1.5 The APRA superannuation performace test

MySuper performance test 

The Australian Prudential Regulation Authority (APRA) introduced the MySuper performance test as part of the Australian Government's Your Future, Your Super reforms, starting from July 2021. This test aims to ensure that superannuation funds deliver good investment performance for their members.

The MySuper performance test assesses the net investment performance of MySuper products, which are standardised, low-cost superannuation funds. The test compares the performance of these products against a benchmark. If a product underperforms the benchmark by more than 0.5% per annum over an eight-year period, it fails the test.

What happens if a fund fails the test?

If a fund fails the performance test, it must inform its members and direct them to the Australian Taxation Office's YourSuper comparison tool. Funds that fail two consecutive annual tests are prohibited from accepting new members until they pass the test.

The purpose of this measure is to protect individuals from poor outcomes and encourage funds to lower costs and boost performance.

The test is only applied to MySuper products, but the intention is to extend it to other superannuation products (known as 'trustee directed') from July 2023.

Updated 1 July 2023

3.1 What is MySuper

MySuper is a government initiative designed to simplify the superannuation system. It is a default superannuation product offered by superannuation funds to provide a simple and low-cost option for individuals who do not actively choose a specific superannuation fund or investment option. Introduced 1n July 2013, as part of the Stronger Super reforms, the goal was to make superannuation easier to understand and compare, and to ensure that members' retirement savings were invested in a straightforward and cost-effective manner.

Key features

Standardised product - MySuper products have a standardized set of features and a simple investment strategy. They must meet certain criteria set by the government, such as a low-cost structure and a basic level of insurance coverage.

Default option - If an employee does not choose a specific superannuation fund, their employer must contribute their superannuation contributions into a MySuper product offered by the fund of their choice.

Investment strategy - MySuper products have a default investment strategy that aims to provide a balanced level of risk and return over the long term. The strategy is generally designed to suit most members' needs, taking into account their age and investment time horizon.

Transparency and disclosure - MySuper products must provide clear and concise information to members about fees, investment options, and performance.

Note that while MySuper is designed to be a simple and low-cost option, individuals can still select alternative superannuation funds that may better align with their personal financial goals and risk preferences.

APRA Performance test

From 1 July 2021, MySuper products are subject to an annual performance test. Any MySuper products that fail the new APRA-administered annual test twice in a row will not be allowed to receive any new members until they improve their performance.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

3.2 MySuper vs Super Choice

MySuper

MySuper is a standardised and low-cost superannuation product. MySuper products have a simple investment strategy and aim to provide a balanced level of risk and return over the long term.

Designed to be default options for individuals who do not actively choose a specific superannuation fund or investment option. Employers are required to contribute employees' superannuation contributions into a MySuper product if the employee doesn't choose a specific fund. Since 1 July 2017, all member accounts in default superannuation investment options are required to be invested in a MySuper product.

Super Choice

Super Choice of fund refers to the right of Australian workers to choose the superannuation fund into which their employer contributions are deposited. Under the Superannuation Guarantee legislation, most employees have the ability to select their preferred superannuation fund. This means they can decide where their employer's compulsory contributions are directed.

Super Choice of fund provides individuals with the flexibility to choose from a range of superannuation funds available in the market, which may offer different investment options, fees, insurance coverage, and additional services. By exercising this choice, individuals can take greater control over their retirement savings and tailor their superannuation to suit their specific needs

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

3.9 Lifecycle superannuation products

In a MySuper account, you may have a balanced, single diversified option. This means your funds are invested in a standard mix of investments, with a consistent approach.

Alternatively, there is the lifecycle investment strategy. With this option, your funds are adjusted from growth investments when you're young to more conservative investments as you get older. Lifecycle investment products manage investment risk based on your age and expected time to retirement. They are commonly offered by retail superannuation funds as part of MySuper products.

The strategy of a lifecycle product is characterized by gradually shifting from a higher exposure to growth assets when you're young to a higher proportion of defensive assets as you approach retirement. For example, a member under 40 may have an average exposure of around 82% to growth assets, decreasing to about 63% in their 50s. By age 65, the average lifecycle MySuper product has approximately 45% of its portfolio invested in growth assets.

Example of lifestyle asset allocations by age cohort

Source: APRA, Rainmaker

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.