The Australian Prudential Regulation Authority (APRA) will be looking for significant change from poorly performing superannuation funds, following the release of its MySuper heatmap.
APRA’s heatmap of over a hundred MySuper products has outlined the worst performing funds but not all industries bodies are in support of its methodologies.
The funds that had sub-optimal ratings in most categories were Pitcher Retirement Plan, United Technologies Corporation Retirement Plan, Christian Super, Goldman Sachs & JBWere Superannuation Fund and Club Super.
APRA deputy chair Helen Rowell says: “We directly contacted the trustees of the worst performing products and asked them to provide or update action plans outlining how they will address identified weaknesses. If they are unable to make substantial improvements in good time, we will consider other options, including pressuring them to consider a merger or exit the industry.”
The evaluation emphasises underperformance and provides insights into the outcomes across three main areas of investment performance, fees and costs and sustainability.
The heatmap highlights any product that is performing at or above the benchmark for investment performance or fee metric in white. Those performing below that benchmark are displayed in a gradient of yellow to red (hence the term ‘heatmap’).
The best overall MySuper products (white across all categories) are those offered by Brookfield Australia, Macquarie Group, Woolworths Group (all three provided by AMP) and AMIST, HESTA, Energy Super, Media Super, MTAA, Equipsuper, UniSuper, Cbus and Vision Super.
Despite excellent performance from some funds, Rowell warns that all superannuation funds are on notice.
Rowell says: “No-one should be complacent. We expect all trustees to use the heatmap to reflect on the drivers of their current performance and identify where they can do better.”
Xavier O’Halloran, director of Super Consumers Australia agrees: “Trustees must answer why they should continue to exist, as those in the heatmap red zone have been serving up chronic underperformance for long enough.”
Worst performers – five year average annual investment return net of fees:
- Pitcher Retirement Plan at 5.85 per cent;
- Energy Industries Superannuation Scheme at 6.19 per cent;
- Maritime Super at 6.23 per cent;
- United Technologies Corporation Retirement Plan at 6.54 per cent; and
- Christian Super at 6.76 per cent
Best performers – five year average annual investment return net of fees:
- HOSTPLUS Superannuation 9.65 per cent;
- Goldman Sachs & JBWere Superannuation Fund 9.63 per cent;
- AustralianSuper 9.48 per cent;
- Max Super Fund Plan 9.37 per cent; and
- UniSuper Balanced 9.36 per cent.
Association of Superannuation Funds of Australia (ASFA) chief executive Martin Fahy says performance should be measured over a longer period than five years.
Fahy says: “Achieving sound investment performance and broader member outcomes is a long-term journey, it’s not measured in terms of years, it’s measured in terms of decades.”
Highest total disclosed fees with balances of $50,000:
- Pitcher Retirement Plan at 1.93 per cent;
- Maritime Super at 1.71 per cent;
- First Super at 1.64 per cent;
- TWU Superannuation Fund Balanced at 1.52 per cent;
- Goldman Sachs & JBWere Superannuation Fund at 1.49 per cent; and
- MLC MySuper 1.42 to 1.45 per cent.
Lowest total disclosed fees with balances of $50,000:
- Brookfield Australia at 0.50 per cent;
- ANZ Staff at 0.73 per cent;
- UniSuper Balanced at 0.74 per cent;
- Meat Industry Employees Superannuation Fund at 0.79 per cent; and
- AustralianSuper at 0.83 per cent.
The best overall lifecycle funds:
- Australia Post MySuper (provided by AMP)
The worst overall lifecycle funds:
- BT Super for Life
- Westpac Group Plan
- Westpac Mastertrust
- Asgard Employee MySuper (provided by Westpac)
The heatmap is designed to lift industry practices and enhance member outcomes by publicly identifying which MySuper products are underperforming and the areas they need to improve.
Industry Super Australia (ISA) has concerns that the methodology used to generate the heatmap fails to account for all costs for performance benchmark comparisons.
In addition, ISA has concerns about excluding the effect of admin fees in much of the benchmarking, despite acknowledging high admin fees are associated with poor performance and the use of simplistic and arbitrary metrics to adjust for risk.
Matthew Linden ISA deputy chief executive says: “We expect to see the worst performers called out, but are concerned methodological flaws may cast some products in a poorer light than warranted, while other products appear ok when they’re not.”
Bruce Murphy, director of Insight Investment, Australia and New Zealand agrees: “I’d like to see the heatmaps evolve by adding a 10 year comparison timeframe, adding a simple return for risk measure, and including a metric that shows the level of illiquid assets being used by funds. Illiquid assets have been used to great effect by industry funds with strong cash flows.”
“These illiquid assets have performed very well and make a lot of sense to hold with a long investment horizon. Industry funds’ illiquid assets have also provided a high level of comparative advantage over retail funds that by virtue of their “untied” investor base have to use highly liquid assets.”
APRA will take on the industry feedback about the methodology for future revisions of the heatmap.
APRA’s Rowell says: “We will continue to refine our models and methodology in response to industry feedback. However we stand behind the heatmap as an important piece of work, and a key plank supporting APRA’s key strategic goal of lifting outcomes for superannuation members.”
APRA intends to refresh the heatmap at least annually and will update the heatmap in the first half of 2020 to outline any early improvements made by trustees and other stakeholders.