AMP has thrown its support behind APRA’s efforts to overhaul the way superannuation data is collected and reported. Mr Wade said that the system needs major improvement if Australians are to effectively compare products based on key indicators such as returns, fees and their appetite for and ability to withstand risk.
“Currently, Australians are forced to calculate and compare their superannuation based on obscure industry measures, such as unit pricing, to benchmark their fund against the market. Furthermore, consumers can’t rely on government comparisons because the data is inconsistent and inadequate,” he said.
The prudential has decided to use a “traffic light” system or heat map that will potentially give super funds a rating of green, amber or red based on returns, insurance, fees and fund sustainability. Currently, all funds are required to publish the investment risk of each fund under APRA product dashboard reporting requirements.
Mr Wade argues that this measure on its own, is not likely to be understood by members and needs greater understanding and effectiveness for making comparisons.
“Particularly given the measure itself is based on the probability of loss, rather than the size of loss, and is not used by managers as genuine indicator of risk,” he said.
“People need to be able to understand what risk their fund is taking. The greater the transparency, the better placed consumers are to make an informed decision. One thing for certain is that markets rise and fall, and you don’t want to get caught at the tail end of a downward cycle. A fund that is rated ‘green’ will be considered an endorsement, so the methodology must be appropriate for the members’ needs.”
The AMP wealth boss said there are currently no no standard guidelines for classification of growth and defensive assets in superannuation, which makes it particularly difficult for consumers to make “apples with apples” comparisons when trying to assess performance in line with risk.
He noted the increasing number of industry and retail funds investing in unlisted property and infrastructure labelling the investments as defensive.
“In recent times these investments have performed well, boosting returns for the funds. But there is no doubt they lack transparency, and in the event of a downturn they may carry considerable risk,” Mr Wade said.
“APRA needs to come up with a system to accurately compare funds – risk should be firmly on the table and reflected in the comparisons.
“We acknowledge that this is not an easy task for APRA, given the industry itself has debated with this issue for some time.
“As an industry we must all start working together to find and agree to the right methodology that makes it easier for Australians to accurately compare their super products. We’re not there yet.”
AMP was named among the the worst performing super funds in Australia by Stockpot’s Fat Cats report last month. The report noted that the company ran 11 “Fat Cat Funds“ and said many of AMP’s super products continue to do poorly for members.