“This includes that trustees are responsible for determining an appropriate level of diversification for each investment strategy,” the submission said.
“The notion that excluding assets from a trustee’s investment universe will improve outcomes is flawed. Further, that such a decision would be made by Parliament via regulation, to apply to all trustees regardless of their investment strategy or members’ investment choices, is not in members’ interests.
“The legislation also does not provide for any transitional provisions to ensure members’ existing investments aren’t adversely impacted as a result of the implementation of the provisions.”
AustralianSuper noted the potential impacts of this provision were quite broad and examples included:
The government’s proposed superannuation performance test would be detrimental to the super system and is not in the best interests of members, according to Chant West.
“Similarly, incorporating other ESG [environmental, social, and governance] and sustainability considerations into the portfolio introduces tracking error risk relative to the performance benchmark, which may not be rewarded over the timeframe before the performance test ‘bites’.”
It also said the reforms would push super funds away from a total portfolio approach and back towards a strategic asset allocation approach.
“We would liken this to going back to an old technology, one that is inferior in return terms by around 0.5% to 1% pa,” it said.
“In effect, the reforms shift a reference portfolio from being usefully operational (a guide to the opportunity set) to being detrimentally behavioural (the management of career risk).”
The Government’s Your Future Your Super superannuation performance test needs a collection of multiple metrics rather than a single metric based on a narrow assessment of quality, according to Frontier.
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The Government’s proposed Your Future Your Super (YFYS) legislation stops short of addressing the underperformance across the superannuation sector, the Australian Institute of Superannuation Trustees (AIST) believes.
AIST pointed to data from the Australian Prudential Regulation Authority (APRA) released this week that found over the five years to December 2020, profit-to-member super funds, on average, outperformed retail funds by 23%.
AIST chief executive, Eva Scheerlinck, said this concentrated retail fund underperformance needed to be urgently addressed by the government and regulator.
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