Concerns have been raised that some superannuation funds may be able to ‘game’ the annual performance test through their asset allocation or by providing fee rebates.
Morningstar said fear of failure and the growing capacity constraints of ‘mega-funds’ in Australian listed equities and some other asset classes had encouraged funds to “hug” the Your Future, Your Super performance benchmarks.
The research house also said many major funds were performing so far above the test’s pass mark that they were less concerned about failure.
“Its simplicity leaves it susceptible for ‘gaming’ by funds, who may allocate assets in a way that offers a high probability of passing the test,” Morningstar Senior Principal, Manager Research, Australasia Thomas Dutka wrote in a presentation.
He said the limited menu of broad-based benchmarks could discourage other allocations, the test did not account for strategic asset allocation or the risks taken, and fee reductions may affect member experience and operational infrastructure.
Of 556 products tested by APRA, just seven failed, and they were all platform trustee-directed products (TDPs).
Dutka said a heavy concentration of platform TDPs had returns just above the -0.5% per year ‘pass mark’ with 25 of the 75 TDPs whose results were disclosed scoring between -0.4% and -0.5% and 12 on -0.49%.
“How did this anomaly occur? APRA has pointed to fee rebates as a key factor. That is, for some products, trustees provided enough of a rebate to lift the products out of “fail” territory,” Dutka wrote.
The minimal number of failures had left members asking: “Has the test succeeded in its goal of removing uncompetitive products from the market, or have trustees simply figured out how to maximise their odds of passing it?”
Although fee reductions were welcome for members, the Australian Prudential Regulation Authority (APRA) has told trustees it wanted a persistent improvement in investment performance.
The performance of platform TDPs had been much weaker than MySuper and non-platform TDPs, with a median performance test return of negative 0.26% per year (compared with positive 0.19% and 0.29% per year, respectively).
He noted concerns had not gone unheeded, with the Government announcing in August 2025 that it would be reviewing the performance test, and the changes may align with the push to encourage investment in higher-risk asset classes, such as venture capital.
