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APRA signals heatmap to stay despite benchmarking reforms

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APRA has said that it will keep returning each year “like the Christmas Grinch” to publish super performance data, as it considers whether it should take enforcement action against eight trustees for underperformance.

The prudential regulator has released the first full refresh of its heatmap since it was first published last December, publishing data that compares super funds across metrics such as net investment performance and fees. 

The 2020 heatmap also has an accompanying report, which has shown that in the last 12 months, 11 of the MySuper products that underperformed the investment benchmarks in the first heatmap have exited the industry. 

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The future of the heatmap has been called into question after the government’s proposed Your Future, Your Super reforms outlined plans to publish fund performance and fees in a consumer comparison tool, called YourSuper.

But APRA deputy chair Helen Rowell said the regulator is still planning to publish its heatmaps, thinking the two complement, rather than duplicate, one another. The regulator is set to review what changes may be appropriate once the Your Future, Your Super legislation is finalised. 

“Not every trustee or superannuation analyst likes APRA’s heatmap or the methodology behind it, but it has demonstrably helped to deliver better member outcomes,” Ms Rowell said to a briefing hosted by ASFA (the Association of Superannuation Funds of Australia) on Thursday. 

Transparency can help funds see where they are falling short, so they fix weaknesses while those who are excelling can be incentivised by seeing how their competitors compare, she noted.

“For that reason, we intend to return each year, a bit like the Christmas Grinch, to put the trustees of underperforming funds on notice to lift their game or get out,” Ms Rowell commented. 

“It may not be the Christmas present they were hoping for, but if trustees respond with lower fees or improved investment performance, there could be no better gift for the members they ultimately serve.”

Eight trustees are also now under review for possible breaches of the Superannuation Industry (Supervision) Act 1993, in relation to 10 MySuper products. 

APRA has said that it will be issuing notices in coming days requiring the trustees to provide information around the underperformance of some of their products and the actions being taken to address their lagging. 

The trustees’ answers will be used to determine what further action APRA will take, including potential use of formal enforcement powers. 

‘These entities have had a year to lift their game’

Looking at the 2020 heatmap insights paper, six out of the total 70 products (9 per cent) measured for the six-year time frame had significantly underperformed, while 27 of products (39 per cent) had some investment concerns.   

The six significantly underperforming products (behind the six-year metrics by at least 0.75 per cent per annum on average) are BT Asgard Employee MySuper, BT Super MySuper, BT – Westpac Group Plan My Super, EISS Balanced (MySuper), VISSF Balanced Option and Colonial First State – FirstChoice.

As noted by APRA, there are more than 900,000 member accounts and $31.2 billion of members’ benefits invested in the six products. 

On the flip side, more than half (53 per cent) of MySuper products had exceeded APRA’s investment benchmarks over six years. 

But the regulator has expressed concern that some funds have remained the poorest performers 12 months on. 

“Being named on APRA’s underperformer list last year meant these entities have had a year to lift their game,” Ms Rowell said.

“But it’s clear that a stronger approach is needed to protect the members of those funds.”

The median MySuper product experienced a net return of -1.1 per cent over the 2019-20 financial year, the first negative annual return since the inception of MySuper in 2014. The negative investment returns, combined with the effects of the COVID early release scheme, had resulted in the total value of MySuper assets dropping by $11 billion to $745 billion at 30 June.

According to APRA, following the first heatmap, the majority, 71 per cent, of MySuper members (around 10 million people) are now paying less in total fees and costs, as funds have cut back an estimated $408 million in costs.

Out of the 11 MySuper products that were flagged as crimson, or high on total fees and costs in the 2019 heatmap, nine remain, after two ceased in 2020. Eight of the remaining products have decreased their total disclosed fees and costs by an average of $166. 

Meanwhile, of the 18 products with high administration fees, 14 remained, with seven bumping down their fees by an average of $87. 

Larger funds appeared to have the strongest performance, as funds with net assets over $50 billion experienced the strongest returns. APRA noted that larger responsible superannuation entities (RSEs) may have advantages in being able to access a wider range of investment opportunities or being able to realise cost efficiencies, which result in lower fees charged to members. 

For products in RSEs with net assets below $5 billion, 36 per cent underperformed on a peer relative basis, compared with 25 per cent of RSEs with net assets greater than $50 billion.

APRA has indicated that some trustees will need to re-evaluate their fees, costs and reserves in the current environment, expecting they will implement plans to address their sustainability for the long term.

 

APRA signals heatmap to stay despite benchmarking reforms
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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