The Australian Prudential Regulation Authority (APRA)’s has released an information paper on its approach to administering the annual performance test for superannuation products.
One of the many complications of the performance test was applying it in a situation where there were changes within a product (changes to the structure of a product) or across a product change (where members had been transferred to a new product).
This would be done by:
- MySuper product performance calculated on a quarterly basis using the performance of the underlying option(s);
- Performance calculated using data reported to APRA on a quarterly basis, with the exception of any quarters where there has been a change in the structure or the nature of the product. For such quarters, performance would be calculated by splitting the quarter into partial periods to reflect the structure of the product before and after the change;
- The benchmark portfolio for the first period after the change is calculated with reference to the strategic asset allocation after the change; and
- Where unlisted index returns are required to calculate partial-period benchmark returns and the required unlisted index level is not available at the partial period date, an index value would be derived at that date through linear interpolation using the index values available immediately before and after that date.
The performance test was a two-part test that involved:
- An assessment of investment performance relative to a benchmark portfolio created using the product’s strategic asset allocation; and
- An assessment of administration fees charged in the last financial year relative to the median fee charged for the category of product.
If the product underperforms the combined test by more than 0.5%, the product would be deemed to have failed the performance test.
If a product failed the performance test in two consecutive years, the registrable superannuation entity (RSE) licensee will be prohibited from accepting new beneficiaries into that product.
Investment performance would be assessed over a seven-year performance timeframe in 2021 and an eight-year timeframe thereafter.