Super performance test for consumers

The superannuation performance test, announced in Tuesday’s Budget, will allow consumers to compare “apples with apples”, according to Assistant Minister for Superannuation, Financial Services, and Financial Technology, Jane Hume.

Speaking at a Financial Services Council (FSC) briefing, Hume said the performance benchmarks that would be part of the online comparison tool did not necessarily take into account the benchmark funds had set for themselves.

“We want to make sure we can compare apples with apples. One of the problems with the industry in the past and something that has bewildered consumers is that they don’t know what it is they are comparing.

“What benchmark funds have set themselves is entirely up to them and of course each will do something slightly different based on asset allocation, investment styles, etc. and we encourage them to do so as long as they can consistently perform and keep lowering fees.”

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When asked about whether the tool would take into account funds taking on greater risk and growth assets that at times made funds look good, Hume said the performance tool would do that to ensure it could compare “apples with apples”.

“We have to remember this is consumer focused. It’s about the consumer and making sure they understand. APRA [Australian Prudential Regulation Authority] can do the stuff between funds, and they’re doing a good job in managing that side of the equation already.

“This is about consumers more than anything else and I don’t think this is a particularly relevant concern in this case.”

She noted that the comparison tool did not give the APRA any extra powers as it was funds were being subjected to an objective annual performance test and had “nothing to do with APRA”.

“We’re talking about an underperformance of 0.5% over an eight-year benchmark. It’s not about a bad quarter or bad year, we’re talking about persistence underperformance.

“Young people languishing in a fund could potentially cost them $7,000 to their retirement savings. What’s the counter factual to this? People should sit in those funds like mushrooms and not know what’s going on?

“We think it’s important funds take responsibility and notify members of underperformance but also demonstrate what they could have got in a fund that wasn’t underperforming.”

Tuesday’s Budget revealed that if superannuation funds failed two consecutive performance tests they would not be allowed to take on new members.