How a super product can ‘fail’ in one fund but not another

Mike Taylor

Managing Editor/Publisher, Financial Newswire

23 June 2023

The degree to which the application of the superannuation performance test to Trustee Directed Products (TDP) changes the underlying dynamic has been emphasised by the fact that such a product can fail the test under one superannuation but pass under another.

The situation has been revealed by the Australian Prudential Regulation Authority (APRA) in the publication of answers to frequently asked questions, in which it makes clear that just because a TDP fails the performance test under one fund, it will not be deemed to failed when offered by another super fund.

It said this was because the performance test is calculated using fund licensee-specific data and, as such, the performance test outcome would be specific to superannuation fund concerned.

However, the regulator believes that if a particular TDP is deemed to have failed with respect to one superannuation fund, other fund trustees should be questioning whether they should continue to offer it to members.

“If  an investment option fails the performance test, APRA expects all RSE licensees offering the option (regardless of whether it is classified as a TDP as part of their offering or not) to consider whether the performance of the investment option allows the RSE licensee to hold the view that it is in the best financial interests of members for the option to be continued to be offered,” the regulator said.

Elsewhere in answers to FAQ, APRA has also deemed that investment options which have no strategic asset allocation benchmarks can still be classified as TDP.

It pointed out that APRA expects superannuation funds to establish formal approach to determining asset allocations including establishing initial target asset allocations and ranges.