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Collateral damage note

Funds which passed APRA performance test losing members anyway

By Mike Taylor1 November 2021

Big industry superannuation funds with a significant media presence have emerged as the big winners from the Australian Prudential Regulation Authority’s superannuation performance test with even funds which did not fail the test losing members to the mega-fund.

The unintended collateral damage has been revealed by a Financial Newswire superannuation roundtable during which the chief executives of superannuation funds which had passed the performance test said that they had nonetheless lost members because of the generally negative publicity.

While APRA has acknowledged the loss of members by the 13 funds which failed its performance test, super fund chief executives told the Financial Newswire roundtable sponsored by Zurich Life and Investments, that the loss of members extended well beyond the failed funds.

NGS Super chief executive, Laura Wright pointed to the situation in which people were ending up being driven to the Australian Taxation Office comparator web site, which in turn only showed them other funds they might choose.

“Now, I don’t know how that is going to play out when you get all of the different choices there because I don’t think the public will be able to make head nor tail of it but the money is not just going from the 13 funds that have failed,” Wright said.

“…I’ve spoken to a few different CEOs of funds over recent times and one of the first questions I ask is how much money are you losing to AustralianSuper and everyone is losing money to AustralianSuper.”

“Now those funds weren’t named as failed funds, so how do people know. So I think it [the performance test] has had an interesting impact in terms of the movement away from a number of funds that have not failed,” Wright said.

Unisuper chief executive, Peter Chun endorsed Wright’s view but pointed at the core fault of the performance test was that it was not member-oriented.

“…the actual test itself is far removed from the member outcome, its actually lost sight of the member because at its core it’s about how well has the fund implemented a particular strategy it has nothing to do with how good the strategy was, it doesn’t look at the actual member return and what they got, it doesn’t look at risks, so our industry has come up with assessing it against a notional benchmark,” he said.

“So the poor member gets a blunt letter which directs them to the ATO website and the ATO website comparison tool is a peer performance measure – relative returns – so I think the test should have been more based on that,” Chun said.

“Fundamentally, everyone is saying the policy objective makes sense ‘let’s weed out under-performing funds’ but to a consumer an underperforming fund is a peer-relative concept and I don’t know how we’ve landed on this funny notional benchmark.”

Zurich Life and Investments head of Group Insurance, Darren Wickham said that while he understood the policy objective of the performance test and it was noble objective, “I do think there’s a danger that funds focus on passing the test rather than on maximising the returns so there is a danger of a race to the middle”.

“For me, one of the issues is that it is a backward-looking test so that if a fund makes a change to improve things in the future then they will be penalised for a number of years for what they’ve done in the past,” he said.

“The test limits the ability to make decisions about down-side protection and that is particularly important for older members so I understand the policy objective but I think there are some challenges with the way it is being set at the moment.”

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

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