Preventing underperforming funds from taking on new members will not help those who are currently in “dud” closed Choice products, according to Industry Super Australia (ISA).
The Australian Prudential Regulation Authority’s (APRA) latest Choice Heatmap published on Wednesday showed that two-thirds of Choice investment options that are closed to new members had poor or significantly poor performance.
ISA argued that closing these products to new members, as required under the Your Future, Your Super (YFYS) regime when failing APRA’s performance test for two consecutive years, would have no impact on the funds and would not stop existing members from being “fleeced”.
The body also estimated that members being stapled to these underperforming products could see them losing out on up to $230,000 at retirement.
“These heatmaps show once again that more needs to be done to connect members to high-quality super funds, closing products to new members is no punishment to many of these dud funds and in some cases is their business model,” said ISA deputy chief executive Matt Linden.
Of the 80 closed Choice options with significantly poor performance relative to APRA’s benchmarks, ISA pointed out that 49 remain open to new members.
Additionally, APRA’s heatmap showed that closed Choice products had higher fees on average. The average annual administration fee for an account balance of $50,000 was $225, compared to $149 for open Choice products and $137 for MySuper products.
“Yet the government recently decided to continue a carve out of historical administration fees from the Your Future, Your Super performance test — which hides the product’s true performance and opens the test to manipulation,” ISA argued.
However, ISA noted that Labor’s proposed changes do not currently include extending the test to cover all APRA-regulated products, including retirement products.
“In a compulsory system, disengaged members should not be left languishing in a dud super fund. The government needs to upgrade consumer protections, so members are only stapled to the best funds, who have passed the performance tests,” said Mr Linden.
Alongside the release of the heatmaps on Wednesday, APRA deputy chair Margaret Cole noted that some members may choose to stay in closed Choice options because of non-performance related benefits, such as insurance offerings, or based on appropriate financial advice.
“Even so, APRA encourages all superannuation members to check whether they are satisfied with the outcomes they are getting from their chosen investment strategies,” she concluded.
