The Australian Prudential Regulation Authority (APRA) has released new data suggesting that 1 in 5 ‘Choice’ superannuation products (with an 8-year history) are underperforming, yet the funds still charge high administrative fees to unsuspecting workers.
A ‘Choice’ product is one that an employee can choose their employer to direct superannuation payment towards, rather than the employer opting into on the employee’s behalf.
The overview of 163 Choice funds, holding a total of $292 billion dollars, showed that many had not moved customers to better products, despite significant underperforming returns and high fees, with APRA intending to crack down on trustees.
Across the board, a balance of $50,000 would come with a $149 dollar annual fee for ‘open’ Choice funds, whereas ‘closed’ Choice funds carried a fee of $225 dollars.
For MySuper, which is the ‘default’ superannuation product for employers to pay, in lieu of employees choosing, the administrative fee was only $137 dollars.
Yet, despite the high fees, many of the ‘closed’ Choice funds, which do not accept new customers opting in, were underperforming.
28% of closed Choice funds were underperforming, with an additional 39% drastically falling short of the APRA standards, with 22 funds falling within a 0.5% margin of error and 31 funds exceeding it.
“We will continue our scrutiny of business models that are challenged in delivering long-term sustainable, competitive outcomes for members,” said APRA Deputy Chair Margaret Cole to the Conexus Financial Superannuation Chair Forum.
“Our actions to date, including the issuance of licence conditions requiring some funds to find a suitable merger partner, are a clear message to funds that have sustainability issues that we expect them to consider with clear eyes whether consolidating into another fund is in the best interests of members.”
The Choice superannuation products that just aren’t making enough money for their customers are concentrated among 14 registrable superannuation entities (RSEs — or ‘funds’) governed by 10 RSE licensees.
Of note, 33 superannuation products from OnePath Custodians and 30 products by Equity Trustees Superannuation were among a list of underperforming superannuation options, with brands such AUSCOAL Superannuation, BT Funds Management, Energy Industries, Superannuation, MLC Super Fund and Perpetual Superannuation flagged by APRA.
Aside from the Westpac Group Plan MySuper product from BT Funds Management, many of the products which received a ‘fail’ rating had done so for consecutive years, with some closed Choice funds banned from taking on new customers due to their failing return on investment (ROI).
“Through the priorities I have outlined today, APRA will continue to strengthen the resilience and prudential management of the superannuation industry, ensure a stable financial system and work to protect the financial interests of fund members,” said Ms Cole.
“Ultimately, though, the success of your fund is in your hands. Don’t wait for APRA to blow the referee whistle.
“When it comes to delivering the best outcomes for your members, you know best what needs to be done.”
In March, the Association of Superannuation Funds of Australia (ASFA) highlighted that the threshold of money needed in superannuation had spiked due to rising inflation, but the 12% increase to mandatory super contributions by mid-2025 is estimated to ease the financial panic of retirement.
Last week, APRA Chair John Lonsdale signed a Memorandum of Understanding with the Australian Financial Complaints Authority’s (AFCA) Chief Ombudsman and Chief Executive Officer, David Locke, in order to share information and work together for greater financial transparency.