The Association of Superannuation Funds of Australia (ASFA) today urged consumers to exercise caution in how they interpret the results of the Your Future, Your Super performance test and to think carefully before making important decisions about their superannuation.
“ASFA has long supported the orderly removal of habitually underperforming products, however some of those called out by this test are in fact good products which have delivered excellent returns to their members over a long period of time,” said ASFA CEO, Dr Martin Fahy.
“This is a retrospective, relative performance assessment where the so-called underperforming products are compared against top performing products. Any product that falls half of one per cent (0.5%) below the median is labelled as failing. What the published test results don’t tell members is why, and by how much, their fund has failed the test.”
ASFA said results of the test are potentially confusing for consumers. Some products with high average returns over 7% have failed the test, while other products with different asset allocations but also 7% average returns over 10 years, have passed.
“This is the tyranny of benchmarks. They fail to take account of risk, lifecycle, or ESG screening considerations and instead they preference hugging the index.”
ASFA questioned why APRA has not provided the transparency necessary to determine why, or by what amount, a product has fallen foul of the bright line test.
“This lack of transparency is very worrying – stamping a product with a fail, without any context, is the fastest way to spark fear and confusion among members,” said Dr Fahy.
ASFA urged consumers to consider the returns their product has delivered over 5, 10 or 15 years, not just whether they have fallen one basis point below some arbitrary cut off point in a retrospective benchmark performance test.
“Among these so-called ‘underperformers’ we have products which have doubled people’s investments over the past decade. The irony is that the financial performance of these so-called ‘underperforming’ products would be in the top quartile in many OECD countries.
“No one test is perfect but this one ranks products on only one measure, when there are other important factors to consider, such as appropriate levels of risk for different age groups, the insurance coverage implications and whether you align with a fund’s investment ethos on issues such as climate change.”
ASFA urged consumers to talk to their fund and consider whether the investment risk and insurance implications are right for them.
“We have long said that habitually underperforming funds should undertake an orderly exit and consumers should be protected during that process. But this test doesn’t do that. Instead, it sets an arbitrary bright line and removes from the process any role for judgment by our regulators,” concluded Dr Fahy.
For further information, please contact:
Jacqui Maddock, 0451 949 300.
ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral, and non-party political, national organisation. ASFA’s mission is to continuously improve the superannuation system, so all Australians can enjoy a comfortable and dignified retirement.
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