Margaret Cole, Member of APRA

Margaret Cole, Member of APRA

Platform Products Fail Test More

YFYS Performance Test Includes Choice Products

Choice options held on platforms were more likely to fail the YFYS performance test than those accessed directly.

Choice superannuation products held on investment platforms performed significantly worse under the annual Your Future, Your Super performance test than options that are only available directly.

Last week, the Australian Prudential Regulation Authority (APRA) released the results of the 2023 superannuation performance test, which for the first time included Choice products besides MySuper options.

The test assessed the performance and fee level of 805 trustee directed products and found that 76 options out of 305 platform-based strategies failed, while only 20 out of 500 non-platform strategies failed the test.

Superannuation options held on platforms tend to be largely legacy retail products of large banks and financial institutions, including ANZ, NAB and AMP, and are usually sold through financial advisers.

In total, the failed Choice strategies held $4 billion in assets.

Trustees of products that failed to pass the benchmarks must notify their members of the test outcomes by 28 September 2023. Trustees cannot accept new members into products that have failed for two consecutive years.

Only one MySuper option failed the test this year, the AMG MySuper option, which fell short of the test for the third year in a row. It is now closed and the trustee has plans to cease this product, the regulator said. The strategy held $151 million in assets across 4,000 accounts.

The test showed that the median administration fees and costs for platform-based Choice options were also the highest at 0.54 per cent of assets, compared to 0.27 per cent for non-platform trustee directed products and 0.26 per cent for MySuper products.

“The annual performance test remains a powerful tool to help APRA hold trustees to account for product performance, fees and costs,” APRA Deputy Chair Margaret Cole said.

“Since its introduction in 2021, nine underperforming MySuper products have exited the market and a total of 800,000 members, with combined assets of $39 billion, have moved to better performing products,” she said.

Growing Disparity

Last financial year showed a growing disparity in the performance of institutional investors and pension funds, as some funds have been increasingly concerned about the growing risks in markets.

Last week, Raphael Arndt, Chief Executive Officer of the Future Fund warned that the market has been underpricing risk.

“Markets have been underpricing the significant economic and geopolitical risk that we have anticipated,” Arndt said.

“The Future Fund portfolio is positioned moderately below neutral risk settings at a time when the economic outlook and the direction of inflation and interest rates make investment returns less certain.”

This more conservative approach resulted in a more muted performance of 6.0 per cent over the year to 30 June 2023, compared to an 8.8 per cent annual return over the last 10 years.

On the other hand, superannuation funds such as Brighter Super and Equip Super returned more than 10 per cent in their MySuper options on the back of greater allocations to equities and lower holdings of private equity.

AustralianSuper’s Balanced Option, its MySuper product, found itself somewhere in between these returns and performed 8.22 per cent over the financial year to 30 June 2023.

The fund has been frank about its troubles with its real estate portfolio, which Mark Delaney, Chief Investment Officer (CIO) called “really disappointing” at this year’s Morningstar Investment Conference.

For a just published interview with Mark Rider, CIO of Brighter Super, please see here.


[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.