To reduce underperforming MySuper products and introduce greater transparency and consequences for funds, the “Your Future, Your Super” (YFYS) reforms were introduced by the previous Coalition government and came into effect on 1 July 2021. The reforms required APRA to conduct annual performance tests in the form of assessing MySuper products (which are basic super accounts without unnecessary features and fees) using data available at 15 August each year.
The data used by APRA for the performance test includes:
The performance test itself is a two-part test and involves the assessment of investment performance relative to a benchmark portfolio created using the product’s strategic asset allocation, as well as an assessment of administration fees charged in the last financial year relative to the median fee charged for the category of product. If the product underperforms the combined test by more than 0.5%, the product is deemed to have failed the performance test.
Registrable Superannuation Entities (RSE) that have a MySuper product that fails the performance test must notify beneficiaries within 28 days of being advised by APRA. MySuper products that fail the performance test in 2 consecutive years cannot accept any new beneficiaries into the product until they pass a future performance test.
This performance data is then fed into an interactive online YourSuper Comparison tool managed by the ATO and incorporated into APRA’s MySuper Product Heatmaps to allow consumers to quickly see where their super fund product sits. For example, at the last performance test in August 2021, a total of 80 products were tested with 16% failing. The 13 failed products had total assets of $56bn and 1m member accounts.
The future of the performance test is now in doubt after the announcement by the Labor government of a Treasury review on the operation of YFYS reforms. The government has indicated that the review has been initiated in response to “concerns that YFYS laws have the potential to create such outcomes by discouraging certain investment decisions or certain infrastructure investments”.
The review is expected to commence after the second round of MySuper performance tests have taken place (ie August 2022). It will seek to consider whether the performance tests have had any significant unintended consequences for MySuper products and assess how the test should be applied to other superannuation products. Other YFYS reforms to be considered in the review include regulatory complexity of the best financial interests duty requirements.
The government notes that the review is not expected to unwind stapling measures which reduce the proportion of duplicate accounts, nor will it remove the requirement for trustees to meet high performance and probity standards. Due to the review, the extension of the operation beyond MySuper products will be paused for 12 months to ensure the test is fit for purpose, given the significant complexity and variety of super products.
