Significant majority of submissions demand super performance test changes
The Government has been sent a clear message that the Your Future, Your Super (YFYS) performance test is flawed and that it would be dangerous to extend it to Choice superannuation products.
The Treasury has released all the submissions received as part of its review of the Your Future, Your Super Measures and the overwhelming majority have pointed to the flaws in the existing and regime and, with the exception of some industry fund and consumer bodies, most have urged against extending the regime to Choice products.
At the same time, the Law Society has suggested the Government may have significantly complicated the decision-making of superannuation funds by changing what was a conventional member’s best interests requirement to “best financial interests”.
However, there was no significant opposition to stapling people to their superannuation funds.
The consensus view of the submissions lodged with Treasury was that it would be dangerous to apply the Performance Test to Choice products because, unlike MySuper products, members had specifically selected them as part of a broader financial plan.
Investment advisory firm JANA said that, in such circumstances, the likely range of benchmarks required to develop an appropriate YFYS performance for the full range of performance Choice products “where the unintended consequences experienced in the MySuper segment apply on a larger scale”.
The other majority view amongst the submissions received by Treasury was that the existing MySuper performance test had skewed investment behaviour on the part of superannuation funds with specialist superannuation ratings house, SuperRatings, stating that it had “seen a material slimming of funds’ investment menus to date”.
It said there had been a reduction in the willingness and ability of superannuation funds to engage in Tactical Asset Allocation and Dynamic Asset Allocation to either enhance performance or minimise impacts due to short-term and volatility-related market movements.
“This may then have a detrimental effect on the fund’s outcome relative to the performance test’s methodology,” it said. “This reduction in willingness may be in conflict with members’ objectives for monies held in these investment options”.
Vanguard was one of the few parties making a submission to suggest that the existing passive reference benchmark assessment approach of the performance test was appropriate but it claimed that a 10-year testing period would be more reflective of the long-term nature of superannuation.
Failed again, public servants!
Moo moo. Herding. Everyone just follow the benchmark.
This will have massive unintended consequences with regard to liquidity and price discovery.
Especially price discovery.
So a client who decides to hold all of their super in a term deposit because they have a growth portfolio outside super, will be told they can’t contribute any more funds into their underperforming super fund?
Please get someone in Government who understands how investing works. The existing ratings rewarded all the biggest risk takers at the end of 2021 and that worked out well in 2022.
The idea that some super trustees can look into their crystal ball and outperform others with superior asset allocation is pure fantasy. It’s clear that the outperformers are those finessing their unlisted valuations, but our dim leaders continue this charade. All the lessons learned about active management have been ignored and to have a timeframe of less than 10 years defies logic. I have zero faith in Government having a single clue about how long-term investing works.