On 10 December 2019 (the same day as APRA released its ‘HotSpot’ material for MySuper products) the Australian Financial Review published an article relating to this ‘HotSpot’ material), written by Joanna Mather and Aleks Vickovich titled: ‘Nowhere to hide for dud super funds’. This is revealing material.
See below for the article.
Nowhere to hide for dud super funds
Superannuation Minister Jane Hume says “there is nowhere to hide” for dud retirement savings funds after the prudential regulator identified 19 MySuper products holding $70 billion in assets as underperformers.
The Australian Prudential Regulation Authority on Tuesday released analysis of which funds in the $760 billion MySuper system are performing below a range of benchmarks.
APRA lists a suite of Westpac super offerings alongside Maritime Super, Christian Super and Pitcher Partners Retirement Plan as some of worst performers on returns and fees.
Ms Hume told The Australian Financial Review that just under 20 funds had been identified as underperformers.
“Those funds had two million accounts and $70 billion in them, which is a lot of money,” she said.
APRA will use the information to pressure underperforming funds to improve, merge with other funds or exit the industry, while the Australian Securities and Investments Commission will search for misconduct among the directors of funds that APRA identified as poor.
Westpac in the spotlight
In more bad news for Westpac, which was hit by allegations of 23 million anti-money laundering breaches in November, APRA has rated super funds owned by the bank’s wealth arm among the worst.
Approximately $17 billion in retirement savings is languishing in underperforming BT funds.
APRA Fee Data
Westpac’s BT Super for Life fails badly on returns and registers, as well as having high fees.
The option, which was identified among the bottom quarter by Super Consumers Australia earlier this year, has about 400,000 accounts.
Westpac sought to pre-empt APRA’s analysis, announcing changes to its fee structure for its MySuper and other superannuation products on Monday.
“There is nowhere to hide and I think BT’s announcement … that they’ve got a new administration fee schedule for its members is probably a direct result of that new focus,” Ms Hume said.
Westpac has sold its BT financial advice assets but the superannuation business will be staying within the bank post-divestment.
Heatmap a ‘game changer’
At the heart of APRA’s analysis is what the regulator calls a heatmap, which uses a graduated colour scale to demonstrate degrees of underperformance across 94 MySuper products. Dark red is reserved for the most egregious failures.
Overall, nearly one in 10 MySuper products delivered a net investment returns over five years of 0.75 per cent or more below a “simple reference portfolio”, giving them a dark red rating.
Nine funds are charging administration fees of 1.4 per cent or above on a $10,000 balance, which APRA considers “significant underperformance” and therefore marks as dark red.
APRA deputy chairman Helen Rowell described the analysis as a “game changer”.
“The heatmap will subject trustees to a new level of scrutiny, and it’s understandable that some in the industry feel uncomfortable,” she said.
But Melinda Howes, who heads Westpac’s BT superannuation business, said the five-year timeframe over which funds had been assessed was too short to show anything meaningful.
“While short-term comparisons can be helpful, we encourage people to consider the longer-term performance data of established funds where it is available,” she said.
Only funds with MySuper licences can act as defaults. Of the $3 trillion in super, 40 per cent is held in MySuper products, which are meant to be simple and low cost.
APRA has identified problems with funds offered by Mercer, National Australia Bank, AMP and Russell Investments, along with funds for employees of accounting group Pitcher Partners and IAG and NRMA.
But underperformance is not limited to retail funds. Maritime Super, Mine Super, Christian Super and TWU Super are named as strugglers in the industry fund sector.
Not for consumers
APRA has said the heatmap was not designed for consumers – indeed, it has delivered something that is hugely unfriendly to users – and has warned people not to rely on single metrics. The staff fund for Goldman Sachs and JB Were, for example, has the highest fees but the best returns.
APRA uses five years of MySuper returns because it is the only comparable data available.
Maritime Super CEO Peter Robertson said the release of the heatmap was “premature” because the methodology was experimental and industry had not been given a chance to provide input.
“While we support APRA’s initiative to improve accountability and comparability among super funds, the framework, as it stands, does not adequately allow for the unique risk-protection overlay in our MySuper option,” Mr Robertson said.
“A more comprehensive assessment of net returns over longer time periods, ideally a full market cycle, is necessary to adequately assess and compare super fund performance.”
Rice Warner senior consultant Wayne Kenafacke, who assisted APRA in the collation of the underlying data, said consumers need to view the heatmaps within the context of the project’s limitations.
“APRA has done the best they could have with the information they have,” Mr Kenafacke said.
“They are currently going through a data transformation project and they need more information to do a really good job of this.”
APRA MySuper Performance and Fee tables