Dud super options cost retirees
Any idea how your fund performing in retirement? Retirees’ funds could be poor performers, but we don’t have a retirement phase performance test to know otherwise.
What is a superannuation performance test?
The super performance test is an annual assessment by APRA to measure superannuation product performance against a benchmark, ensuring products deliver good financial outcomes for members.
Products that fail the test for two consecutive years are prohibited from accepting new members, and the results are made available to the public through the ATO's YourSuper comparison tool to increase transparency and accountability for super funds.
Did you know the superannuation performance test administered by the regulator, the Australian Prudential Regulation Authority (APRA), does not apply to super products in the retirement or pension phase?
This is a surprising insight provided by Super Consumers Australia (SCA), which has found retirees in poorly performing superannuation products, about which they have limited information, could lose as much as $205,000 over their retirement.
As a result, SCA is calling for increased safeguards to hold poor performing super funds accountable. And National Seniors agrees!
The report, Securing Australia’s Retirement: It’s time to protect retirees from dud investment options, reveals that all the options that failed the annual performance test this year were also offered to retirees. However, the test does not apply to products offered to retirees, so people with their retirement savings invested in them are none the wiser.
SCA CEO, Xavier O'Halloran, said the Federal Government was reviewing the performance test and must extend it to ensure retirees could avoid poorly performing funds and invest in better options.
“If these changes don't happen, people are going to continue to be in poor-performing funds … just because there is no transparency and there's no quality testing,” he said.
Deputy CEO, Dr Katrina Ellis, added, “It’s unreasonable that a 64-year-old is protected by a performance test, yet the moment they retire and move into an identical product, that safeguard disappears.
“Retirees deserve the same protections as workers. Without them, people risk losing hundreds of thousands of dollars in retirement income and living standards will suffer.
“The superannuation system is meant to provide Australians with a dignified retirement, not leave them in the dark about whether their money is working for them.”
The report excludes data for funds that do not have a 10-year performance history.
SCA says funds such as AMP, Russell Investments, Colonial First State, and REST consistently offered underperforming retirement products across multiple growth categories.
Its analysis found 74% of Australians support extending the performance test to retirement products, and 84% want greater transparency so retirees can compare how their fund performs.
The SCA analysis was based on APRA's quarterly superannuation product statistics released in September, with June the most recent quarter published at the time of analysis.
Not everyone agrees
The body representing financial advisors, the Financial Services Council, says retirement products are inherently different to accumulation products and that any expansion of the performance test to retirement products would be inappropriate.
“Retirement products combine investment design with other important features that support varied individual retirement needs, such as providing flexible access to cash when they need it, providing a sustainable income stream, and managing longevity risk,” CEO, Blake Briggs, told ABC News.
“There is no one-size-fits-all approach when it comes to retirement.”
Mr Briggs said a performance test that focused only on investment returns risked leading people out of products that might be appropriate for their circumstances, “including those they have been advised into by a professional advisor who has accounted for their individual objectives and needs”.
The time has come
NSA agrees with SCA and believes that the time has come to start looking at a retirement phase performance test to weed out underperforming funds and products.
If we are going to have a world class superannuation system that maximises returns for Australians in their later years, then we shouldn’t allow funds or products to prosper that are not operating in the best interests of members.
A recent NSA survey of older Australians views on superannuation, conducted for industry body Super Members Council, found that “strong net returns” and “low fees and costs” were the two most important deliverables that superannuants want from their fund, followed closely by “certainty and stability of investment returns”. This indicates that performance is a key concern that should be applied to assess if a fund or product is working for retirees.
When respondents were asked directly if they supported the idea of extending the performance test to retirement products, 71.7% agreed, but more tellingly only 2.6% disagreed (the rest were undecided or wanted more information).
If you think a performance test is critical, join our Retirement Income and Superannuation campaign today to show your support.
Related reading: Super Consumers Report, ABC, APRA
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