The Australian Institute of Superannuation Trustees (AIST) has again called for the Your Future Your Super (YFYS) performance test to be extended to cover all Choice products.
While the test was originally due to be expanded beyond MySuper products from last year, the government announced a 12-month delay in July to allow for a review.
At the time, Assistant Treasurer and Minister for Financial Services Stephen Jones explained that this review would consider whether the test has had any significant unintended consequences and assess how the test should be applied to other super products.
The AIST’s move follows reports that a technical working group charged with evaluating the test alongside Treasury raised several concerns about the extension to Choice products.
Mel Birks, deputy CEO and general manager of advocacy at the AIST, said that it was important to test all APRA-regulated accumulation products, including Choice products.
She noted that APRA’s Choice heatmap previously found that Choice products are higher cost and have a greater variance in performance than MySuper products on average.
“The Productivity Commission (PC) has also found that Choice products underperformed MySuper products on average and had a relatively long ‘tail’ of underperformance, which is significant given they account for $1 in every $3 in APRA-regulated funds,” Ms Birks said.
While the working group was reportedly concerned that the unintended consequences of the test may be magnified in a Choice environment, Ms Birks said that this should not deter the government from applying the test to all products regulated by APRA.
“It is important that the worst areas of underperformance in the super system are addressed by including all products in a performance assessment,” she said.
“This is also consistent with the PC’s view that all products should have simple and comparable dashboards and performance requirements.”
Ms Birks also suggested that it was not reasonable to expect members of Choice products to assess their performance without the assistance of a consistent performance test.
Other concerns raised by the technical working group, according to notes published by Treasury, related to ambiguity regarding the definition of a trustee-directed product (TDP), which could lead to some single-sector products being captured and returning false positives.
Additionally, the group indicated that it was concerned that some TDPs are controlled by a connected entity without the input of trustees, which it said will prevent trustees from improving product performance in the case of poor test results.
In light of these concerns, the notes said that a “prominent suggestion” proposed by members of the working group was to delay or halt the impending extension to Choice products.
Other suggestions included adjusting the consequences of test failure for Choice products, in particular removing the failure consequence and limiting to disclosure for members.
Members also proposed making the disclosure notice for Choice members in case of failure more nuanced and increasing the failure threshold from -50 basis points to -200 basis points.
