Failure is only the beginning.
Thirteen of Australia’s 80 closely-regulated MySuper superannuation funds have failed the APRA performance test.
There’s a fair chance you are among the one million people in them.
The results were made public on Tuesday and handed to the funds on Monday. From here on — for the people who run those funds — it’s about to get worse.
APRA is the Australian Prudential Regulation Authority. Landmark reforms introduced in response to a devastating Productivity Commission report into the “mess” that is much of Australia’s super industry require APRA to rate each MySuper fund (and from next year most other funds) with a pass or a fail according to how they have managed their members’ money.
To fail — as one in six funds have — would require the fund to have for seven or eight years managed its members’ funds so badly that when judged by its own stated investment strategy, those members would have been better off investing in the broad categories of assets themselves and paying the managers to stay away.
Under the rules, which go by the name Your Future, Your Super, funds can only be given a “pass” or a “fail”. Those that fail are required to write to their members.
The letters, which have to be delivered within 28 days, and which APRA will check, are humiliating.
“Hello [fund member],” they begin. “Your superannuation product has performed poorly under an annual performance test”.
As a result, we are required to write to you and suggest that you consider moving your money into a different superannuation product.
By switching into a better performing product, you can potentially save thousands of dollars more for retirement. For example, by earning 1% higher net return over a 30‑year period, you could be 20% better off at retirement.
At the bottom of each letter is a QR code members can use to go to ato.gov.au/yoursuper to compare funds’ performance. If members log in with their MyGov account they will be told exactly what super they have and where it is (I’ve tried it and it works) and get a comparison tailored to their circumstances.
The 13 funds forced to send out these letters will be lucky to see out the year. Once a fund suffers withdrawals and has to pay out members it performs even worse. Within months, many will be taken over.
Those that remain are unlikely to last a second year. Once a product fails for two consecutive years (most that fail in the first year are expected to fail in the second) it will be prohibited from accepting new members, which means it’ll be killed.
It may or may not be relevant, but the driving forces behind the revolution are women. Women typically do much worse out of super than men.Lukas Coch/AAP
Karen Chester chaired the Productivity Commission inquiry that quantified the hundreds of thousands of dollars lost in retirement by each worker who stays in a dud fund, and came up with the first draft of the performance test.
Kelly O'Dwyer, as financial services minister championed it, as did her successor Jane Hume.
In charge of policing the rules is APRA executive board member Margaret Cole, who was known as the “enforcer” during her time as director of enforcement and financial crime at the UK Financial Services Authority.
On Friday she declared bluntly that Australia had too many funds, too many persistently underperforming funds and too many with fees that remain too high.
Industry funds among those failed
Among the chronic underperformers now facing a death spiral are five industry funds — two of them run by members of Industry Super Australia, the organisation that represents funds set up “only to benefit members”.
Rather, they were members. Maritime Super left just ahead of the results. LUCRF, originally set up by what is now the United Workers Union, was terminated on the release of the results. Industry Super scrubbed it from its website.