Performance test inappropriate for retirement products

Mike Taylor

Managing Editor and Publisher

24 June 2026

Both financial advisers and the major superannuation funds have sent a clear message to the Government that the superannuation performance test should not be extended to retirement products.

The Association of Superannuation Funds of Australia (ASFA) has told the Treasury consultation on strengthening the superannuation performance test that any extension of the test to retirement products “is premature and should not be progressed until fundamental design questions have been resolved”.

The Financial Advice Association of Australia has similarly told the Government that flaws in the current performance test regime need to be resolved before it is extended.

ASFA pointed to the differences between retirement products and traditional accumulation super products.

“Retirement product objectives are typically different from those of accumulation products. Key retirement product objectives include capital preservation, income sustainability, longevity risk management, and flexible access to funds – in contrast to accumulation products where the key objective is return maximisation,” it said.

“An extension of the current test framework to the universe of retirement phase products would systematically penalise products that trade-off investment returns for income certainty or downside protection.

“In general, such products would be expected to have a higher systemic tracking error vis-àvis the prescribed benchmark indices, and a greater likelihood of underperformance (over a given time period),” ASFA’s submission said.

“Simple, account-based pension products would be advantaged over more complex retirement products that involve capital preservation, income sustainability, and longevity risk management.

“This would risk stifling innovation of retirement products, and so limit the range of retirement products available to future retirees. Ultimately, this would have a detrimental impact on member retirement outcomes,” it said.

The FAAA said that while it does not oppose extending the performance test in principle the test needs to be reform before it is expanded.

“We do note that whilst the most direct next step might be multi sector externally directed products, evidently this would involve a large number of funds. In the initial stage, consideration should be given to the size of an investment option prior to it being included in the scope of the test.

“It is our view that Treasury should first address benchmark design issues, finalise its approach to alternative and emerging asset classes, develop a robust investment taxonomy, undertake comprehensive back-testing, conduct consumer testing and consult with advisers and professional bodies, before extending the test more broadly.

“We would also encourage consideration being given to the appropriateness of the test being done on the basis of a $50,000 member balance. It is our view that this is no longer appropriate. The average superannuation balance per member is now over $170,000. Using a materially higher amount would make the test more relevant to the average consumer,” it said.