Concern looming super performance test remains flawed

Superannuation fund executives are bracing themselves for the Australian Prudential Regulation Authority’s (APRA’s) next release of the superannuation performance test with particularly around trustee-directed products.

Super fund executives are concerned because, notwithstanding a Treasury review of the performance test, they believe the regulator’s methodology is not yet appropriate and that, in any case, some investment options have been inappropriately classified.

The Treasury consultation on design options for the performance test was completed in mid-April, but no substantial change has been announced notwithstanding acknowledgement that flaws continue to exist.

At the same time executives are conscious of the outcome of APRA’s first performance test approach to non-platform Trustee Directed Products where, out of a total of 500, 480 were deemed to have passed, with 20 failing.

Where platform products were concerned, out of a total of 305, 229 were deemed to have passed with 76 failing.

The point being made by executives concerned about the methodology is that the test, as it currently stands, covers only 2% of the choice investment market because investment options sitting on large platforms are not included, while the same options sitting off-platform are included.

Submissions to the Treasury consultation made many of these issues clear, but particularly the fact that a one size fits all approach is simply not appropriate to choice products or many trustee directed products.

It is being argued that the test benchmarks do not take account of different performance objectives, particularly where advisers have worked on the basis of a goals-based approach.

The concern expressed is that strategies being recommended are generally “goals based” or “objective based” options, invested in such a way to, for example, reduce volatility, provide steady income, provide lower capital risks or provide greater weighting towards ESG or other specific objectives.

Also at the heart of concerns, and raised in the Treasury consultative process, is that the current methodology is premised on an account balance of $50,000 when the average account balance sitting on platforms is closer to $250,000.