APRA will intensify scrutiny of super fund trustees of Choice Super products who failed the performance benchmarks as part of a drive to lift financial performance and transparency and ultimately better member outcomes.

Close to 50 per cent of super fund Choice Super products with an eight-year history failed the performance benchmarks according to APRA’s latest Choice Heatmap. The results come as asset owners and asset managers faced some of the most challenging market conditions in 2022, with returns in stock and bond markets pummelled by high inflation and rising interest rates.

APRA deputy chair Margaret Cole said in a media release on trustees of underperforming funds can expect the regulator to intensify scrutiny.

“There are still far too many products delivering sub-standard investment returns to fund members,” she said. “APRA’s supervision of poorly performing Choice products will intensify, and trustees can expect even greater scrutiny of their product offering.

“Trustees with products that are underperforming or have unjustifiably high fees – or both – will need to explain why they haven’t already moved their members to products with better performance and better fee structures.”

APRA this week announced 182 Choice Super products with an eight-year history, out of the 407 available, failed the performance benchmarks, including 80 options that missed the benchmarks by more than 0.5 per cent.

The latest heatmap covers 163 products, representing $292 billion worth of assets under management at the end of June 2022 and nearly half of the funds under management in the Choice accumulation sector. In the 2021 Choice Heatmap, one in four Choice investment options significantly underperformed the benchmarks.

APRA also found 80 or close to 20 per cent significantly underperformed and, of these, 72 are managed by retail funds. Choice Super products are where the member actively selects the investment options. It compares products across key metrics, including investment returns, fees and costs, and product sustainability.

Members disadvantaged

The heatmap also showed Choice products closed to new members are more likely to under-perform and have higher fees than open ones, hampered by negative in-flows.

Two-thirds of products that are closed to new members had poor or significantly poor performance relative to the heatmap benchmarks. The heatmap showed 22 products (28 per cent) underperformed the benchmarks by up to 0.5 per cent, while a further 31 (39 per cent) significantly underperformed by 0.5 per cent or more.

Average fees are higher in Choice products that are closed to new members. The average annual administration fee for members with an account balance of $50,000 in closed Choice products was $225, compared with $149 for available Choice products and $137 for MySuper products.

Cole said some members might choose to stay in closed investment options because of non-performance-related benefits, such as insurance offerings, or based on appropriate financial advice.

“Even so, APRA encourages all superannuation members to check whether they are satisfied with the outcomes they are getting from their chosen investment strategies,” she said.

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