Eleven superannuation funds that underperformed the Australian Prudential Regulation Authority (APRA) MySuper heatmap have exited the industry.
Speaking at the Association of Superannuation Funds of Australia’s (ASFA’s) briefing on the heatmaps, of which the latest is to be released today, APRA deputy chair, Helen Rowell said eight of 11 MySuper products that had significantly high total fees and costs in the 2019 heatmap reduced their total fees and costs by an average of $166 per annum, and two had exited the industry.
Rowell described the superannuation system as “working pretty well, performing pretty well, delivering pretty good outcomes. But it is a bit high cost, investment performance is mixed across the board, and there are scale and sustainability issues to be tackled. A good system but room to improve”.
She said over half the products (37) assessed were performing at or above the heatmap investing benchmarks over six years, and under 40% (27) were underperforming by up to 75 basis points, and 9% (6) underperformed by over 75 basis points.
“Overall, we estimate that 900,000 members (or $31 billion in total assets as at 30 June, 2020) are invested in the six MySuper products with significant investment underperformance,” she said.
Rowell noted that, although not widespread, there were some trustees that were “clearly modifying” investment decisions to manage their performance against the heatmap.
“Others have tried to rewrite history by resubmitting data to present their funds in a more favourable light. These kinds of games indicate poor leadership, are not indicative of a mindset that is genuinely seeking the best outcomes for members and certainly won’t get those trustees off APRA’s underperformer list,” she said.
When asked if there was a risk in creating higher admin fees after identifying issues with asset-based fees Rowell said there was no right structure for fees.
“Products with higher fees are not necessarily delivering higher performance… In terms of what might happen to the structure of fees it’s a challenging issue. There’s no right structure for fees.
“What we are expecting of trustees is that they are looking at the structure and level of fees impacts different cohorts of members – across account balance sizes, age groups, however they want to structure it. And then try to form an unbalanced judgements of how best to position their fee structures and levels. It’s hard and it does make it difficult for trustees to set fees in the right way.
“We want to put the challenge back to the industry to think about if they have that level of structure right and what they can do to make sure they’re being equitable in the way they distribute fees across their members.”
Rowell said what was more important was finding scope to bring fees down.
“Are you having the debates with your investment managers to get better investment fees? Are you trying to negotiate better fee structures with your service providers?” she said.
“It’s a tricky tension to strike because you need to set fees at a level to enable you to deliver services you need to deliver to support your members. But we would argue there’s quite a bit of room and fat in the cost space in the industry that needs to be looked at long and hard.”
Next year, Rowell said the heatmaps would include a wider range of asset class indices in benchmark portfolios, and “stitching” of investment performance to help track long-term performance.
In late 2021 APRA would also look to publish the heatmap for a segment of the choice sector, and would extend tis MySuper heatmap to include insurance in 2022.