APRA Super funds performance test – who passed and who failed in 2023
From 1st July 2021 APRA (The Australian Prudential Regulation Authority) started “the performance test” to all MySuper products in Australia.
From this year however, therefore from 1st July 2023 the performance test also applies to trustee-directed products.
APRA explains:
“The annual test is designed to improve member outcomes by assessing the long-term performance of superannuation products against tailored benchmarks, with consequences for those that fail”.
If a super fund does not perform to the certain standard, or the fees level is not satisfactory, within the period of two consecutive years, the fund will not be allowed to accept new members. In the language of investment returns, two years is not a long-term investment term.
This year the test was not only within MySuper products, which is a default product that some super funds provide, but also to other investment options that are trustee-directed products.
So today we will discuss APRA’s annual super funds’ performance test findings and how to incorporate them into your investment planning with an open mind, rationally and leaving all emotions aside.
When speaking about the superannuation annual performance test, APRA included the following:
- 64 MySuper options and
- 805 “trustee-directed products”
Out of MySuper products in 2023 one failed to meet the test benchmark, compared with 5 failing in 2022 and 13 in 2021.
The fund that failed the test this year is AMG MySuper, but it has been closed to new members in 2022 and the trustee will cease the product soon. AMG has since rebranded as Acclaim Wealth.
Out of 805 trustee-directed products 96 failed to meet the test benchmarks and 75% of those 96 are products offered by 4 trustees:
- M. Superannuation Proprietary Limited, a trustee for many of AMP super products,
- Nulis Nominees (Australia) Limited, the trustee for some of MLC superannuation products
- Oasis Fund Management Limited, the trustee for IOOF currently named as Insignia Financial and
- OnePath Custodians Pty Limited
Trustees of products that failed to pass the benchmarks must notify their members of the test outcomes by 28 September 2023. Trustees cannot accept new members into products that have failed for two consecutive years.
There were some 20 non-platform products that failed, including:
- Australian Retirement Trust’s QSuper Socially Responsible fund,
- three products from Crescent Wealth,
- five products from OneSuper, and
- three from ClearView Retirement Plan.
Our firm does not recommend any of those products, and I am not talking about them to criticise them, but rather to explain how those superannuation fees work, so you can make an informed decision based on the balance of your superannuation savings.
APRA says that the median administration fees and costs for platform trustee directed products were the highest at 0.54%of assets, compared to 0.27% for non-platform trustee directed products and 0.26% for MySuper products.
Well, let’s put those fees into the test checking two of the biggest super funds in Australia. Regulator is looking at fees on super balance of $50,000
AustralianSuper – MySuper Balanced Option:
- Fees paid on $50,000 super balance
Administration fee of $1.00 per week = $52.00pa
plus 0.10%pa = $50.00
TOTAL ADMIN FEE = $102.00pa that equals to 0.20%pa – you might think you won a lottery, this is a very inexpensive super, but wait… there is more – and this is what regulator is not counting, but this is the part that cost you the most:
Investment fess: 0.49% of total balance = $245.00pa
Transaction cost: 0.20% of total balance = $100.00
But those investment costs often are not listed on your statement.
Why?
Because they are deducted from pre-tax investment returns and reflected in the daily crediting rate.
This is a fancy way of saying, we will charge you first, before we pay you your returns.
But a fee is a fee, no matter how it is charge.
So now suddenly the total fee is not really $102.00 disclosed on your statement but the full fee amounts to $447.00 therefore the total fee for the MySuper Balanced option for AustralianSuper fund is 0.894%pa
- Fees paid on $400,000 super balance
If you apply this fee to a super balance of $400,000 your total annual fee suddenly grows to: admin fee of $52.00 +$350 + Investment fees of $1,960 + Transaction cost of $800 = $3,162, which equals to 0.79%pa
Australian Retirement Trust
- Fees paid on $50,000 super balance
Administration fees $1.20pw = $62.40 pa plus
Admin costs of 0.10%pa for the first $800,000 of account balance = $50.00pa, plus
Other cost of 0.07% = $35.00
TOTAL Admin fee = $147.40 = 0.29%
This is the total fee the legislator is looking at, and unfortunately this is not the full fee you pay, because when we add investment fees and costs, the situation changes:
Investment costs are between 0.54% – 0.59% of account balance for MySuper.
