How could the performance tests be improved?

Member engagement and age are two factors which could be considered in future iterations of the superannuation performance test, according to the Association of Superannuation Funds of Australia (ASFA).

Earlier this week, Money Management wrote that younger members were often unsure which superannuation fund to select and were defaulted into balanced options by their employer. These balanced funds may perform well in the superannuation performance tests but may be unsuited to younger members who have a long-term time horizon.

Mark Beardow, co-chief investment officer at Darling Macro, said: “The heatmaps show which funds are performing well but are they showing the right metric for your circumstances? Rather than just the top 10 funds, they need different categories for age groups or risk levels which would give a clearer picture, it is a work in progress”.

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ASFA deputy chief executive, Glen McCrea, said: “The current performance test is designed to ensure the fund’s performance is appropriate relative to a series of benchmarks. However, if there is an opportunity that could improve the performance test in the future, taking the members age into consideration could be one factor that is included.

“Another factor that could be considered is a measure that reflects levels of member engagement and satisfaction.”

McCrea suggested there were several factors that young members should consider when selecting their first super fund, which were investment returns, fees and costs and insurance.

“When young people are making decisions about their super they need to think about the level of risk and compare the long-term returns of funds available. For example, there is more risk with selecting 100% growth assets, however the potential return is also a lot higher,” McCrea said.

“The other important factor to consider is the amount you are charged in fees. The more you pay in fees the less you earn as it reduces your investment returns.

“The unsung hero for young people in superannuation can be insurance, especially for those members in high-risk occupations or who have started families early as they may not be able to get cover outside of superannuation. It is important that they are comparing insurance benefits and premiums from one fund to the next as the terms and conditions can vary.”

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