Minister for Financial Services, Stephen Jones, has announced changes to the Your Future, Your Super model to ensure all trustees are held to account for fund performance.
Earlier this year, the government announced the findings from a stakeholder consultation on YFYS and launched a second consultation on the proposed changes which it said would be explored before the August 2023 performance test.
Common complaints from stakeholders about the test had included that it could unintentionally affect investment decisions to reduce the risk of failure by encouraging short-termism and benchmark hugging as well as discouraging certain investments. Values-based products were a key example of where the investment strategy may deviate from benchmarks.
Treasury had now announced what the confirmed changes were including updating the benchmarks used to measure fund performance and extending the scrutiny to Choice funds.
Jones said: “APRA’s recent Superannuation Choice Heatmap found one in five choice investment options had significantly poor performance over eight years. Around 30 per cent of products had significantly high administration fees.
“The insights highlight that many members are at risk of poor retirement outcomes. Subjecting more superannuation products to performance testing means members can see how their fund is comparing to others. It also means members will be individually notified if their fund is underperforming.”
Changes
The minimum testing period will be progressively increased for all products from five to seven years to align with the increase in the lookback period from eight to 10 years;
The text in the notification letter sent to members in failing Choice products will be adjusted to flag cost considerations for certain members, taking into account the nature of different TDPs.
Platform products
The representative administration fees and expenses (RAFE) for platform trustee-directed products (TDPs) will be tested against the median RAFE of other platform TDPs to compare a similar level of service.
The investment performance of platform TDPs will also be tested using gross of tax variables to reflect how these products operate and report to APRA.
The RAFE of non-platform TDPs will be tested against the median RAFE of other non-platform TDPs.
An option that is offered both through a platform and through a master trust (Hybrid platform TDP) will be tested twice, once as a platform TDP and once as a non-platform TDP with the worst result taken.
Benchmarks
The Australian Fixed Income category would retain the Bloomberg Ausbond Composite 0+ Yr Index
International credit will change to Bloomberg Global Aggregate Corporate Index (hedged AUD)
Australian and International Listed Infrastructure will change to FTSE Developed Core Infrastructure 50/50 100% Hedged to AUD Net Tax (Super) index.
The Government will continue to explore and consult on further changes that improve the sophistication of the test to scrutinise underperformance across super products.
