In a move lauded by the Association of Superannuation Funds of Australia (ASFA), financial services minister Stephen Jones has announced a pause of Your Future, Your Super (YFYS) performance tests.
The tests were introduced last year by the Australian Prudential Regulation Authority (APRA) as part of the government’s super reforms and took effect on 1 July 2021. The reforms require the sector to improve its efficiency, transparency and accountability.
However, concerns were raised as to whether the tests were achieving the intended outcomes, with Mr Jones sharing those concerns in a statement. “Funds must always be held accountable for their performance. In doing so, accountability mechanisms must not simultaneously create perverse or unintended outcomes for members,” he said.
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Mr Jones continued: “The government is aware of concerns that the YFYS laws have the potential to create such outcomes by discouraging certain investment decisions or certain infrastructure investments. Treasury will be tasked in its review to examine and consider the operation of the new laws in this context.”
In response, the ASFA also released a statement, which read in part: “The Association of Superannuation Funds of Australia welcomes the government’s announcement of a Treasury review into the operation of the Your Future, Your Super laws and the associated My Super performance test.”
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Speaking on behalf of ASFA, CEO Dr Martin Fahy said: “The review is timely and appropriate. It is a positive move that will help improve accountability and performance of the wider superannuation system. After two years of operation, it will allow the impact of YFYS measures on capital allocation to be assessed and address the challenges it presented for infrastructure and ESG-focused investments.”
ASFA had in the past raised concerns with the benchmarking tests, claiming they “distort capital allocation in a manner [that] was at odds with delivering strong member outcomes”.
Does the government’s suspension of testing give super funds a green light to be more ‘reckless’ in their funds management? Not according to industry analyst David Bell. Writing for the Investment Magazine website, Mr Bell says it’s a sensible decision.
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“In all my research and engagement on the YFYS performance test, I have never heard a single fund say there shouldn’t be a performance test,” he said. “There is a strong chorus of support from funds for a performance test [that] protects consumers, particularly those in default options. But the chorus of concern relating to the design of the performance test, the effectiveness of the test and its unintended consequences is just as loud.”
Mr Jones says the pause does not mean the tests won’t be expanded beyond MySuper in future: “With two rounds of annual tests completed, the review will consider whether the performance test has had any significant unintended consequences for MySuper products and assess how the test should be applied to other superannuation products.
“Having decided to review the operation of the performance test, we will pause its extension beyond MySuper products for 12 months.”
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