Super Consumers Australia has labelled the superannuation industry a failure, with research showing all funds believe they are acting in their members’ best interests despite many having higher fees and lacklustre performances.
In a study on member outcome assessments (MOAs), based on 42 funds, Super Consumers found all funds label themselves as acting in the best interests of members, despite as many as 41 per cent being deemed likely to fail the upcoming Your Future, Your Super performance test.
The new performance test for national super funds will see funds ranked on a pass/fail scale based on key performances including returns.
Funds that fail the test will be named and shamed and required to, within 28 days, write to their members detailing their failures and suggesting they move their money to alternative products.
However, despite the government trying to clean up the industry, super funds themselves still find ways to pat themselves on the back.
“Disappointingly, every fund gave themselves a pass mark and half deemed themselves so perfect they didn’t need to improve in any area at all,” Xavier O'Halloran, director of Super Consumers Australia said.
“This is despite many of the same funds being highlighted by the regulator as having high fees or poor performance over the same time period.”
Naming and shaming, Super Consumers’ report said the 14 funds that would likely fail Tuesday’s test included: Christian Super, AMG, BT, Commonwealth Bank Essential Super, Colonial First State, EISS Super, VISSF, Suncorp, Mine Super, Mercer, Maritime Super, LUCRF Super, AvSuper and Commonwealth Bank Group Super.
SuperConsumers noted, due to the final operation of the test changing, funds including Local Government Super, Toyota Super and TWU Super did not fail Tuesday's test.
Not only is the corporate regulator judging funds on their financial returns, but they must also be acting in the best interests of different groups (e.g. people with lower balances or those in part-time or casual work) within their membership.
However, according to Super Consumers none of the funds provided a consistent breakdown of how they ensure their products meet the needs of key groups in their membership.
“Super funds need to get much better at considering the needs of groups within their membership. We’ve seen some very poor examples recently, for example charging insurance premiums to members but offering limited or no cover if they worked part time or in certain industries,” he said.
“Funds with poor investment performance also tended to produce poorer quality reports than their better-performing counterparts. They were more likely to distract from poor performance with self-serving target returns (88 per cent) compared to better performing funds (56 per cent).”
Instead, Super Consumers argued that funds relied on their own metrics when giving themselves the mark of approval.
These funds tended to rely more heavily on self-serving metrics like target returns (88 per cent of underperforming funds compared to 56 per cent of performing funds), ignoring longer-term results, and used a lack of context and transparency to downplay their underperformance, Super Consumers added.
They also pointed out that funds are trying to hide poorer results by changing the eight-year boundaries set with the MOA.
Using the example of AVSuper, their MOA stated that “AvSuper’s overarching investment objective for members of CPI + 3.5per cent per year, on average over rolling 10 years was met/exceeded” and therefore concluded that the financial interests of fund benefits are being promoted.
Similarly, EISS Super attempted to explain away its underperformance by focussing attention on performance in the six months to 31 December 2020. This is outside the reporting period of the 2019/20 financial year relevant to this MOA.
Maritime Super, which has now been publicly ousted, commenced a new strategy on 1 December 2019 and therefore did not highlight previous MySuper underperformance.
“The proof will be in the pudding on Tuesday, when a large group of funds that were patting themselves on the back will be found to have failed the performance test,” Mr O'Halloran said.
On average funds with poor investment performance also tended to produce poorer quality reports than their better-performing counterparts.
Going further, poorer-performing funds are even making it harder for members to gauge accurate information, Super Consumers found.
According to Super Consumers, it was overwhelmingly hard to find documents on 69 per cent of funds’ websites, while only 24 per cent of funds broke down how they were meeting their members’ best interests.
“Going forward, we think it is appropriate that APRA forces funds to use independent metrics. The current round of self-reporting would have led people in the worst performing funds to believe their fund was a gold medallist,” Mr O'Halloran concluded.
“The best funds reflected on the areas that needed improving and committed to do better. It is this kind of honest engagement we want to see more of in the superannuation industry.”
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