Level Info – AU – Super benchmarks that are merciless for funds: Rice Warner

The proposed benchmarking legislation for the pension sector leaves no room for salvation, Rice Warner warned the government

Your future, your super reforms, as announced in the federal government budget, include stapling super accounts to prevent multiple member accounts from being created, and a consumer comparison tool called YourSuper that publishes fund performance and spending will be

It has also been suggested that APRA start benchmarking the net investment performance of MySuper products from July onwards, if funds fail to benchmark, they must notify their members after a year If they continue to underperform after two years, they will not be able to accept new members

The move is based on APRA’s previous benchmarking of the sector on factors such as performance and fees in its heatmaps, which the regulator has published since 2019

Although Rice Warner has stated that it supports the goal of eliminating underperformers when submitting the Your Future, Your Super Package, it has also warned that funds that fail the proposed benchmark have no chance of winning to recover

Super funds will now be able to tell if they would fail the test in a year or two, with many « unable to improve their performance without taking undue risk, » said the actuary

Funds that improve their investment philosophy, governance and asset allocation may still fail the test due to the weight of their past performance

Rice Warner has questioned whether it would be fair to eliminate funds when their expected future performance is expected to increase. It has urged APRA to review and monitor such cases

It was also noted in the filing that some funds that fail the test due to differing asset allocation and management fees may provide members with higher net returns than other funds that passed the test

« This would be controversial and would affect consumer confidence in the system and its legal framework, » said Rice Warner

Meanwhile, newcomers to the system don’t have as long records, so measuring their investment ability is viewed as subjective and unfair

In addition, Rice Warner reported that the proposed benchmark for infrastructure is less than 3 percent of Australian infrastructure, with concerns that the Standard could discourage Super Fund from making further allocations to the local segment

The directors of IFM Investors and Mercer have similar concerns about the benchmarking reforms

IFM chief David Neal told a parliamentary committee the standard could have the opposite of its intended effect as it shifts investment managers’ focus to sticking to the industry benchmark rather than delivering high returns

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.Before joining the team in 2018, Sarah worked in specialized media and produced stories for a current affairs program on community radio. You can contact her at [email protected]

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Rice Warner, Superannuation in Australia, investment, finance, MySuper