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Are you in an underperforming super fund?

Media release - 30 Oct 2023

In September 2023, a number of Australians received a notice from their super fund advising that it has failed the Australian Prudential Regulation Authority’s (APRA’s) performance test.

If you received a notice that you’re in an underperforming super fund, you may be worried about what to do. This could be an opportunity to review your current super fund and see if it is still supporting you to meet your financial and retirement goals.

In this article we’ll cover what APRA’s performance test is, the requirements for funds that have failed the test and tools that can assist in comparing the different funds on offer.

Why is there a performance test?

Although Australians are free to choose from a variety of super funds, the government recognises that many Australians don’t keep close tabs on the performance of their super fund relative to others in the market. While most of us want a comfortable retirement, and understand that choosing the right super fund is an important part of achieving our financial goals, it can be hard to know where to start. There are many features, services, options and fees and costs to compare and consider.

To help address this, the government offers two tools:

  1. The annual performance test that requires underperforming funds to advise members they failed the test.
  2. The ATO’s YourSuper comparison tool that helps members compare super funds.

How does the test work?

As part of the government’s Your Future, Your Super reforms, which are designed to make sure the superannuation system delivers better outcomes for members, the APRA annual performance test:

  • applies to all default (“MySuper”) and choice – trustee directed products
  • requires all funds that fail the test to advise their members of the failure, and
  • prohibits products that fail the test two years in a row from accepting new members until their performance improves.

MySuper products are intended (designed) to be simple, cost-effective, balanced products for the vast majority of Australian workers who are invested in the default option of their current super fund.

While 2023 was the third year for the MySuper performance test, it was the first year that the test applied to some choice products.

In August, APRA published the results of the 2023 annual performance test. Of the 64 MySuper products tested, 63 passed and 1 failed.

This year’s test was expanded to evaluate the performance of 805 “trustee directed products”, a subset of the choice sector.1 96 of these products failed the test, including 20 of 500 non-platform products and 76 of 305 platform products.2

1. Broadly, trustee-directed products are multi-asset products where the trustee has control over the design of the investment strategy of the product.

2. A platform TDP is a trustee directed product that is offered through one or more investment menus of the platform type.

The APRA performance test uses investment allocation information, investment performance and fees charged to compare a fund’s performance and fees against tailored benchmarks. The timeframe for investment performance is over a 10-year period for MySuper products and a more variable performance timeframe for choice products.

The tailored benchmarks are set by APRA to reflect the investment allocation reported by the product(s) being compared. The performance of a product and the fees charged was compared with the return that could have been achieved if the fund had invested in the tailored benchmark products set by APRA (net of the median level of fees) over that same period.

A fund failed the test if their returns were lower than the relevant benchmark by a difference of at least 0.5%. As the benchmark reflected the underlying assets of the product, it is not simply about performance, but performance within the relevant strategic category – like the performance of a balanced investment option when compared to other balanced options in the market. This means that a product could fail, even though its return was higher than a product that passed, as it did not perform against the relevant benchmark.

You can find out more about APRA’s performance test here.

What should you do if your fund failed the test?

If you’re in a super fund that failed the test, it may be an opportunity to review it. If you’re not comfortable with the reasons why your fund failed the test, or the actions it is taking (or has taken) to fix the failure, it may be time to consider moving to a better performing fund.

How do you compare super funds?

No matter how close or far away it is, when it comes to super, we’re all working towards making sure we’ll have a sizeable nest egg when it comes time to leave the workforce. The superannuation market however, is flooded with options, so when it comes time to decide which fund will work best for you, it’s understandable that you might feel a little overwhelmed. While the best choice will be different for everyone, there are certain things you can look out for to help you make a decision.

Read more about comparing super funds.