Two-thirds of members stick with ‘failed’ super funds
Fewer than a fifth of members of funds which have failed the superannuation fund performance test have actually rolled into new funds, according to analysis undertaken by the Australian Institute of Superannuation Trustees (AIST).
The industry superannuation funds representative body wants the Australian Prudential Regulation Authority (APRA) to be able to go further in persuading members of under-performing funds to move to new funds.
In doing so, it has suggested that many superannuation fund members are simply not smart enough to understand the letters telling them they are in a failed, under-performing fund.
According to the AIST analysis, as of June this year, over 600,000 members were in underperforming MySuper products, and of these people, 550,000 were in superannuation products which failed the performance test twice.
“Of the 13 funds that failed in 2021:
- Four failed for a second time in 2022 – representing over 550,000 accounts
- Four merged – representing approximately 195,000 member accounts
- Five passed the test – representing 289,000 member accounts.
“Only 100,000 members rolled out of underperforming products following receipt of the mandated letter. It cannot be assumed all or most of these rollouts were a result of the letter,” the AIST said its submission to Treasury’s Your Future, Your Super review.
“Approximately 3.1% of members change superannuation funds each year regardless of their fund’s performance. Most members (578,000) are no longer in underperforming products due to either fund mergers or improved fund performance,” it said.
The AIST then went on to claim that the letter mandated to be sent to members of under-performing funds is deficient because many members simply don’t understand what it is attempting to convey.
“This lack of member action is unsurprising given the content and structure of the mandated letter. Using the Flesch-Kincaid Grade Scale analysis, a person would need to have at least grade 11 reading skills to fully understand the content of the letter. Given 44% of adult Australians have a reading level of year 10 or below, it is reasonable to assume that a large proportion of over 1.1 million members receiving the letter simply did not understand it well enough to take action,” the submission said.
“Even where a consumer was able to comprehend the letter, it is unsurprising that levels of response were low in light of ASIC’s Report 632: Disclosure: Why it shouldn’t be the default which found that disclosure and warnings can be ineffective in influencing consumer behaviour. In addition, ASIC’s Report 729: Review of trustee communications about the MySuper performance test (REP 729) notes that some communication that included specific retention strategies for members to consider had the potential to “risk breaching financial advice and anti-hawking laws.”
The AIST said that if a mandated written communication to members remains “it must be thoroughly consumer-tested for comprehension and revised accordingly. Even so, given the low rates of members proactively switching as a result of receiving the letter, AIST strongly recommends that the responsibility for exiting an underperforming product should not rest with members”.
Maybe the customers have insurance they don’t want to lose….
Maybe they have investments they do not want to realize a loss on by making a transaction right now due to the market
Maybe they are happy with the performance of a fund taking less risk through asset allocation.not wanting to end up like MTAA Super during the GFC from the best fund to worst and where are they now….
Conflicted, corrupt, self-interest extraordinaire group, union-industry super yet again howling for fresh member money to rort, based on falsified returns in opaque unlisted or alternative ‘investments’ with a seemingly endless outperformance – sure even Bernie Madoff would be impressed with the breadth and scope and politically aligned support these ponzi schemes have!!
Meanwhile a dopey or corrupt ASIC sit idly by, swatting at little flies called advisers…
Maybe members aren’t as short sighted as APRA and their singular view ‘Sidchrome spanner toolkit’ type ratings and recognise really long term returns matter way more and the guys who are top of the pops today won’t be later and vice-versa! Maybe, just maybe they’re better educated and smarter than many give them credit for and truly understand the value of long term investing! APRA would be just another un-trusted govt authrority to the average Aussie punter who see daily it is very wise not to blindly trust such govt authorities, polticians, corporates and the media etc. Stop with the nanny state rubbish, Aussies are adults, more than capable of making their own decisions and truly are sick of it! It’s called freedom! Sadly an all too trashed concept in what used to be a free country! 🙁
Maybe consumers think, “Past performance is not a reliable indicator of future performance and should never be the sole factor considered when selecting a fund,” as per every PDS etc.
Interesting that its OK for APRA to recommend switching funds due to past performance, but if it’s an adviser then they can hardly rely on that metric, or so the compliance boffins tell me.
People are getting mixed signals, promoted by Trustee’s particular Industry Super funds with the lowest of morals.
One such fund advertises ” it’s award winning, a leading provider, strong performance, history of strong returns” in 2020…yet in 2022 APRA closes the default investment option down and the fund immediately employs a consultant to move to the average. Super funds have a history of advertising their funds only cost $1.50 per week…and they use selective advertising in promoting returns. One funds returns I saw were 2 years out of date.