Dud super products cost $1.6bn in one year

Oksana Patron

24 October 2022

The members of dud super funds who did not leave their products lost $1.6 billion in just 12 months, according to Industry Super Australia’s analysis.

There were 850,000 members who remained with funds that failed a performance test and only 10% of those who received a letter encouraging them to change a fund have managed to switch out of their non-performing funds.

Further to that, those who did not switch to a top performing products lost on average $1,900 per person.

Funds that failed the test were forced to write to members, telling them to consider switching and directing them to a website where they could compare funds, but about 90% of members stuck with their fund.

“If a member on the median wage, with a balance of $50,000 stayed with one of the poor performers for the next ten years they could be about $25,000 worse off,” Industry Super Australia analysis found.

“If a 30-year-old was stapled to one of these dud funds for the rest of their working life, they could be $225,000 worse off at retirement.”

Also, all MySuper products were tested and about 1 million members in 13 super products worth about $56 billion failed the test. Of this, three failed products have since merged with better performing funds or are about to, but the others remained in the system or would tie up with funds that barely passed the test.

“While the stapling reform has stopped the future proliferation of unintended multiple accounts it needs to be linked to the performance test so that members can only be stapled to a fund that passes,” the analysis said.

According to ISA chief executive, Bernie Dean, this served as a reminder that staying with a dud super fund might come with a huge cost.

“Lots of people don’t know you can be stapled to a super fund that has failed the government’s performance test, and that could punch a huge hole in a person’s nest egg,” he said.

“Switching out of a dud fund and into a good one is easy, but plenty of people don’t think about it until it’s too late, so it is up to the government to tighten consumer protections, so people are only stapled to the best funds that have passed the performance tests.”