Vanguard backs performance test as appropriate

Vanguard may have only launched into the Australian superannuation sector less than two years ago but it believes the superannuation performance test is meeting its objective.

However, Vanguard does not think that failed choice products should be forced to close in the same fashion as MySuper products.

In a submission to Treasury’s consultation around the performance test and possible design options, Vanguard Investments Australian and Vanguard Superannuation said the test “continues to meet its objective of addressing underperforming investment options and improving the outcomes delivered to members.

“At present, it is the only option presented that is objective, efficient and timely to administer for both APRA and super funds, and has clear consequences of failure,” Vanguard said. “That’s why we support maintaining the status quo – the current performance test methodology – with consideration of minor amendments.”

“For example, while we support maintaining the consequences of failure for MySuper products, we submit that mandating product closure upon failing the test is not appropriate for choice investment options given the differing nature of choice members, choice investment options, and the way those options are used in member portfolios.”

Commenting on the issue, Vanguard Australia head of public policy, Sara Dix said the company had always supported the core foundation of the performance test to protect Australians from underperformance and holding funds accountable for the investment outcomes they deliver.

“While we support the current performance test and principles set out by Treasury, we believe that a further principle should be considered when developing it: simplicity.

“It’s critical for members to understand how the test operates, which means it needs to be simple for super funds to explain and simple for APRA to administer. Introducing additional complexity such as risk-adjusted or absolute measures is unlikely to enhance the benchmarking approach.

“We also believe it’s important to continue to include fees in the performance test because of the impact they can have on retirement savings. Fee transparency not only allows members to assess and compare costs between funds, but also drives competition across the super industry which ultimately improves outcomes for members.

“While not explicitly in scope for the performance test, we also recommend that the ATO sort the YourSuper comparison tool by fees, the only forward-looking measure available for consumers to compare superannuation products. Sorting by investment performance and the performance test as it stands may risk misleading consumers about the future returns they could achieve,” Dix said.