Big name super funds are failing their members

Two reports out this week suggest that some of Australia’s leading superannuation funds are failing to put their members first

New research has revealed 13 big super funds have failed Australian Prudential Regulation Authority (APRA)’s performance test, as Super Consumers Australia (SCA) finds the industry’s new self-reporting approach is allowing funds to give themselves a pass despite poor performances.

On Tuesday, APRA released the results of its first performance test of MySuper products. 

The financial watchdog called out 13 big-name funds as having failed – including Commonwealth Bank Group Super, Australian Catholic Superannuation and Retirement Fund, and Colonial First State FirstChoice Superannuation Trust.  

The results come just days after SCA released research suggesting that a high percentage of superfunds weren’t acting in their members’ best interest. 

SCA focused its research on the annual member outcomes assessments (MOAs) of 42 MySuper funds.

These MOAs show consumers how funds compare to other funds, and how they are helping their members save for retirement.

This year marked the first time super funds were legally required to have MOAs on their websites.

The government and APRA also wanted funds to “self-review” their own performance.

Franco Morelli, senior policy manager at SCA, told Pro Bono News after the results of these self-reviews came out at the start of the year, they knew that not many consumers would be reading them.

“We knew that only regulators would be looking at them, and so we wanted to put a bit of heat and scrutiny onto the funds,” Morelli said.

He said that a typical MOA should clearly show how a fund is promoting a consumer’s best interests.

“It should do this by focusing on, and justifying, fees, performance returns and insurance offerings in a short document,” he said.

“Hopefully, they are clear and easy to understand.”

However, SCA found that this wasn’t always the case. Moreover, SCA’s research found that every fund had given themselves a big tick when it came to these MOAs – with half of the 42 funds stating they didn’t need to improve in any area at all. 

Xavier O’Halloran, director of SCA, said that this was despite many of the same funds being highlighted by the regulator as having high fees or poor performance over the same time period.  

“Despite the regulator directing funds to more reliable, independent measures of success, funds typically chose their own metrics,” O’Halloran said. 

“Over two-thirds of the funds set their own target investment return. A hurdle so low that the Productivity Commission found every fund managed to clear it, despite some serious high fees and poor performance. Only three funds [we looked at] referred to a more comprehensive metric similar to the APRA performance test.”

Morelli said that while the SCA team weren’t surprised that the funds had all given themselves a big tick in all categories, they were surprised that some then tried to justify their poor performance and high fees without taking any action to make changes. 

“We thought that there would be 17 funds that would fail the APRA performance test based on our research, 13 of them did,” Morelli said. 

“All of those 13 had put in their MOA that they were doing well, tried to hide their past performance, used green ticks and a unique comparison matrix that made them look good.” 

Morelli explains that while asking the funds to “self assess” might feel somewhat self-serving, the intention behind it is in good faith. However, it does give funds the opportunity to use regulatory discretion in a way that benefits them rather than the consumer. 

“[The funds we looked at] took this discretion that the regulator gave them and ran with it, creating their own methodologies,” Morelli said. “They didn’t read the APRA guidance [for measuring performance] and use it in the most standard and consistent way, they all used it to their own benefit.” 

SCA made several recommendations for ways funds can improve. 

“Our key recommendation is to make the APRA guidance tighter and remove any discretion, which will then force funds into using consistent metrics,” Morelli said.  

“This means that all MySuper products have to be compared with all other MySuper products as super funds shouldn’t be able to choose their performance group. And all funds should have to refer to the APRA performance test in their MOAs.”