Strengthening the Superannuation Performance Test
Since its introduction, the performance test has delivered significant benefits to members by removing persistently underperforming products and funds from the super system, and by reducing fees for members. Maintaining a strong and credible test is essential to protect members and support confidence in the super system. The strengths of the current framework lie in its clarity, consistency and enforceability in identifying underperformance. Proposed reforms should therefore focus on extending the reach of the test to platform products, protecting consumers from fee gaming that obscures underperformance on returns, and further improving the test’s operation, rather than diluting the discipline it imposes.
SMC acknowledges the critiques identified in the consultation paper and elsewhere about imperfections in the design of the current test. However, in addressing these issues, it is critical that any changes do not compromise the integrity of the test or weaken its effectiveness.
SMC’s recommendations are guided by this principle.
Firstly, SMC strongly endorses extending the scope of the test to externally directed products on super platforms. Currently, millions of Australians are flying blind on whether (or not) their super is performing for them – with 40% of assets under management falling outside of the basic protections of the super performance test.
Second, in response to the narrow selection of test design options proposed by Treasury, SMC cautions that any CPI+ benchmark approach be implemented only with very strong safeguards to preserve the integrity of the test, and that performance benchmarks are subject to regular review to ensure they remain fit for purpose.
Importantly, SMC also proposes complementary reforms outside the specific options in the consultation paper. These include aligning the assessment of administration fees with the long-term horizon of the test to end fee-gaming incentives that can blunt warning signals to consumers that their super returns are underperforming. We also advocate to improve the YourSuper comparison tool to enhance its usability, coverage and effectiveness to make it an even stronger and clearer source of trusted information for Australian consumers.
More broadly, SMC recommends further separate work continue on a quality filter for retirement products.
Taken together, these reforms would strengthen the integrity of the performance test, extend its protections across the superannuation system, and improve the system’s ability to deliver for members.
