When I first decided to create and fund an independent think tank focused on improving the system for Australia’s retirees, little did I know that a solid portion of its time would be allocated to the Your Future Your Super performance test. 

The test didn’t exist when The Conexus Institute was created. Then-Treasurer Josh Frydenberg announced the surprise policy in his October 2020 pandemic budget while his Minister for Financial Services, Jane Hume, carried a lot of the burden to champion the case and see it implemented. 

The performance test came out of a Productivity Commission review led by Karen Chester, who went on to become ASIC deputy chair. Its recommendation was based on four observations: clear performance laggards; sizable fee dispersion; lack of comparative data; and concerns around regulatory capability to address these issues. 

The Conexus Institute, whose advisory board I chaired at the time, is on the record as having supported the implementation of the performance test to MySuper default products – to some ruffled feathers in the industry, I would add.  

Even though we thought the test’s methodology was flawed and would create unintended consequences, we still thought the benefits to members of default funds, especially the disengaged, outweighed the shortcomings. 

Looking back, I believe that position is on the right side of history. While there is still plenty of room for improvement in the super system’s health and hygiene, the YFYS reforms and the performance test can claim some credit for doing good.  

The number of super funds has halved as poor performers were weeded out or forced to merge. The size of the system has doubled, creating global megafunds with more institutionalised investment management and governance. It now forms an important plank of Australia’s international relations with the world.  

Since the implementation of the reforms, there have been three further reviews – all at cost, ultimately to members and taxpayers – of the performance test. Everyone can see the shortcomings of the existing test, yet the solutions are highly contested and require more than just a tweak. I’ve watched the Conexus Institute team work hard to address the detailed consultation questions, all while the bigger issues become clearer without being addressed. 

Times have changed  
The four problems the Productivity Commission argued justified the test’s introduction have expired. Funds are performing well, fees have come down, data availability has improved significantly and regulators are acting with more confidence and better information than in the past.  

What’s left is not a rationale but an inertia – a single-metric mechanism still operating at full force years after the problems it was built to solve have substantially been solved. 

This test is not fit for the super system of the future. Consider a system that will double in size in ten years, even more concentrated in megafunds running increasingly complex investment strategies. The big issues ahead are the management of systemic risk and liquidity risk. Do we really want a single-metric performance test with strong pass/fail consequences sitting in the middle of all of this? Surely not. 

In addition, some funds feel they are increasingly priced out of accessing the world’s best external asset managers, which is even more important in a world of increasing geopolitical risk and exposure to private markets. It undermines the super system’s global competitiveness.  

It’s time for a proper discussion about how to protect member outcomes into the future. Quality performance assessment undertaken by a government entity makes far more sense than a single metric applied on a bright line basis. 

This requires the politics to be put aside. The performance test shouldn’t be used as a political wedge. Labor is rightly lauded for developing the underpinnings of the super system we have today. The Coalition should also be acknowledged for taking steps during the Morrison government years to uplift the system and protect members’ benefits at a time when parts of it were failing them. 

But now it is time to move on. It is time for a more robust system to protect future member outcomes. And it is time for The Conexus Institute to stop directing so much of its limited resources to interrogating a test whose job is done. 

Colin Tate AM is founder and managing director of Conexus Financial, publisher of Investment Magazine, and founder and patron of The Conexus Institute, a not-for-profit think tank philanthropically funded by Conexus Financial. He is currently on long service leave.