In its submission to Treasury on the annual superannuation performance test design options, the Super Members Council (SMC) was critical of the responsibility placed on individual members to respond to a product’s failure or leave an underperforming fund.
“Under current rules, funds with products that fail the test are required to write to members using mandated text about its failure,” the SMC noted.
“This approach has not been a success, given so many super fund members have not been moved into better-performing super products.”
As such, the industry body said that any reduction in consequences could also be seen as a reduction in the accountability of superannuation funds for their results.
“Reducing the impact of failure potentially leaves more underperforming funds in operation,” it explained.
Set out in its short-term recommendations, the SMC said the consequences of failing the test should be strengthened so as to “enhance consumer confidence in the superannuation system”, as members in many products are assured there are systemic protections in place.
Adding that products that fail twice are not permitted to enrol new members, the body said that this affords no protection to those current members in these products. Notably, one MySuper product that has failed three times still has approximately one-third of their members in the product.
In its consultation paper released in March, Treasury revealed that the number of member accounts in products that failed the test fell by around 10 per cent in the five months following the test as a “positive impact on member engagement”.
“SMC does not support this view as it also means 90 per cent of members in failing products remain in those products: by any measure, inspiring member action cannot be claimed to have been a success,” the group wrote.
“Rather, what these statistics suggest is that the mandated communication with members in failed products has not resulted in significant member movements from failing products.”
As it stands, SMC said that members in failed products are “at the mercy” of the trustees of these products.
“To address this, SMC recommends trustees with failed products should have the responsibility for transferring members in these products to a well-performing alternative,” it said.
MySuper products outperform
The SMC further highlighted new analysis that revealed that profit-to-member super funds have made their members $18 billion (or about $1,160 for a member with a $50,000 balance) more than investment market benchmarks, in the three years to June 2023.
“This profit-to-member investment performance surge will mean millions of Australians will have more money at retirement,” the body said.
Moreover, the performance test has additionally led 80 per cent of MySuper products to slash their fees by a total of close to $1 billion in a year, according to the SMC.
Chief executive Misha Schubert said there is strong and unified support for the performance test among the profit-to-member sector.
“The performance test has played a crucial role in delivering better returns to super fund members – protecting people from underperforming products and slashing fees by close to $1 billion in a year,” Schubert said.
“While the test is operating well, there’s further work to be done to strengthen and evolve its application for the decades ahead.”
Aside from increased scrutiny for product failure consequences, the SMC also pushed for the incorporation of a single administration fee benchmark into the performance test and assess administration fees over a 10-year period – the same time span used to assess investment fees.
In explaining this decision, it said this rewards long-term improvements in administration fees and treats investment fees in a consistent manner.
Moreover, it recommended that Treasury extend the YourSuper comparison tool to other accumulation products, with comparisons provided for each type of superannuation product with similar risk characteristics.
