APRA’s latest test results: Trustee failures highlight need for expert advice

The Australian Prudential Regulation Authority (APRA) has unveiled the results of its 2024 superannuation performance test, which evaluated 57 MySuper products and 590 trustee directed products, a subset of the Choice segment.

For the first time since the test was first launched, all MySuper products, comprising 15.7-million-member accounts and nearly $1.1 trillion in total assets, passed.

In comparison, one product failed in 2023, five failed in 2022, and 13 failed the inaugural test back in 2021.

Looking at trustee directed products, APRA found 37 out of 192 platform products failed to meet the test benchmarks, with 27 of these products failing for a second time. This means they will now be closed to new members.

The 37 failed trustee directed products were concentrated in products offered by two trustees: 36 from NM Superannuation Proprietary Limited and one from IOOF Investment Management Limited.

APRA added that none of the 398 non-platform products assessed failed to meet the benchmarks. Last year, the first year that Choice products were included in the test, 76 platform and 20 non-platform trustee directed products failed the test.

“This year’s results demonstrate the progress being made to address underperformance,” APRA deputy chair Margaret Cole said.

“We also note that trustee activity to eliminate underperforming products, through the consolidation, restructuring or withdrawal of investment offerings, has contributed to a sharp decrease in test failures by trustee directed products.”

Commenting on the performance of funds over the past year, Financial Services Council’s (FSC) Blake Briggs encouraged consumers to seek financial advice before making changes to their investment strategies to ensure changes align with their individual circumstances and take into account tax implications.

Noting that while the FSC supports testing and transparency in the performance of super products, it believes there are “design shortcomings” in the way the performance test applies to Choice products, where consumers with financial advice have made active choices that take into account their individual situation and objectives.

“A key concern is that the platform investment options included in the test are misclassified as ‘trustee directed’, when the trustee has no control over the strategic asset allocation and investment decisions relating to them. These products should not be included in the test, and the consequences to consumers should be front of mind,” Briggs said.

He called on the government to improve the flexibility of funds in how they communicate failures of the performance test for trustee directed products that are captured under current rules, acknowledging that a pass or fail of a single product does not necessarily mean a consumer is not on track for their personalised investment strategy.

“The government’s failure to implement product rationalisation reforms has meant that Australians in over 1.7 million investor accounts are effectively trapped in legacy superannuation products. These products, often closed to new members but still subject to performance testing, face tax and regulatory barriers that hinder consumers from switching to better-performing, modern alternatives,” Briggs said.

“Research commissioned by the FSC has estimated that product rationalisation reforms will result in $21 billion of additional retirement income for Australians.”