The Treasury has launched a consultation on proposed reforms to strengthen the superannuation performance test, with submissions open until 19 June 2026.
The consultation paper seeks feedback on how the test can remain fit for purpose as the system evolves, while continuing to support strong member outcomes and maintain accountability for fund performance.
Officials said the review is focused on concerns that the current framework may create unintended barriers to investment, including influencing how trustees allocate capital, manage risk and position portfolios relative to benchmark indices.
The performance test, introduced in 2021 as part of the Your Future, Your Super reforms, compares a product’s ten-year net investment returns and fees against benchmark measures to identify underperformance and prompt action from trustees.
The paper outlined four key reform areas, beginning with potential changes to benchmark settings to better accommodate emerging and alternative assets that are not well captured by existing indices.
Options include introducing a new asset class benchmarked against a CPI plus margin and refining the treatment of alternatives within the current framework.
The Treasury said these changes are intended to reduce disincentives for funds to invest in assets such as venture capital, renewable energy and other long-term opportunities that may exhibit different return profiles to traditional listed markets.
A more structural proposal would shift the test towards assessing risk-adjusted returns, replacing the current asset allocation benchmark approach with a simple reference portfolio that compares returns relative to volatility.
This approach is designed to better capture the value trustees deliver for a given level of risk and reduce incentives for “benchmark hugging”.
The Treasury is also considering introducing a formal process to review benchmarks on a routine basis, ensuring they remain aligned with market developments and evolving investment practices.
The consultation further explores expanding the scope of the test to cover a broader range of products, including externally directed accumulation products and, over time, potentially retirement offerings, with the aim of improving consistency in member protections across the system.
Industry bodies broadly supported the intent of the review while warning against weakening the test’s consumer protection role.
“It’s crucial that in a compulsory system, we have a measure of performance. Five years after it was brought in, the performance test has done a great job. It’s now time to modernise it, to deal with some unintended consequences, and make it stronger,” said ASFA chief executive Mary Delahunty.
ASFA said modernising the framework could “drive greater returns for members by allowing funds to pursue innovative investment strategies” and enable greater investment in assets that support long-term growth and national priorities.
The Financial Services Council (FSC) supported targeted refinements but cautioned against more significant structural changes that could dilute accountability or reduce comparability across products.
“A CPI + X benchmark for a limited portion of portfolios would provide funds with greater flexibility to invest in alternative assets that align with Australia’s national priorities, with the continued safeguard of the best financial interests duty,” said FSC chief executive Blake Briggs.
“The FSC is concerned that a simple reference portfolio approach could water down the test if it reduces accountability for superannuation funds. Any reform must preserve the integrity of the test and maintain pressure on funds to deliver for consumers.”
The FSC also warned against expanding the test to more complex products, arguing outcomes could become harder to interpret and less meaningful for consumers, particularly where investment decisions are influenced by advice or tailored retirement needs.
The Super Members Council (SMC) said the consultation should be used to close gaps in the current framework, warning that significant portions of the system remain outside the test’s coverage.
“The fact that tens of thousands of Australians have been exposed to products like the collapsed Shield and First Guardian schemes — which weren’t subject to the performance test despite being able to receive compulsory super contributions — shows why closing these gaps is both urgent and essential,” said chief executive Misha Schubert.
The SMC said around 41 per cent of assets in APRA-regulated super funds are not currently covered by the test, leaving “a gaping safety hole in the safeguards and transparency for millions of Australians”.
It added that many exclusions relate to untested savings-phase products on newer platforms, leaving members “flying blind on whether their super is performing for them or not”.
“Right now, you’ve got millions of consumers who are essentially flying blind, not knowing whether their super is meeting the performance benchmark that applies across the rest of the system,” Schubert said.
“That’s a giant hole in consumer safety — where your retirement savings are invested shouldn’t determine whether or not you’re protected by basic performance checks.”
The council also called for improvements to the integrity of the test, warning that the current treatment of fees over a 12-month period, compared with a 10-year investment horizon, creates scope for “tactical gaming” that can obscure underperformance.
AMP also raised concerns about gaps in the current framework and the need for broader coverage.
“A review of the Annual Performance Test can fix a massive gap in Platforms testing that’s failing to protect consumers from poor outcomes,” said Edwina Maloney, group executive, platforms.
“We strongly urge the Government to test all platforms, with just 3 per cent of the market captured by the current test.”
Maloney said expanding the test would help identify underperformance across a wider portion of the system and improve outcomes for members.
“An expanded test would raise red flags against the kind of underperformance we saw with First Guardian.”
At the same time, AMP cautioned against changes that could undermine the test’s effectiveness, warning that flaws in the current methodology are already creating unintended consequences for investors and advisers.
“We have been calling for years for changes to the fundamental flaws in the test’s methodology, which are creating confusion, impeding financial advice and pushing Australians out of high-quality, low-cost investments.”
According to the Treasury, the proposals have not yet received government approval and are intended to guide consultation on how the performance test could evolve as the superannuation system continues to grow in scale and complexity.
