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Super duds: Regulators crack the whip over failing funds

Business

About 1 million Australians are in 13 superannuation funds that have failed a performance test and been told by regulators to shape up or leave the industry.

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The Australian Prudential Regulation Authority said it reviewed 76 of the 80 MySuper funds and 13 that failed a fitness test.

The MySuper funds are effectively default funds for people who don’t choose their own fund when they start a new job.

The group of 13 includes one fund from Colonial First State and the Commonwealth Bank.

“It is welcome news that more than 84 per cent of products passed the performance test, however APRA remains concerned about those members in products that failed,” APRA executive board member Margaret Cole said.

“Trustees of the 13 products that failed the test now face an important choice: they can urgently make the improvements needed to ensure they pass next year’s test or start planning to transfer their members to a fund that can deliver better outcomes for them.

“APRA has intensified its supervision of trustees with products that failed the test and has requested they provide a report identifying the causes of their underperformance and how they plan to address them. Trustees have to monitor their products closely and report important information to APRA – including relating to the movement of members and outflow of funds.”

Trustees of failed products now have to write to their members telling them of their failure and also provide the details of the ATO’s YourSuper comparison tool.

APRA said it was now working with the trustees at risk of failing the performance test next year to ensure they took the steps necessary to improve performance, and to understand their contingency plans. These contingency plans must include pre-positioning to be able to give effect to an orderly transfer of members to another fund, if required.

From next year, trustee directed products will also be subjected to the performance test.

The assessment under the performance test licensees to account for underperformance through greater transparency and increased consequences. T

The 13 funds must now identify the causes of underperformance and develop and implement a plan to rectify this underperformance.

They must also assess the potential implications of failing the test on the fund and the sustainability of business operations and develop a contingency plan to, if it becomes necessary in the best financial interests of members, close the product, transfer members to another fund/product and/or exit the industry.

Separate to the APRA findings, Super Consumers Australia yesterday released an investigation into 42 super funds’ member outcomes assessments which are a new consumer protection requiring funds to honestly report on how they have acted in their members’ best interests.

It said the research showed every fund claimed they promoted their members’ best interests over the financial year 2020. This was despite 41 per cent likely failing the new performance test due to high fees and lacklustre returns.

Super Consumers Australia director Xavier O’Halloran said that it was disappointing that every fund gave themselves a pass mark and half deemed themselves so perfect they didn’t need to improve in any area at all.

“This is despite many of the same funds being highlighted by the regulator as having high fees or poor performance over the same time period,” O’Halloran said.

The research found that in almost 70 per cent of cases that documents were overwhelmingly hard to find on websites and funds made up their own target investment return metric to satisfy their assessments.

Very few funds broke down how they worked in the best interests of members from different demographics and fewer than half identified at least one way to improve the quality of their products.

The 13 funds that failed the APRA test were:

AMG Super

ASGARD Independence Plan Divisions 2

Australian Catholic Superannuation and Retirement Fund

AvSuper

Colonial First State FistChoice Super Trust

Commonwealth Bank Group Super

Energy Industries Super Scheme Pool A

Labour Union Co-Operative Retirement Fund

Maritime Super

Retirement Wrap

The Victorian Independent Schools Super Fund

 

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