Article:

Superannuation governance consistency is good, but the devil is in the detail

21 October 2020

James Dixon, Partner, Audit and Assurance |

The 2020 Federal Budget announced additional funding over four years to implement changes deigned to protect superannuation member’s retirement benefits via increased levies on regulated financial institutions.

One of the key measures was the introduction of superannuation fund performance benchmarking to ensure returns are in line with those of other comparable retail and industry superannuation funds with the same risk profile.

The good news is that if you find yourself in an underperforming fund, the Australian Prudential Regulation Authority (APRA) will be stepping in to hold fund Trustees accountable. If APRA finds a fund has been underperforming for two consecutive years, the fund could find itself unable to accept new members and needing to outline a plan for what it will do with the retirement savings of its current members.
Importantly, if you find yourself in this situation in the future, your retirement savings won’t disappear, they will remain secure. The most likely outcome is that the underperforming fund could be required to merge with another super fund or transfer its’ assets elsewhere to ensure better performance.

It could be argued that this increase in governance is a proactive attempt by the Government to counter concerns related to another measure proposed in the 2020 Federal Budget – the stapling of superannuation accounts to workers.

This stapling would see workers have their superannuation fund follow them through their working life unless they monitor the performance of their super fund and take action to switch to a better performing super fund.

BDO recommends you consider all of your assets, including your superannuation when developing an appropriate strategy tailored to meet your specific retirement needs and objectives. Further, you may wish to consult a professional financial planner or wealth adviser to ensure your personal risk profile and composition of the fund’s investments and their diversification, liquidity, and other factors align with your intended retirement goals.

So, what does all this mean for superannuation fund members?

Placing an obligation on super funds to align performance with members’ best interests and ensure their members’ retirement savings are maximised is all good news. All superannuation investment vehicles – whether they are a Self-Managed Superannuation Fund, a retail fund, or an industry fund – should be on a level playing field when it comes to transparency and governance. Ensuring the needs of members are front and centre should remain the end game.

But, as with many announcements of this nature in the past, the devil is in the detail. Developing an appropriate benchmark to measure fund performance against will be key to this proposal. It must balance the need for short-term reporting transparency against the need for funds to invest for their members’ benefit. The metrics used to determine the benchmark itself must also be carefully considered, with a wide range of market, fund and investor factors that should be taken into account.

Despite this increase in governance, BDO encourages all Australian workers to actively monitor the performance of their superannuation fund to avoid being stapled to an underperforming one. APRA may eventually take action against an underperforming fund, but many factors influence whether a member should switch funds before that time.

If you require support to assess the performance of your fund or would like to discuss superannuation investment options, contact your local BDO Superannuation adviser.

DISCLAIMER:

The information that we have provided to you is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals. If you require personal advice in relation to your specific financial circumstances you should consult an appropriately qualified financial adviser with an Australian financial services licence.