Super bodies welcome Govt's YFYS changes

The Financial Services Council, Industry Super Australia, and Australian Institute of Superannuation Trustees has responded to the government’s consultation on Your Future, Your Super reforms.

Minister for Financial Services, Stephen Jones, announced earlier this week that changes would be made to the annual performance test in light of feedback to an earlier consultation. 

Jones said common complaints about the test 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.

Key updates to the test included:

• Prospectively increasing the testing period from eight to 10 years to encourage longer-term investment decisions;
• Calibrating key benchmarks to ensure that funds are not unintentionally discouraged from investing in certain assets;
• Adjustments to the notification letter that trustees of failed products send to members;
• Minor changes to improve accuracy and reduce administrative burden for APRA; and
• Ensuring the test is fit for purpose when it is extended to trustee directed products this year.

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Blake Briggs, chief executive of the FSC, welcomed the fact that the government had listened to industry feedback on the test and said the organisation would work with the government on delivering the changes. 

He also welcomed the fact that there had been no changes to stapling measures as these would have “created unnecessary disruption” for consumers, funds and employers.

“The government has responded to feedback from the investment and super sectors by including 10 new benchmarks into super fund performance assessments that will ensure consumers continue to benefit from investment diversification and higher investment returns.

“In the highly complex and technical field of investment management, the government should be congratulated for taking the prudent approach of listening and responding to evidence-based policy.”

However, he felt the government should also commit to an improved modernisation regime by extending CGT rollover relief for consumers when they were rationalising individual products and investment options.

“A product modernisation regime for superannuation products will expedite the closure of underperforming investment options by removing tax consequences for consumers."

Industry Super Australia (ISA) deputy chief executive Matt Linden said: “These tweaks are a start to fixing the benchmarks, but they must just be the entrée, with the main course being a complete reworking that strengthens the test.”

The body advocated for all APRA-regulated funds to be included in the YFYS performance test, including those in the retirement phase from this year as “all members deserve to know if their fund is a dud, including retirees”.

Linden added: “It is disappointing for millions of members whose funds won’t face a performance test that they will continue to be kept in the dark. 

“In a compulsory system, disengaged members should not be left languishing in a dud super fund. The government needs to upgrade consumer protections, so members are only stapled to the best funds, who have passed the performance tests.”

ISA highlighted that over 850,000 members had stayed with their fund that failed the 2021 test, costing those members a combined $1.6 billion in just 12 months. 

The Australian Institute of Superannuation Trustees (AIST) was in agreement.

“Although applying the test to trustee‑directed products from this year broadens the scope of scrutiny, it was not unexpected and falls short of our position that that all APRA-regulated accumulation products should be tested, including poorly-performing Choice products," said Eva Scheerlinck, AIST chief executive. 

“Without this, the members of products not included in the YourSuper comparison tool and that are not tested will be unable to compare their fund with others, which is particularly relevant if they have received advice from unscrupulous providers to switch from a MySuper product to a high fee, underperforming Choice product."

She added that AIST was disappointed the Government had not acted on stakeholder feedback that default sorting of products by fees in the comparison tool could unintentionally increase the ranking of poorly-performing products that had temporarily lowered fees.

“Given the objective of the tool is to help members find a good performing MySuper product, we believe products should be ranked by net returns first rather than fees, and results should be graduated rather describing products as performing or underperforming,” Scheerlinck said.