

ISA analysis of the SuperRatings database could only identify $254 billion in trustee-directed products – just 22% of assets in the Choice sector. This is despite the Productivity Commission finding that the Choice sector was littered with fee gougers and poor performing super products.

Excluded are most platform investment options offered by third parties, single-asset investment classes and all pension products.

At a Senate inquiry, superannuation assistant minister Jane Hume confirmed the government had no timeframe to extend the performance benchmark beyond trustee-directed products.

The government’s proposal leaves almost 70% – 6.5 million accounts holding $425 billion in assets – of the big bank dominated retail super fund sector out of scope.

Investment offerings and products from retail super fund giants BT, MLC, ANZ, AMP, Colonial First State could all be excused. Cash only asset options which the Banking Royal Commission uncovered retail products that had negative investment returns, are also exempt.

About 634,000 industry fund accounts and $98 billion in assets are out of scope – only about 6% of industry fund members and 14% of assets under management.

It is vital this benchmark is extended to the entire system before the government proceeds with its plan to staple members to their first super fund, or else members could be stuck in a dud fund for life.

Industry Super Australia supports the government’s Your Future, Your Super package and its crucial performance benchmark tool, but is concerned unless important improvements are made, members could end up worse off. ISA supports sensible changes in members’ best interests including:

Ø Net return as a performance benchmark rather than net investment return

Ø Forced closures of chronically underperforming funds

Ø Expanded coverage to ensure all funds and products – including the Choice sector – must also pass the benchmark tests, with no carve outs

Ø Sequencing of reforms to ensure performance measures are implemented before stapling

Table 1: Estimated assets and accounts in and out of scope of performance benchmarks, by sector, phase 2

In Scope – MySuper and Trustee Directed Products

Out of Scope

Assets, $b

Accounts, 000’s

Assets, $b

Accounts, 000’s

Corporate

$26

194

$23 (47%)

56 (22%)

Industry

$592

10,598

$98 (14%)

634 (6%)

Public Sector

$207

1,888

$333 (62%)

1,195 (39%)

Retail

$188

4,538

$427 (69%)

6,541 (59%)

Total

$1,013

17,218

$881 (47%)

8,426 (33%)

Source: ISA analysis of APRA Annual Superannuation Bulletin, June 2019 and SuperRatings Fund Crediting Rate Survey, June 2019

Notes: Estimates as of June 2019, does not include defined benefit assets or accounts

/Public Release. This material comes from the originating organization and may be of a point-in-time nature, edited for clarity, style and length.