Financial watchdog threatens legal action against worst performing MySuper products

The national financial watchdog, Australian Prudential Regulatory Authority (Apra), has threatened legal action against eight trustees of the worst performing superannuation products in an effort to improve performance and lower fees for customers.

In December last year, Apra released its first “heatmap” that named and shamed underperforming super funds and forced them to either lift their game or exit the industry all together. The heatmap evaluated MySuper products, which are the simpler and cheaper default accounts that employers choose for employees if they haven’t already selected a specific fund.

On Friday, the regulator released its first full refresh of the heatmap 12 months after it was initially released, noting that there’d been some significant changes.

Since December 2019, 11 of the 47 MySuper products that underperformed the investment benchmarks have now exited the industry. However, the regulator warned that there are still 10 products under eight trustees that have failed their obligations and could face legal action.

The regulator is reviewing whether the eight trustees may have “failed in their obligations to members of these products, including possible breaches of the Superannuation Industry (Supervision) Act 1993 (SIS Act)”. It will be issuing notices in the coming days and will then look at the potential use of “formal enforcement powers”.

Following the release of the first heatmap, MySuper account fees have fallen for 71 per cent of members, with the regulator estimating that there’s been $408 million saved in fees and total costs since last year. Helen Rowell, Apra deputy chair, agreed that the name-and-shame policy worked in holding trustees publicly accountable for their performance and the outcomes they delivered to customers but said there’s still a lot of work to be done.

“The MySuper product heatmap shines a light on those trustees who are failing their members by charging high fees and not delivering good long-run returns,” she said. “The impact has been immediate in the area of fees and costs, with MySuper members saving hundreds of millions of dollars in fees since the release of the first heatmap.

“And despite an immensely challenging year with Covid-19, more than half of MySuper products exceeded our investment benchmarks over six years. However, the news is not all positive. In particular, we are concerned that some funds identified as the poorest performers 12 months ago remain in that position today.”

The lowest on the list for a six-year investment return this year was BT Funds Management Westpac Group MySuper with just 3.4 per cent per annum. This was very closely followed by BT Funds’ Asgard Employee MySuper and BT Super MySuper with returns of just 3.42 per cent and 3.43 per cent respectively. All three were among the worst performing funds last year as well.

One of the most improved was BEST Superannuation’s Goldman Sachs & JBWere Superannuation MySuper, which saw a return of 8.29 per cent over six years. It also reduced its fees for balances of $10,000 from 3.79 per cent in 2019 to 1.07 per cent in 2020 – although these are still some of the highest fees.

Mercer Superannuation’s Mercer SmartPath had some of the worst fees, with a total 2.32 per cent, despite announcing on December 1 that it would reduce fees by 38 per cent overall. Meanwhile, BUSS (Queensland) came in second worst for fees with 2.2 per cent and IOOF’s MySuper came in third worst with 2.2 per cent.