How a third of platform TDPs passed the performance test

Mike Taylor

Managing Editor and Publisher

14 October 2025

Research and ratings house, Morningstar has released new analysis confirming some retail superannuation funds have been resorting to fee rebates to ensure they pass the Australian Prudential Regulation Authority (APRA) performance test.

APRA itself has pointed to the fee behaviour, and the Morningstar has confirmed the reality of just how many trustee directed superannuation products (TDPs) on platforms have managed to achieve a ‘pass mark’ by almost literally a hair’s breadth.

Morningstar has noted the relative underperformance of platform TPDs and said that, by taking a closer look, an unusual trait had been revealed – “a heavy concentration of products just above the pass mark of negative 0.5% per year”.

“Of the 75 products with test results disclosed, 25, or one-third, scored between negative 0.4% and negative 0.5% per year. What’s more,12 of these returned negative 0.49% – just 0.01% inside pass territory!” the analysis said.

“How did this anomaly occur? APRA has pointed to fee rebates as a key factor. That is, for some products, trustees provided enough of a rebate to lift the products out of “fail” territory.

“While fee reductions are no doubt welcome for members (certainly more so than fee increases!), APRA has since put trustees on notice—the regulator will engage with relevant platforms about the need for a persistent improvement in investment performance, even if a product has technically passed the test.”

Looking at the performance test and its impact on superannuation funds generally, the Morningstar analysis noted that fear of failure had been said to encourage funds to “hug” YFYS benchmarks

However, it said this was not the entire picture, and that in Morningstar’s observations benchmark-hugging may also be due to the growing capacity constraints that mega-funds can face for active strategies in certain asset classes – above all, Australian listed equities.

“Additionally, many major funds are now performing so far above the test’s pass mark that they are less concerned about failure,” it said.

Morningstar also noted that the simplicity of the performance test left it susceptible to ‘gaming’ by funds who might allocate in ways that offer a high probability of passing the test.