A mere seven trustee-directed products (TDPs), all housed on wraps or platforms, failed the fourth iteration of the Your Future Your Super (YFYS) performance test, while none of the 52 MySuper products or 374 non-platform TDPs subject to the test failed.

“Since the introduction of the performance test in 2021, APRA has seen real progress in reducing underperformance for products subject to the performance test. The number of members in products that did not pass the test decreased from 1 million to 8500,” said APRA deputy chair Margaret Cole.

But those who have spent significant time studying and understanding the YFYS performance test will tell you that it’s very much like a kaleidoscope of perverse outcomes; shift your perspective, even slightly, and another one appears.

This year’s iteration of the test is no different. Looking past the ever-growing pile of evidence that super funds are now so successful at managing to the stringent requirements of the performance test that not one MySuper product failed it, the products that did fail it raise even more questions about how the test is applied.

Of the seven platform TDPs that failed the performance test, three were capital guaranteed products offered by AMP; investors in these were more likely than not advised into them to meet their individual financial needs, and will now be asking their advisers why what they believed to be an integral part of their portfolio is ‘underperforming’. If it was in their best interests to be in them – and it must have been, otherwise they wouldn’t be – how can it suddenly be in their best interests to be out of them? Especially when leaving them can, as Chant West pointed out many moons ago, result in a capital gains event, given tax is paid at the member level rather than being accrued through an after-tax unit price. To act on APRA’s suggestion that they move their money – and to avoid being slugged by the Tax Office – members would need capital gains tax relief.

It’s just one fractal in that kaleidoscope of perverse outcomes.

Another fractal: fees are benchmarked based on a $50,000 balance, which is fine in MySuper-land but less appropriate for products where the average balance is significantly higher (Chant West estimates it at around $250,000) and tends to sit within a portfolio of products; the capital guarantee product is there to preserve some capital, not the bulk of it, which is likely allocated to other products. Put simply, the experience the products are being tested on is not the experience of the investors that use them.

That’s without getting into the fact that Insignia and AMP between them offer some 65 per cent of platform TDPs subject to the test, while the test itself only covers, by AMP’s calculation, about three per cent of the platform market.  And it overlooks the big, macro issues that dominated discussion of YFYS reform at the Treasurer’s Economic Reform Roundtable: issues like herding around asset classes and benchmarks.

Nobody questions the need for a test, or the need to protect members from –or at least alert them to – persistently underperforming funds. But the fact that few MySuper products failed it does not mean that there aren’t problems within the industry, in much the same way that still waters can conceal dangerous currents. And the fact that the test can have likely deleterious impacts on the very members it’s meant to protect does not reflect well on its design or application.

With Treasury set to launch yet another review into the performance test, it would do well to cast its gaze over not just the big issues, such as disincentivisation  of investment in renewables and social infrastructure, but how it impacts even relatively small parts of the industry. Otherwise it will be staring into that kaleidoscope for a long while yet.