Five takeaways from the latest Choice heatmaps

Super Review has dug into the latest Choice heatmaps to pull out five key findings affecting Choice funds and identify those licensees with underperforming funds.

The latest Choice heatmap from the Australian Prudential Regulation Authority (APRA) surveyed 163 Choice products representing $292 billion in member benefits at the end of June 2022. 

1.    Performance 
One in five Choice investment options with an eight-year history had “significantly underperformed” the benchmark, representing $10 billion of member benefits.

Some 407 options had an eight-year return history available, 182 of these had underperformed and 80 had significantly underperformed. 

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Compared to performance during 2021, this was an improvement, APRA said, as 2021 had seen one in four investment options significantly underperform.

2.    Licensees identified
RSE licensees which demonstrated significantly poor investment returns over eight years were: 
•    AUSCOAL Superannaution Pty
•    Avanteos Investments Ltd
•    AvSuper Pty
•    BT Funds Management Ltd
•    Energy Industries Superannuation Scheme Pty Ltd
•    Equity Trustees Superannuation Ltd
•    Nulis Nominees (Australia) Ltd
•    OnePath Custodians Pty Ltd
•    Perpetual Superannuation Ltd
•    Rei Superannuation Fund Pty Ltd

3.    Closed v open products
Two-thirds of investment options that had closed to new members had poor or significantly poor performance relative to the heatmap benchmarks.

Closed Choice investment options had particularly weak performance with 39% significantly below heatmap benchmarks, accounting for almost a quarter of the member benefits invested in these options.

This demonstrated a “potential harm” to members who remained in closed investment options. 

“RSE licensees must demonstrate how retaining members in underperforming closed investment options remains in members’ best financial interests or take active steps to identify suitable better performing options or products for these members to be transferred to. RSE licenses must also ensure that any remaining closed products or options continue to receive appropriate investment management and governance oversight,” APRA said.

4.    Choice v MySuper
Choice investment options were more likely to have underperformed than MySuper ones.

Over an eight-year time horizon, 39 per cent of open Choice investment options fell below benchmark compared to 21 per cent of MySuper products. The figure was even higher for closed Choice options at 67 per cent.

This was also the case for fees where the median MySuper fee was $143 compared to $177 for open Choice products.

5.    Fees and costs
Choice products had significantly high administration fees, particularly in those which were closed to new members. 

The median administration fee for closed Choice products was $350 per annum for a member with a $50,000 balance. This was significantly higher than the $177 charged per annum for a member in an open Choice fund. 
In the worst cases, administration fees were almost 70 per cent higher than the most-expensive MySuper product.

There were 48 Choice products which APRA said had significantly higher fees, accounting for 29 per cent of all Choice products, and APRA noted they tended to have lower levels of member benefits.

The RSE licensees of these 48 funds were Diversa Trustees, Equity Trustees Superannuation, LGSS Pty, OnePath Custodians, Prime Super, SPSL and Towers Watson Superannuation.

Crucially, these high fees were often associated with the funds seeing the worst performance, particularly if the fund was closed. 

“The heatmap demonstrates that, among closed products, those with significantly high fees also have a greater tendency to have investment options that have underperformed relative to investment benchmarks.

"Closed investment pathways account for the majority (95 per cent or 59 of 62) of investment pathways that have both significantly high administration fees and significantly poor investment performance relative to benchmarks."