The Australian Prudential Regulation Authority (APRA) has done a deep dive into August’s superannuation performance test results and delivered a scathing assessment of trustee-directed products (TDPs).
While the August report provided overall pass rates for superannuation performance tests, the follow-up insights paper looks more closely at specifics.This includes analysis of fees and investment returns across MySuper, and TDPs, part of the choice sector.
It found a “significant variance in the administration fees paid by fund members within each of the product segments”. APRA believes this indicates there considerable scope for fee reductions across the industry, particularly for TDPs.
It found that TDPs offered through platforms generally had the highest fees, questioning their justification. “Trustees should review whether the additional services provided to justify the higher fees are delivering value for money to members,” the report said.
APRA’s fee analysis also reported the relatively unsurprising fact that larger funds are able to charge lower administration fees. “Larger funds tend to charge lower administration fees,” the report said. This “reinforces the efficiency and cost-savings benefits of scale that exist in superannuation”.
Moving beyond fee analysis, APRA found that the overall performance of TDPs stacked up poorly against other products.
“While most MySuper products and non-platform trustee-directed products are outperforming the investment component of the performance test,” the insights paper said, “more than half of all platform trustee-directed products are failing to meet the benchmark.”
APRA commits to increased transparency
The release of the insights paper also flags APRAs intention to move to a more transparent reporting method.
In a statement accompanying the paper’s release, APRA committed to “a comprehensive transparency package” from next year. It said “investment returns, fees and performance test metrics will be published soon after the annual performance test.”
APRA’s deputy chair Margaret Cole endorsed the new approach. “APRA is committed to increasing transparency around superannuation performance as a tool to drive better outcomes for members,” she said. The paper would deliver “more detailed analysis of the performance of MySuper and trustee-directed products in the performance test”.
“We expect trustees to analyse these results carefully, and – where they have products that are consistently underperforming – take firm action to improve outcomes for their members,” Ms Cole said.
Superseded heatmaps
As part of transitioning to its stated aim of more transparency in its reporting, APRA’s insights paper expands on basic ‘pass/fail’ marks delivered in August.
“APRA has also published each product’s numerical results for this year’s performance test,” the media release stated. “These figures show how products performed relative to the tailored benchmarks beyond the ‘pass’ and ‘fail’ results announced in August.
“The two publications replace this year’s heatmaps as APRA transitions to a more aligned approach to fund performance scrutiny. From next year, a comprehensive transparency package covering investment returns, fees and performance test metrics will be published soon after the annual performance test.”
The 2023 performance test insights paper can be found on the APRA website.
How does the release of APRA’s insights paper affect your assessment of your super product? Are you happy with the commitment to greater transparency? Let us know via the comments section below.
Also read: Superannuation system failing women and low-income earners, survey finds
