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April 28, 2023

APRA Reveals Underperforming Super Funds and High Fees are Threatening Retirement Savings

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The prudential regulator has uncovered a concerning fact: Australians’ retirement savings, around $10 billion, are being invested in subpar superannuation products. Funds like Colonial First State and BT Retirement Wrap are facing scrutiny for their poor investment returns, raising concerns among investors.

An analysis by the watchdog focused on “choice” super fund options, revealing disheartening results. Four funds delivered negative returns, while 48 charged customers significantly higher fees compared to their peers. Furthermore, 80 funds were underperforming overall.

ANZ OneAnswer Personal Super, managed by OnePath Custodians, was the worst performer over an eight-year period, with returns of -0.003 percent.

Choice options, which allow members to actively select investment streams, often come with higher fees but don’t necessarily outperform default MySuper options.

To address underperforming funds and encourage members to switch to better alternatives, the Australian Prudential Regulation Authority (APRA) publishes an annual heat map of eight-year returns. The latest map revealed that 20 percent of choice products with an eight-year history significantly underperformed APRA’s benchmarks. OnePath Custodians had the highest number of underperforming funds.


APRA deputy chairwoman Margaret Cole says she is ramping up scrutiny of dud “choice” super fund options. Oscar Colman

Several culprits were identified among the underperforming funds, including Colonial First State (backed by Commonwealth Bank), Energy Industries Superannuation Scheme, Equity Trustees, and the formerly Westpac-owned BT. These four funds were also flagged as poor performers in APRA’s assessment of MySuper products last year.

Although there was a slight improvement compared to the previous year, where 25 percent of funds underperformed, APRA’s deputy chairwoman, Margaret Cole, stressed that too many products still deliver substandard returns. APRA plans to intensify supervision of poorly performing choice products and scrutinize trustees’ offerings. Trustees will need to explain why they haven’t transitioned members to better-performing and fairly priced products.

Fees emerged as a significant concern. Investors in choice funds paid considerably higher fees than those in MySuper options. For a $50,000 balance account, average annual fees were $225 and $149 for closed and open funds, respectively, compared to $137 for MySuper options.

Even newer players like Spaceship Super, Slate Super, Student Super, and Future Superannuation Group’s Verve Super were found to overcharge for their choice options. However, penalties for underperforming or overcharging funds in the choice sector are relatively lenient compared to the MySuper sector.

As the government plans to expand performance testing to include ESG-focused funds, industry experts call for comprehensive performance testing across all APRA-regulated funds. Members stuck in underperforming choice products may continue to suffer, as closing these products to new members alone does not prevent existing members from experiencing subpar outcomes.

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