Poor performing super funds must be kept in the spotlight

That means dud funds can sometimes be surprisingly resilient. They can continue to hang around despite their underperformance, so it is essential that those trustees face some pressure to make sure members’ retirement savings are invested efficiently and appropriately.

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What has changed on this front since the royal commission?

Quite a bit, Byres suggested, although he acknowledged more should be done. The most significant change has been APRA’s annual performance test, in which the watchdog names and shames funds that fall short of its benchmarks, and requires them to write to members about their poor results. If funds fail the test for two consecutive years they must close their doors to new members.

The test, which this year led to four funds closing to new members, helps to deal with the problem of members being “disengaged.” It puts the heat on trustees over poor results in a way that wasn’t happening previously.

“It has forced trustees who have not been delivering for their members to kind of recognize that their members would be better off in someone else’s hands,” Byres said.

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Even where funds stay open because they don’t fail APRA’s test for two years in a row, the public shaming benefits members because it typically leads to fee cuts.

Super Consumers Australia said in research last week that on average, funds that failed APRA’s tests had cut their fees by 20.64 percent. “The test is doing what it set out to do, chopping off the tail of poor funds,” said the group’s director, Xavier O’Halloran.

However, there’s much more that could still be done.

O’Halloran points out that so far, APRA’s performance test has covered MySuper products – no-frills super options designed to keep costs down. But the “choice” part of the market that attracted much of the most criticism at the royal commission has not yet faced performance tests.

APRA is also convinced members would benefit from more fund mergers, which should improve efficiency, by allowing bigger funds to spread their costs over a larger number of members. Byres said although some small funds were performing, there was a “long tail” of funds that are “challenged in terms of the longevity,” and all the evidence suggested a fund’s size did matter.

All up, Byres made it clear APRA wanted to keep the pressure on trustees to act in the interests of members, and one of the best ways to do this is by shining a light on underperforming funds, so they have “nowhere to hide.” “The spotlight on them will only get brighter and more intense,” Byres said.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.