Let’s be positive and just take 0.54%pa = $270.00pa
Other investment options might have a fee up to 1.59% – wow, be careful with your choices then.
Transaction costs between 0.19% up to 0.21%and for other investment options up to 0.40%pa of your account balance.
Therefore, now we have another fee of 0.20% on our $50,000 super account = $100.00pa
TOTAL FEE on $50,000 investment = $517.40 = 1.034%pa
- fees paid on $400,000 super balance
If we apply those fees to a super investment of $400,000 that fee will work as follows: admin fee $62.40 + Admin cost of $400 + other admin fee $280 + Investment cost $2,160 + transaction cost $800 = $3,702.40 = 0.926%pa
And now, let’s view fees of one of the wrap accounts, let’s look at IOOF, rebranded as Insignia Balanced Investment, which is a default MySuper investment option for IOOF Employer Super. Our practice is not recommending this super fund, hence this is a fair comparison with no self-interest on my part as a financial planner:
- Fees paid on $50,000 super balance
Admin fee 0.35% of total balance = $175.00pa plus
Account keeping fee of $90.00 plus
Other administration cost of 0.03% = $15.00
Total admin fee = $280.00 = 0.56% – that sounds like an expensive product, and this is the fee the legislator refers to in the performance test.
Then we have to add the following fees:
Investment cost of 0.50%pa = $250.00pa
Transaction cost of 0.08% = $40.00pa
TOTAL FEE PAID ON $50,000 = $570.00pa = 1.14%pa
- Fees paid on $400,000 super balance
Admin fee first $250,000 x 0.35% = $875.00pa
The balance of $150,000 x 0.25% = $375.00pa
Account keeping fee of $90.00pa
Other admin cost of $120.00pa
TOTAL ADMIN = $1,460PA = 0.36% – so the admin fee dropped from 0.56% down to 0.36%
Add to this investment fees of $2.000pa plus
Transaction costs of $320.00pa
TOTAL FEE ON $400,000 = $3,780PA = 0.94%PA
I checked fees directly from the respective super fund PDS listed on their websites. Therefore, the outcome of my full calculations is:
AustralianSuper MySuper fund has total charges on $50.000 super balance of 0.89% and on $400,000 super balance of 0.79%, while APRA by only looking at median administration fees discloses the fee of 0.26%.
Australian Retirement Trust charges on $50,000 super balance a fee of 1.03%pa and on the super balance of $400,000 a fee of 0.926%pa, again a bit more to the median admin fee of 0.26% that APRA refers to.
IOOF MySuper charges a total fee of 1.14%pa on $50,000 and 0.94% on $400,000 super balance.
So in total, are those fees so much different? Not really and yet one super fund will be fully supported by the regulator and the other might be stopped.
The higher your super balance the more attention you should pay to the level of fees paid, as the discrepancy between super funds increases dramatically.
So it is very unfair for APRA to be comparing fees on $50,000 investment only, as the higher your balance the dearer those so called inexpensive funds become for your super total.
Therefore, if you wish to have a super fund that is appropriate to your needs, pay the fee that is reduced based on your account balance and not some generic number, please review the PDS of every super fund you might be considering.
If you find this job too complicated, organise a meeting with a financial planner. I have access to the information of fees and charges of every super fund in Australia, so it is not difficult to gather that information and make your own, informed decision, rather then listening to what the TV promotes, or what super funds advertise on their websites.
We know that super funds need to charge for their work, we need to pay for the service (providing of course that you actually receive a good level of service from your super provider) and we all want to have decent returns from our fund.
Nothing comes for free, however super funds should be open about ALL fees that the fund charges, and not hide behind the PDS listed fees and small prints hidden somewhere on the last page of the disclosure of 150 pages that nobody reads.
Honesty, full disclosure, and transparency should be legally required from all providers and all super funds.
So do you really know what fees you are paying to your super fund? Do you know if the fund you are with is actually the most efficient and the most appropriate for you and what you want to achieve?
If you would like to see how your fund really stacks up against other super funds or if you would like to check how to be best prepared for your upcoming retirement or how to maximise your current retirement income together with government benefits, book a meeting with me. We can spend some time together to view exactly your current situation and assess if any changes could be implemented to make those long-term improvements for the rest of your retirement.
by: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
