For-profit superannuation funds may be able to escape having to inform members of their historically poor performance after a last-minute change to benchmarks by the treasurer, Josh Frydenberg.
As part of the Morrison government’s Your Future, Your Super package, which passed parliament in June, funds that fail a test based on eight years of performance are required to write to members to tell them.
The test also includes administration fees, but under regulations introduced by Frydenberg and the minister for superannuation, Jane Hume, earlier this month, only administration fees from the most recent year are used.
Research by Industry Super Australia, which represents funds jointly run by unions and employers for the sole benefit of members, shows that 13 of the top 20 funds benefiting from the change are retail funds, which are run for profit by banks and other financial institutions.
In promotional material for Your Future, Your Super, the government said that calculating performance over eight years “allows funds to target long-term returns and not blame ‘one bad year’ for underperformance”.
However, when announcing that the administration fee component would be based on just one year on 5 August, Frydenberg and Hume said this would address “historical anomalies, including with respect to millions of multiple unintended and inactive accounts, and will create a strong incentive for superannuation funds to reduce fees in order to avoid failing the test”.
The biggest beneficiary of the move is a small but high-performance corporate fund run for employees of investment bank Goldman Sachs and stockbroker JBWere, which enjoys a benefit of 0.46 percentage points.
However, AMP’s Super Directions fund, which controls more than $17bn in retirement savings on behalf of more than 800,000 members, will see a substantial increase of 0.2 percentage points due to recent fee cuts.
This raises the prospect that the fund may be able to squeak over the bar set by the Your Future, Your Super package.
An AMP spokesperson said the company would not pre-empt the performance test results, which are expected next week.
“AMP has delivered strong performance over the past 12 months in our Super Directions Fund, including our main AMP MySuper Lifecycle option which delivered an average return to members of 20% over the past year,” the spokesperson said.
“We have also substantially reduced fees for members in our MySuper funds since 2018.”
Other retail funds benefiting from the change include Australian Ethical (0.17 percentage points), Russell Investments (which is the default fund for News Corp employees and enjoys a 0.15 percentage point bump), Colonial First State’s FirstChoice (0.14 percentage points) and BT’s Retirement Wrap (0.8 percentage points).
Industry funds Prime Super (0.14 percentage points), the TWU Super Fund (0.07 percentage points) and Energy Super (0.04 percentage points) also benefit.
Industry Super Australia chief executive, Bernie Dean, said millions of Australians could be unknowingly stuck in dud funds as a result of the change.
“The government is letting some of the biggest dud funds off the hook and it will be their members that will pay the price with less in retirement savings, compared to what they’d get if they switched to a better performing fund,” he said.
