YFYS forcing funds to deviate away from member objectives

The Your Future, Your Super (YFYS) legislation is having an unintended outcome of forcing superannuation funds to move away from meeting promises to members in order to meet the performance test.

Speaking at the Australian Superannuation Investment conference, held by the Australian Institute of Superannuation Trustees (AIST) in the Gold Coast, Michelle Gardiner, trustee director at CareSuper, said funds could be forced to make difficult decisions.

“[YFYS] is definitely impacting the way we make decisions, you always have to think about your investments and how that fits with your stated objectives but also how every decision affects your tracking error.

“So far, we haven’t been put in a situation where we have had to make a decision to invest to fit that benchmark as opposed to our own objectives but I know funds who have had to make that decision and that’s a really sad outcome for members.

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“What you promise them in the stated objectives is what they expect and sometimes I think YFYS is making them deviate away from that promise to members in order to ensure business continuity. So you have that conversation at an investment committee and at a board level and say ‘we need to be here in the future, therefore we need to comply with the test’.”

Responding to comments that the YFYS performance encouraged short-termism, Geoff Stewart, head of investment risk at the Australian Prudential Regulation Authority (APRA) would not confirm or deny but he said he had received feedback from multiple super funds that it had indeed encouraged short-termism. He added funds’ views of the test would depend on their starting position and the size of their liquidity buffers.