APRA Super fund performance test results released

Did you receive a letter from your superannuation fund stating your investments have underperformed and did not meet the superannuation performance test benchmarks? If so, this letter comes as the Australian Prudential Regulatory Authority (APRA) has released its third annual performance test results for superannuation products.

The results show that only one ‘MySuper’ fund failed the test while almost 7% of ‘choice’ products that were tested failed.

Background to the performance test

The APRA performance test commenced in August 2021 and assesses the performance of all MySuper products. However this year, for the first time the test was expanded to evaluate the performance of certain choice products.

To recap, a MySuper fund (also known as a default product) are low cost superannuation funds chosen by your employer when you start a new job. Whereas non-default products, also known as choice products, are those that you actively choose yourself. Generally speaking, choice products offer a wider suite of investment options and other features when compared to MySuper funds.

However not all choice products were tested this time around. Only those choice products known as ‘trustee directed products’ were included in the test. A trustee directed product is an investment option that is offered in the accumulation phase and contains at least two asset classes, where the trustee has control or influence over the investment strategy. All up, a total of 805 choice products (investment options) were tested in 2023.

How the performance test works

APRA uses investment performance, fees and costs data and compares this information against an agreed set of benchmark returns to assess each asset class.

The test is failed if a product’s actual return over the testing period is lower than the benchmark return by 0.5% per year or more.

What if a fund fails the test?

When a fund fails the performance test for the first time, the trustee must write to all members with funds in the affected investment option and notify them of the test outcomes.

If a product fails for a second consecutive year, it must be closed to new members, however existing members can remain in the affected investment option if they wish.

In this way, the annual test holds superannuation trustees to account for underperformance through greater transparency and increased consequences for those that fail.

Which products failed?

Only one MySuper product (AMG MySuper) failed to meet the performance test benchmarks this year. Last year, five MySuper options failed and of those, four have merged with other funds and are no longer offered. It is the third consecutive year that AMG MySuper has failed the test. It has been closed to new members since 2022 and the trustee has plans to close this product down.

Of the 805 choice products tested, 96 (or just under 12%) failed to meet the test benchmarks. Additionally, 75% of failed choice products are offered by just four trustees being:

  • M Superannuation Proprietary Limited (“AMP”)
  • Nulis Nominees (Australia) Limited (“MLC”)
  • Oasis Fund Management Limited (“Insignia Financial” (formerly IOOF)), and
  • OnePath Custodians Pty Limited (“OnePath/OneAnswer”).

These funds (except N.M Superannuation Proprietary Limited) are now owned by Insignia Financial after it acquired the MLC business from NAB and the OnePath business from ANZ.

The full list of failed products can be found on APRA’s website[1].

What do I need to do?

If you are impacted by the testing results, your superannuation fund will notify you in writing by 28 September 2023. The letter will explain that you should consider switching your benefits to another investment option or to another superannuation fund.

Although it may be a good reason to switch funds, there are a few things you should consider before making that decision, such as the risk of losing insurance, any tax implications, the cost of moving to a new product and so on. If you need further information about how the APRA performance testing process works, or what you should do with your superannuation benefits, we are here to help so please contact us for further information.

[1] https://www.apra.gov.au/2023-annual-superannuation-performance-test-trustee-directed-products