Save articles for later
Add articles to your saved list and come back to them any time.
Too many Australians are still languishing in underperforming super funds that will leave them worse off in retirement, the industry regulator has found, with workers urged to make the switch to a better-performing fund.
The latest performance test by the regulator, the Australian Prudential Regulation Authority (APRA), of the “choice” super sector – where workers pick their own fund rather than letting their employer choose for them – found the poorest performers are among the choice options closed to new members.
APRA deputy chair Margaret Cole says the regulator is increasing scrutiny of dud “choice” super fund options.Credit: Oscar Colman
Since 2019, the regulator has been publishing performance tests in its campaign to rid the superannuation sector of dud performers.
Its latest “heat map” of super investment options analyses the performance of choice options that have track records of at least eight years, as of June 30, 2022. The heat map compares the funds’ performance to a benchmark designed by the regulator. The testing only covers about half of the choice investment options available to members in the accumulation stage.
Almost half of the choice options tested were found to be underperformers. Two-thirds of choice investment options closed to new members were found to be poor or “significantly” poor performers.
Choice options tend to be much more popular with members of retail super funds, particularly those who use a financial planner, than with members of not-for-profit funds, whose members tend to be in their funds’ MySuper default options.
The fees of choice investment options that are closed to new members were, on average, higher for open choice options and higher than MySuper options.
“It is appalling that after several years of transparency, almost half the funds in this major segment of the market are still delivering high fees and poor investment performance,” says Xavier O’Halloran, the director of Super Consumers Australia.
“We welcome greater scrutiny promised by the regulator, but these funds also have to take responsibility given they have a legal duty to act in the best financial interests of their members,” he says.
It is important that fund members check that their investment option is performing. Under recent changes, fund members are now “stapled” to the first super fund they have as they move jobs – even though most people can change fund at any time.
Stapling has the benefits of reducing the number of people with multiple funds – and, therefore, the total fees they pay – but those who take little interest in their super could be stuck with underperformers by default as they move between employers.
APRA deputy chair Margaret Cole says while the data shows some improvement in the performance of choice accumulation investment options, there are still far too many delivering substandard investment returns.
“As a result, APRA’s supervision of poorly performing choice products will intensify,” she says.
“Trustees [of super funds] with [investment options] that are underperforming or have unjustifiably high fees – or both – will need to explain why they haven’t already moved their members to products with better performance and better fee structures,” she says.
Cole notes that some members may choose to stay in closed investment options because of non-performance-related benefits, such as insurance offerings, or based on appropriate financial advice.
“Even so, APRA encourages all superannuation members to check whether they are satisfied with the outcomes they are getting from their chosen investment strategies,” she says.
You can check if your choice investment option is a significant underperformer here.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Most Viewed in Money
From our partners
Source: Read Full Article