APRA heatmaps raise concerns among industry groups

While the recently-published APRA MySuper Heatmaps revealed strong performance by superannuation funds, certain concerns lingered among industry groups like the Association of Superannuation Funds of Australia (ASFA) and the Australian Institute of Superannuation Trustees (AIST).

The annual heatmap by the financial services regulator evaluated the MySuper product performance over the past eight years based on investment returns, fees and costs and long-term sustainability of member outcomes. 

The results revealed some 8.1 million members, representing 56% of all accounts, had saved $210 million in fees and costs in the past year, however AIST chief executive, Eva Scheerlinck, stated fees were only part of the picture.

“There has been downward pressure on fees for some time, led by the profit-to-member funds which return profit to members and do not pay external shareholders,” she said.

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“[But] low fees are not enough - your fund must also deliver a competitive net return. This is demonstrated by the fact that nine of the top 10 funds by net performance over the last eight years are profit-to-member funds.”

While there were fewer members in MySuper products that have had significant poor investment performance than in 2021, around 800,000 members remained in such products.

“Given that only three in 10 members in underperforming funds have moved, it underlines the fact that more needs to be done about underperforming funds at a system level. 

“We have always stated that the onus to act should not be on the individual member but on the design of the system settings,” Scheerlinck said.

The AIST called for annual performance testing to be extended to all Choice accumulation products, rather than just MySuper products.

According to ASFA, the “pleasing” performance of MySuper products reflected the funds’ focus on member outcomes, fee reduction, risk management and investment returns, but its concerns stemmed from the regulator’s comments regarding sustainability.

APRA had highlighted that only 23 Registrable Superannuation Entities (RSEs) had experienced positive net cashflow since the first heatmap in 2019.

It stated, “Only 42% of RSEs (23 RSEs) have experienced positive net cash flow over the three-year horizon indicating that member outflow payments (e.g. benefit payments) have outweighed member inflow payments (e.g. contributions). Rollover growth and accounts growth is even more concentrated in a small number of RSEs, with a long tail of RSEs experiencing decline.”

Margaret Cole, APRA deputy chair, had also noted the industry had “serious sustainability issues to address”.

According to ASFA CEO, Dr Martin Fahy, using net cashflows as a measure of sustainability was misguided.

“The purpose of the super system is to pay out pensions in retirement, not hold on to the money in perpetuity,” he stated.

"As the number of people with more superannuation as they head into retirement increases, so too will the amount of money paid out of the system. And that’s a good thing. It demonstrates the system is working.

"Australia’s superannuation funds are unquestionably financially strong and this has been demonstrated by their robust performance in the face of strong headwinds and resilience to external shocks.”