Super Nation is a fortnightly column that examines, explains and analyses key issues in one of Australia's largest, fastest-growing and most important industries: superannuation.
Would you prefer the investment professionals managing your superannuation savings to ‘hug their benchmarks’ or that you are left exposed to the risk of ‘flying blind’?
These are some of the concerns raised by industry stakeholders as the Australian Government considers how to strengthen the annual superannuation performance test.
As neither sounds particularly positive, it seems like the time to pick your poison as the Government consults on a range of options until 19 June.
They are aimed at “removing unnecessary constraints on investment decisions while maintaining a robust and enduring testing framework that upholds high standards for members”, according to the Government.
“The consultation will also consider whether the test should be expanded to cover a broader range of products, to improve transparency and strengthen member protections,” Treasurer Jim Chalmers and Assistant Treasurer and Minister for Financial Services Daniel Mulino said in a media release.
The test was introduced in 2021 for the low-cost MySuper default products and in 2023 for Trustee-Directed Products (TDPs) offering more investment choices, to compare their returns and fees with benchmarks.
Products underperforming by more than 0.50% per annum on the combined investment and fees test must notify members and, if they fail for two successive years, they cannot accept new members.
Industry split
The peak industry organisations are divided over the planned reforms, with initial feedback submissions revealing a divide over whether changes should prioritise consumer protection or preserve the test’s simplicity and influence on funds.
Although few doubt that the test has improved returns and reduced fees, stakeholders differ significantly on how it should evolve.
Among the worries that prompted the review were that the test encourages ‘benchmark hugging’, which means investing in line with the benchmark indices to minimise the risk of failure, Treasury noted in the consultation paper.
“In their view, this discourages investment in assets that are not well represented by the benchmarks and limits trustees’ ability to pursue longer-term investment opportunities in members’ best financial interests,” Treasury wrote.
“Stakeholders have also raised concerns about the coverage of the test. Many argue the test does not apply consistently across products or phases of superannuation, limiting its effectiveness as a system-wide accountability mechanism.”
Among the options proposed by Treasury, including introducing a new ‘emerging’ class for assets like venture capital, renewable energy projects and social and affordable housing and improving the existing Alternatives asset class.
The new class, which may be in members’ best financial interests if they deliver strong long-term outcomes or reflect member preferences, would be benchmarked against the inflation rate plus an unspecified margin.
Expansion supported
The Super Members Council (SMC), representing the industry, public sector and corporate funds that are least affected by the changes, welcomed the review and urged the Government to expand the test to include all products offered on investment and administration ‘wrap’ platforms.
The SMC said 41% of assets in funds regulated by the Australian Prudential Regulation Authority (APRA) were not covered by the test, leaving consumers in untested savings-phase products with many on newer super platforms.
“Right now, you’ve got millions of consumers who are essentially flying blind, not knowing whether their super is meeting the performance benchmark that applies across the rest of the system,” SMC Chief Executive Officer Misha Schubert said in a media release.
“That’s a giant hole in consumer safety — where your retirement savings are invested shouldn’t determine whether or not you’re protected by basic performance checks.”
The SMC referenced the high-profile collapse of the Shield and First Guardian managed investment schemes which were not subject to testing and cost investors more than $1 billion, to highlight what it called gaps in coverage.
Another peak body, Association of Superannuation Funds of Australia (ASFA), welcomed the proposals, saying they would retain important consumer protections while unblocking potential investments that could help drive better returns for members.
“While it has successfully removed underperforming funds from the market, it has made some investments look artificially less attractive than they really are in a long-term context like super,” ASFA CEO Mary Delahunty said in a media release.
The consultation was also supported by Super Consumers Australia (SCA), saying extending the test to retirement products and platform investments would close gaps in consumer protection across the super system.
“Right now, a member can move from an accumulation product into an almost identical retirement product and lose the protection of the performance test,” SCA CEO Xavier O’Halloran said in a media release.
“That gap does not make sense. Retirees should have the same safeguards and transparency as everyone else in the super system.”
Caution and concern
However an expansion of the test was not supported by the Financial Services Council (FSC), whose members are most affected by the potential changes.
They include platform operators like Hub24, Netwealth, Praemium, Macquarie Group, AMP (North), BT Financial Group, Insignia Financial business MLC and Colonial First State.
The FSC said it cautioned against including externally-directed products and retirement products, which were more varied and tailored to individual consumer needs.
“The FSC is extremely cautious about proposals for expanding the test into more complex products, where test outcomes may become harder to interpret and potentially even confusing for consumers, and are less meaningful from a consumer protection standpoint,” FSC CEO Blake Briggs said in a statement.
“Applying an investment performance and fees test to externally directed products, where consumers make decisions with professional advice, and to retirement products, where outcomes depend on individual retirement circumstances and needs, is not comparable to how the test is used for MySuper products.
“In the MySuper space, members are typically less engaged and still in the accumulation phase, making an investment performance and fees measure more appropriate.”
Insignia Financial business MLC said it was concerned that two providers represented 80% of the products being tested in the $20 billion platform trustee directed market.
“Applying the test to such a small portion of the wrap platform market produces outcomes that misrepresent performance and may harm consumers,” MLC said.
The current system also did not effectively consider the investment options in wrap platforms that were generally held as part of personalised and diversified investment portfolios agreed by members with their financial advisers.
“As we’ve previously said, a one-size-fits-all performance test does not necessarily produce the best result for members who make an active choice in how their retirement savings are invested,” MLC’s Chief Customer Officer Renee Howie said in a statement.
One long-time industry observer said performance tests should be a “no brainer” for all products and funds, including retirement products and platform providers.
He said it was ludicrous to say performance did not matter in retirement, given most people would spend 20 to 30 years in this phase of their life.
Index hugging was also “not a problem” if the purpose was to lift performance standards across the sector.
But he saw a risk of the “whole new generation of sharks” re-entering super if regulation was loosened much.
“In my 40 years in the industry, where there’s an opportunity to turn a buck in a quiet corner that’s not regulated, that’s where the grubs will gather,” the observer said.



