APRA has published an Information Paper on the performance of choice superannuation products ahead of its first Choice Product Heatmap to be released in late 2021. APRA said the Choice Heatmap will be an important pre-cursor to the annual performance test for trustee-directed products that will be applied from 1 July 2022. APRA said the paper has highlighted underperformance in the choice sector. Median administration fees for choice products were found to be 40% higher than for MySuper product. Investment performance also displayed considerable variation for options with similar allocations to growth assets. A materially higher percentage of choice options underperformed a risk-adjusted benchmark by more than 75 basis point than MySuper options (15% compared to 7%).
Extract from Information Paper – Executive Summary (‘choice’ funds described)
The choice sector is a significant component of the superannuation industry, representing 46 per cent ($859 billion) of total member benefits in APRA-regulated superannuation funds as at 30 June 2020. Choice products are complex and varied, which makes comparisons difficult. APRA-regulated superannuation funds offer 568 choice products, with approximately 9,000 distinct investment options2. Some of these choice products offer the same investment options and many offer single security investment options (e.g. shares and term deposits), resulting in approximately 43,000 investment options in total.
The choice sector enables members to have greater control of their investment strategy or to include broader services than a default MySuper product. Member choice can be a positive feature of superannuation, when choice product offerings are appropriately designed and ultimately promote the financial interest of members. However, the complexity and proliferation of thousands of investment options can result in cost inefficiencies for trustees and may lead to some members making poor investment decisions – both of which can contribute to sub-optimal outcomes for members.
This paper provides a summary of the structure of the choice sector and presents results of APRA’s initial analysis of outcomes delivered to choice members based on data up to 30 June 2020. This paper will be followed by publication of a Choice Product Heatmap in late 2021.
Extract from Media Release
Most significantly, the analysis has highlighted underperformance in the choice sector. In particular, it showed:
- the median administration fees of choice products analysed by APRA are approximately 40 per cent higher than the median MySuper product (based on a $50,000 representative member);
- investment performance displayed considerable variation for options with similar allocations to growth assets; and
- a materially higher percentage of choice options underperformed a risk-adjusted, peer-derived benchmark by more than 75 basis point than MySuper options (15 per cent compared to 7 per cent).
APRA Executive Board Member Margaret Cole said the findings demonstrate the importance of exposing and addressing underperformance among choice products.
“Transparency is a powerful tool for lifting standards and weeding out underperformers. Since the first MySuper Heatmap was published, 11 funds exited the industry between December 2019 and December 2020, while members have saved a total of $408 million in reduced fees.
“Historically, the choice sector’s complexity, variety and sheer volume of options have helped to shield poorer performers from scrutiny. By shining a light on choice products that are failing to deliver quality, value-for-money outcomes, APRA expects to see the same types of improvements for the 34 per cent of member accounts in the choice sector,” Ms Cole said.