AustralianSuper has rejected one of Treasury’s key proposals to reform the superannuation performance test, warning it could discourage long-term investment and push funds towards benchmark-hugging portfolios.
In its submission to Treasury’s consultation on strengthening the super performance test, the $410 billion fund opposed the proposed simple reference portfolio (SRP) model, arguing it would create systemic risks and weaken incentives to invest in assets such as infrastructure, venture capital and greenfield renewable energy projects.
“We do not support Option 2. A simple reference portfolio approach introduces a systemic risk that could discourage the very investments the reform is intended to support.”
The submission argued a simple reference portfolio could encourage funds to converge on benchmark allocations because outcomes would become increasingly dependent on short-term listed market performance rather than long-term investment decisions.
“An SRP test may lead funds away from portfolios that are genuinely in members’ long term best interests,” AustralianSuper said.
“It may create a structural incentive to narrow portfolios toward the sectors represented in the SRP, even though trustees have deliberately chosen more diversified portfolios because they believe these deliver better long-term outcomes.”
Instead, AustralianSuper threw its support behind further work on Treasury’s alternative proposal to create a new “emerging assets” category benchmarked to CPI plus a margin, saying the approach could reduce unintended barriers to investment without encouraging funds to mirror benchmark portfolios.
“We are open to further work being done on Option 1.1, which would create a new ’emerging assets’ category benchmarked to CPI + X.”
“However, there is significant design work still required — particularly on how the asset class is defined — before we could offer unqualified support.”
While rejecting one of Treasury’s central proposals, the fund endorsed several other reforms, including routine benchmark reviews and extending the performance test to externally directed products offered on investment platforms.
AustralianSuper said platform products represented a significant gap in the current consumer protection framework, citing APRA data showing around 35 per cent of non-platform externally directed products were underperforming while remaining outside the scope of the performance test.
“The collapse of Shield and First Guardian further highlighted the risks of products sitting outside the test’s scope. As platforms grow in market share, the untested portion of the system grows with them. This is a gap in consumer protection that should be closed.”
The fund also argued retirement products should eventually be brought into an accountability framework, but said simply extending the existing accumulation performance test would fail to reflect the broader objectives of retirement, including sustainable income, longevity risk and member support.
More broadly, AustralianSuper said the performance test had played an important role since its introduction in 2021 by removing underperforming funds and placing downward pressure on fees, but argued aspects of its design now required refinement as the superannuation system matured.
The submission also called for tailored treatment of values-based investment options, a longer assessment period for administration fees and a review of the consequences attached to failing the test, warning the current framework could increasingly encourage trustees to invest with the test in mind rather than members’ long-term interests.
