13 MySuper products fail YFYS performance test

Thirteen MySuper products have failed the Australian Prudential Regulation Authority (APRA) performance test as part of the Government’s Your Future, Your Super (YFYS) reforms, but an association urges consumers to treat the results with extreme caution.

APRA assessed 76 MySuper products with at least five years of performance history against the objective benchmark.

APRA executive board member, Margaret Cole, said: “It is welcome news that more than 84% of products passed the performance test, however APRA remains concerned about those members in products that failed.

“Trustees of the 13 products that failed the test now face an important choice: they can urgently make the improvements needed to ensure they pass next year’s test or start planning to transfer their members to a fund that can deliver better outcomes for them.

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“APRA has intensified its supervision of trustees with products that failed the test and has requested they provide a report identifying the causes of their underperformance and how they plan to address them. Trustees have to monitor their products closely and report important information to APRA – including relating to the movement of members and outflow of funds.”

However, the Association of Superannuation Funds of Australia (ASFA) warned that some of the funds called out by the test were in fact good products that had delivered “excellent” returns to members over a long period of time.

It urged consumers to treat the benchmark results with “extreme caution”.

ASFA chief executive, Dr Martin Fahy, said: "This is a retrospective, relative performance assessment where the so-called underperforming products are compared against top performing products. Any product that falls 0.5% below the median is labelled as failing.

“What the published test results don’t tell members is why, and by how much, their fund has failed the test.”

ASFA noted the results were potentially confusing as some products with high average returns over 7% failed the test while other products with different asset allocations that also returned 7% had passed.

"This is the tyranny of benchmarks. They fail to take account of risk, lifecycle, or environmental, social and governance (ESG) screening considerations and instead they preference hugging the index,” he said.

"Among these so-called ‘underperformers’ we have products which have doubled people’s investments over the past decade. The irony is that the financial performance of these so-called ‘underperforming’ products would be in the top quartile in many OECD countries.

"No one test is perfect but this one ranks products on only one measure, when there are other important factors to consider, such as appropriate levels of risk for different age groups, the insurance coverage implications and whether you align with a fund’s investment ethos on issues such as climate change.

"We have long said that habitually underperforming funds should undertake an orderly exit and consumers should be protected during that process. But this test doesn’t do that. Instead, it sets an arbitrary bright line and removes from the process any role for judgment by our regulators.”

Trustees of failed products were required to write to members by 27 September, 2021, advising them of their Performance Test outcome and providing the details of the Australian Taxation Office’s YourSuper comparison tool: YourSuper comparison tool.

Source: APRA