Data shows majority of choice super funds in Australia perform poorly
More than 60% of super fund investment options where members can choose how to invest their money fail to deliver good returns, statistics released by the Australian Prudential Regulation Authority (Apra) show.
Poorly performing funds in the “choice” sector also tend to have higher fees that eat into their returns, the data reveals.
It is the first time Apra has examined the performance of choice funds, which allow members to choose from a menu of investment options.
The funds contained in the data manage $394bn of retirement savings, which is about 40% of the choice market.
Apra plans to expand its coverage of the choice market in future reports, but has started with products where retirement savers put their money into a basket of different types of assets. This is because data is available on these funds and they are comparable to MySuper products, which are supposed to be simpler low-fee investments.
Apra said there were eight choice products with consistently bad returns over seven years: EISS, Aware Super – Tailored, BT Super For Life, Australian Catholic Super – Personal, Christian Super, OnePath OneAnswer Frontier, Zurich and Perpetual WealthFocus.
BT is owned by Westpac, which is trying to sell the business; OnePath is owned by insurer Zurich, which is also on the list in its own right; and Perpetual is a stand-alone investment advice company.
The remainder are profit-to-member funds.
Along with the choice fund data, Apra updated its heatmap of the performance of MySuper products.
Christian Super, EISS and Australian Catholic Super, which is not to be confused with the similarly named Catholic Super, also offer MySuper products that failed Apra’s performance test.
Among the choice products Apra looked at, 61% had consistently poor performance, delivering returns to members that were below a benchmark set by the regulator for seven years.
A quarter delivered what Apra described as “significantly poor performance” of 0.5% or worse below the benchmark over the seven year period.
This is worse than the situation among MySuper funds, where 45% of products underperformed and 16% delivered returns 0.5% a year worse than the benchmark.
Fees are also higher in choice funds. The median administration fee for a choice fund with a $50,000 balance is $218 a year, compared to $168 for a Mysuper product.
Apra has slapped a “crimson” fee warning on 30 choice products that charge more than $300 a year on a $50,000 balance. Eight products combined high fees with poor performance.
The regulator said that although choice funds often offered extra services to members, their trustees still needed to be able to justify what they charged as being in the best financial interests of members. If they could not do this they should cut fees, it said.
It also called on fund trustees in charge of underperforming products to take action to improve returns to members.
Apra executive board member Margaret Cole said super fund members “deserve confidence that their retirement savings are being well-looked after, regardless of what type of fund or product their money is invested in”.
“Although there have been benefits generated for members from industry consolidation and reductions in fees in recent years, these heatmaps show there remains considerable room for improvement in member outcomes.
“In particular, a sizeable proportion of the choice sector has been exposed for delivering poor outcomes, especially considering these products generally charge higher fees than their MySuper equivalents.”
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She said trustees had a legal duty to act in the best financial interests of members and those in charge of underperforming funds should “prompt action to address areas of concern”.
“If they are unable or unwilling to do so, they need seriously to reconsider whether their members would be better served with their money elsewhere.”