Four superannuation funds will be barred from taking on new members until their performance improves after they failed regulator APRA’s performance test for the second year running.
The funds have assets totalling $28 billion and memberships of over 600,000. By far the largest is BTs MySuper Retirement Wrap with $21.2 billion under management.
A fifth fund, Westpac’s My Super Retirement Wrap, was called out as an underperformer for the first time, but has another year to improve its performance.
APRA Member Margaret Cole said the overall results highlighted the improved outcomes that have been achieved for superannuation members over the last 12 months. In the June 2021 year, the first year the test was introduced, 80 products were tested and 13 failed.
However for the year ending June 2022, 69 funds were tested and 64 passed. “Pleasingly, almost 96 per cent of MySuper superannuation members are now in a performing MySuper product, equating to 13.1 million member accounts,” Ms Cole said.
Falling fees
Pressure from APRA meant that 5.1 million MySuper members (just over 38 per cent of the total) were now paying lower fees than they were last year, Ms Cole said.
Of the four funds that failed the test for a second time, three had plans in place to exit the industry.
The results “are not a surprise,” said Ian Fryer, research director with financial research company Chant West. I thought it was unlikely there would be a rise in fund failures.”
Given that BT and Westpac, the only new fund called out, are under the same ownership “you could say that no new fund failed,” Mr Fryer said.
While fund performance seemed to be improving under the watchful eye of APRA, the situation for funds who are close to being labeled underperformers may not be healthy.
“They could be focusing too much on passing the test and not enough on improving returns for members over the long term,” Mr Fryer said.
Choice left out
Choice products were to have been tested for the first time in the year just gone but testing has been delayed for a year while performance testing is reviewed by the new Albanese government.
The current performance test deems funds to have failed if they return members less than 0.5 per cent below the nominated benchmark for their asset class. The test measures performance over the previous eight years.
APRA will write to members of underperforming funds in September to tell them of their situation.
APRA figures for the superannuation sector as a whole show that total super assets decline by 0.5 per cent to 3.31 trillion in the June year. That decline was due to weak share markets and rising interest rates that pushed down the values of bonds held in super fund portfolios.
The only area of super growing overall was the self-managed sector which saw overall values rise 3 per cent to $868.7 billion. The likely reason for the growth in SMSFs was a rising residential property market.
SMSF investors can borrow to by residential and commercial property while those in pooled superannuation products cannot do that.
Contributions up
However while the overall value of super declined, members were seemingly not put off super as an investment. Contributions rose a dramatic 15.2 per cent over the year to a total of $146.5 billion.
The rise was in part driven by jobs growth with unemployment at record lows and employer contributions up 10.8 per cent to $108.6 billion.
The increase in the superannuation guarantee to 10 per cent in July will drive contribution levels further in the current year.
However it was not all about the bosses, with personal contributions jumping a dramatic 32.7 per cent to a total of $35.3 billion. Mr Fryer said this big increase was a “normalisation.”
“In the previous year with the pandemic panic people thought the world was going to hell in a hand basket,” Mr Fryer said. They did not make personal contributions as they thought they might lose their jobs and needed to keep money aside to use in an emergency.”
People also dramatically increased savings but cutting spending in a range of areas over the pandemic period and now were feeling confident enough to contribute a significant amount of these savings into superannuation, APRA said.
Lump sums slip
Benefit payments were likewise affected by the pandemic. Total super payouts to members fell 9.5 per cent to $85.8 billion over the year. The largest decline in benefits was recorded for lump sums with declined 20.1 per cent, or $45 billion.
Lump sum payments declined because of the ending of pandemic emergency measures that allowed people to withdraw up to $20,000 from their super balances if they were in financial difficulty in the two years to June 2021. Overall $38 billion was withdrawn as a result.
The ending of that measure restricted lump sum payments to retirees so resulted in a big decline.
Pension payments, meanwhile increased by 6.1 per cent to $40.9 billion as the number of people retiring increased. Pension payments are still being held artificially low by a pandemic measure that halves minimum drawdowns from super till 2023-24.
The New Daily is owned by Industry Super Holdings
