Profit-to-member funds beat the market by $18 billion

New analysis reveals profit-to-member super funds have made their members $18 billion more than investment market benchmarks.

Analysis of the Your Future Your Super performance test shows profit-to-member ‘MySuper’ products had outperformed the test benchmarks by $18 billion or about $1,160 for a member with a $50,000 balance, over a period of three years to June 2023.

The Your Future, Your Super test assesses investment performance against a range of market indices, giving the MySuper sector its first officially recognised risk-adjusted benchmarks.

This profit-to-member investment performance surge will mean millions of Australians will have more money at retirement.

Super Members Council analysis – featured in its submission on the test design to Treasury – also reveals the performance test has led to 80 per cent of MySuper products slashing their fees by a total close to $1 billion in a year.

Super Members Council CEO Misha Schubert said there is strong and unified support for the performance test among the profit-to-member sector.

“The performance test has played a crucial role in delivering better returns to super fund members – protecting people from underperforming products and slashing fees by close to $1 billion in a year,” Ms Schubert said.

“The introduction of the test was a landmark reform by the previous Coalition Government that has made and saved everyday Australians billions – improving their quality of life at retirement.”

“While the test is operating well, there’s further work to be done to strengthen and evolve its application for the decades ahead.” The new rigorous analysis is contained in SMC’s submission to the Federal Treasury consultation on the Annual Superannuation Performance Test – design options.

The Super Members Council submission advocates for simple improvements to the test now while proposed longer-term structural changes are further investigated.

Ms Schubert said the Government should immediately focus on stronger consequences for failure.

“When a product fails the test, nine in ten Australians stay in a failed product. That’s not good enough. Australians should not be left to languish in underperforming products.”

“The Government should swiftly create a mechanism that moves members to quality funds if a product fails the test in consecutive years.”

“Any substantive, broader changes require more careful research and analysis to confirm the long-term benefit to members – and we’ll continue to work closely with the Government to assess the evidence base of any proposed changes.”

SMC also recommends other simple improvements to the test that would benefit members, including:

— Incorporating a single administration fee benchmark and assess those charges over a longer ten-year period and extend its coverage

— Extending the YourSuper comparison tool housed on the ATO website to all accumulation (savings) products to enable simple comparison

— Requiring funds that fail in consecutive years to transfer members to a better performing product.

And changes to the test should be assessed against a set of principles to guide further improvements, including:

— Any changes to the test should ensure it remains fair, effective, and transparent.

— Changes should only be made after careful research and analysis to confirm a benefit to members, long term.

— They should never diminish consumer protections and instead, should aim for universal application across the superannuation sector to ensure all consumers benefit from the operation of the test.

Media contact: James Dowling, mediainquiry@smcaustralia.com