In its submission to the government’s consultation on the design of the annual superannuation performance test, the investment manager emphasised that the test effectively fulfils its objective of addressing underperforming investment options and enhancing outcomes for members.
In March, the government launched a consultation to look into design options of the annual superannuation performance test.
According to the government, while the test has improved member returns through an increased focus on poor-performing products and holding trustees to account, there is evidence that “the test may be influencing investment decisions to the detriment of member outcomes, including discouraging investment in asset classes that may otherwise be in the best financial interests of members”.
Vanguard contends that, at present, the annual test stands as the sole option that is “objective, efficient, and timely” for both the Australian Prudential Regulation Authority (APRA) and super funds to administer, noting its clear consequences in case of failure.
“That’s why we support maintaining the status quo – the current performance test methodology – with consideration of minor amendments,” it said.
For instance, Vanguard agrees on preserving the consequences of failure for MySuper products, but proposed that mandating product closure upon failing the test is not appropriate for Choice investment options given the differing nature of Choice members, investment options, and the way those options are used in member portfolios.
Expounding on this, Sara Dix, Vanguard Australia’s head of public policy, reiterated the company’s endorsement of the core foundation of the annual super performance test, which is to protect Australians from underperformance by holding super funds accountable for the investment outcomes they deliver.
“While we support the current performance test and principles set out by Treasury, we believe that a further principle should be considered when developing it: simplicity,” Dix explained.
Namely, she highlighted the critical need for members to understand how the test operates, meaning it needs to be simple for both super funds to explain and for APRA to administer.
Introducing additional complexity such as risk-adjusted or absolute measures, Dix added, is unlikely to enhance the benchmarking approach.
“We also believe it’s important to continue to include fees in the performance test because of the impact they can have on retirement savings. Fee transparency not only allows members to assess and compare costs between funds, but also drives competition across the super industry which ultimately improves outcomes for members,” she concluded.
While outside of the scope for the performance test, Vanguard additionally called for the Australian Taxation Office (ATO) to sort the YourSuper comparison tool by fees, the only forward-looking measure available for consumers to compare superannuation products, according to the firm.
Sorting by investment performance and the performance test as it stands, it reasoned, may risk misleading consumers about the future returns they could achieve.
