While ASFA supports the reforms, it is concerned that they will “undermine confidence” in the superannuation system while pushing funds towards more passive investment strategies in order to adhere to an APRA benchmark.
“We must ensure that measures to address underperformance are well designed and implemented – in particular the definition of what it means to be ‘underperforming’,” said ASFA CEO Martin Fahy.
“Australia does not suffer from a shortage of good funds – it is imperative that any measures that are designed to address underperformance do not reduce competition, distort investment decisions or damage the nation building role of superannuation.”
Currently, the new test tracks performance over an eight-year period and compares products against 12 different indices based on asset class. While ASFA’s proposed assessment would also target high fees and “chronic” investment underperformance, it would remove the need to track a benchmark.
An assessment of a hypothetical MySuper product would first examine fees and costs against a benchmark of 130 basis points (one standard deviation from the average MySuper fee). If fees and costs exceed it, then net investment returns would also be assessed and benchmarked and those in the bottom quartile would be labelled “prima facie” underperforming.
“A ‘prima facie’ underperforming product would have an opportunity to state its case to APRA as to why its MySuper authorisation should be retained – if unsuccessful the MySuper authorisation would then be revoked,” ASFA said.
While the Your Future, Your Super reforms have been met with a cautious welcome from many corners of the superannuation industry, some groups are concerned that they will promote an “averageness mindset” and prevent funds from adopting points of difference that could be beneficial to members.
