The superannuation industry would prefer to be left alone. But, as Grattan’s Brendan Coates and Joey Moloney show in this submission, too many Australians have suffered poor outcomes in super for too long.
The Your Future, Your Super reforms are already delivering better results for superannuation fund members. The performance test, introduced in 2021, has led to many under-performing funds merging with better-performing ones, and other funds lowering their fees. From October 2020 (just before the performance test was announced) to June 2022, the number of MySuper products fell by 19, from 88 to 69. Of the 13 MySuper products that failed the first test in August 2021, 10 have merged or are in the process of doing so. The other three have all reduced their fees.
Grattan Institute research shows that the fees of super fund members in products which failed the annual super performance test have fallen on average by 20 per cent cut, saving members of those funds more than $100 million a year in lower fees. For a young worker starting out their career in an underperforming fund, the lower fees they now pay will translate into a $20,000 boost to the super balance by the time they retire.
This research shows that the test is working in chopping off the tail of poorly performing funds. The objective ‘bright line’ nature of the test was critical to achieving these benefits and must be protected.
But more work needs to be done. The underperformance test amounts to taking a few bad apples out of the barrel. It does little to force otherwise average funds to lift their game. Our research shows that products which passed the test by a significant margin (at least 50 basis points), on average increased their fees by more than 5 per cent. Which is why the federal government’s focus should be on implementing the remaining Productivity Commission recommendations, including the ‘best-in-show’ process for selecting default funds.
The super industry would prefer to be left alone, or to have the opportunity to convince the regulator that they shouldn’t have to change. But too many Australians have already suffered poor outcomes in superannuation for far too long. Maintaining the integrity of the Your Future, Your Super reforms will help ensure that won’t be the case in future.
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Danielle Wood – CEO