Australian retirees have been warned about a crucial mistake that could be costing them more than $200,000, sparking calls for better safeguarding for superannuation customers.
Advocacy group Super Consumers Australia analysed data from the Australian Prudential Regulation Authority about the investment options that failed the government’s annual performance test offered to retirees.
This test applies to super accounts held by working Australians, but does not apply to products offered to retirees.
An under-performing fund could cost a retiree between $57,000 and $205,000 over the course of their retirement, the group warned.
That figure is based on a retiree that starts with a balance of $250,000.
About 91 per cent of products that failed the performance test were also offered in retirement.
Super Consumers Australia’s deputy CEO Katrina Ellis criticised the difference between what was acceptable for workers and retirees.
“It’s unreasonable that a 64-year-old is protected by a performance test, yet the moment they retire and move into an identical product, that safeguard disappears,” Ms Ellis said.
“Retirees deserve the same protections as workers.
“Without them, people risk losing hundreds of thousands of dollars in retirement income and living standards will suffer.”
The group found most options with 10 years of investment history at AMP, Russell Investments, Colonial First State and REST underperformed compared to their peers.
Super Consumer Australia said this was a sign of “broader problems” with the investment approach at these funds.
A spokesperson from Colonial First State said Super Consumers’ report was not accurate as it “selectively focused on 12 options out of the total CFS FirstChoice menu which has more than 200 investment options”.
“Any assessment framework should reflect members’ individual objectives and risk tolerance and cash flow requirements, which are critical in the retirement phase, rather than reducing outcomes to a single investment return metric,” the spokesperson said.
An AMP spokesperson similarly “strongly rejected” the report and claimed it featured “narrow analysis and irresponsible claims”.
“The report fails to recognise that AMP has delivered strong relative returns for our retirement members for the past three years, in addition to our super offers achieving returns in excess of 13 per cent for the past three years to September,” the AMP spokesperson said.
“The report also fails to take into proper account the different objectives of retirement products, or consider contemporary lifetime income retirement solutions, which are delivering significantly better outcomes for retirees.”
Meanwhile, a Russell Investments spokesperson said the company was aware of the report and claimed “the figures cited for Russell Investments’ options are not accurate”.
The report found that 74 per cent of Australians support extending the performance test to retirement products.
Eighty-four per cent want greater transparency so retirees can compare how their funds perform.
Ms Ellis said the large support for further transparency around superannuation was cause for the government to take action.
“The superannuation system is meant to provide Australians with a dignified retirement, not leave them in the dark about whether their money is working for them,” she said.
“The Federal Government must extend the performance test and comparison tool to ensure retirees can avoid the duds and put their money in better performing funds.
“Anything less is leaving retirees exposed.”
The report also drew criticism from the Financial Services Council’s CEO Blake Briggs who stressed there was “no one size fits all approach” for retirees.
Mr Briggs noted that retirement products were different to accumulation products and that expanding the test to include retirement products would be “inappropriate”.
“Retirement products combine investment design with other important features that support varied individual retirement needs such as providing flexible access to cash when they need it, providing a sustainable income stream, and managing longevity risk,” Mr Briggs said in a statement.
“A performance test that focuses only on investment returns risks leading people out of products that may be appropriate for their circumstances, including those they have been advised into by a professional advisor who has accounted for their individual objectives and needs.”
Super Consumers Australia looked at funds’ performance in the June quarter from APRA’s Quarterly Superannuation Product Statistics.
The dataset analyses members in the accumulation, transition to retirement, or retirement phase and looks at an array of accounts with varying balances.
SkyNews.com.au has reached out to REST for comment.