Accounting groups point to ‘gaming’ of super performance test

Mike Taylor

Managing Editor and Publisher

17 May 2023

Two major accounting groups have claimed to have already seen evidence of the Your Future, Your Super (YFYS) superannuation fund performance test being “gamed” by super fund trustees.

In a joint submission to Treasury, CPA Australia and Chartered Accountants Australia and New Zealand pointed to ‘gaming’ of the superannuation performance test as one of the unintended consequences of the regime.

As well, the accounting groups have warned that the letter ‘failed’ superannuation funds are compulsorily required to send to members is actually tantamount to the provision of personal financial advice.

“It is hard to disagree with trustees being asked to justify why their fund’s investment performance is below an acceptable standard and/or their fellow trustees in other superannuation funds. However, we remain concerned about unintended consequences with these periods of assessment.,” the submission said.

“We believe that in some cases trustees may be willing to take on more investment risk in order to recover from poor investment periods and/or adjust their portfolios into more acceptable assessment benchmarks. In short, we are concerned about the system being gamed,” it said.

“We are already seeing evidence of this unfortunate aspect. In any event, we consider that a twelve-year time period may be better for such assessments. Superannuation is a long-term investment, and we believe that this timeframe encompasses the vast majority of minimum recommended time horizons in place for most investment options.”

“Regardless of the period used, it also may be that some trustees could successfully argue that some actions are in their members’ best financial interests but may not be able to argue that those actions are in those members’ best interests.”

On the question of the letters from ‘failed’ funds, the submission said that within the letter, members are referred to the comparison tool.

“Again, it is possible for a product to have performed poorly in the performance test yet rank well in the comparison tool. There is also no mention of insurance and the risks of losing cover if the member switches products, especially for dangerous occupations.”

“Arguably, the compulsory letter seeks to provide personal financial advice when funds cannot have sufficient member information to be making such statements to members. In addition, they may not have an Australian Financial Services License with suitable authorisations to be making such statements.”

“We consider that any relief provided to trustees for issuing these letters obscures the fact that, although not in law, members can quite reasonably infer that they have received personal financial advice. The impact on members reading such notices must be considered, both in anticipation of actions which they may take and tools presented to assist them with choices.”