Super Consumers Australia is calling for the government’s annual performance test to be extended to products offered to retirees. (Source: Getty)
Poor performing superannuation options could be costing Australian retirees up to $205,000 over their retirement, new research has found. The federal government conducts an annual performance test for super products, but it doesn’t apply to retirement products.
New analysis by Super Consumers Australia found all of the seven options that failed this year’s government test were also offered to retirees. Of the 140 accumulation investment options that have failed the test since 2023, 91 per cent were also offered in the retirement phase at the time of failure.
However, the report noted that retirees received no notification and the super funds faced no consequences for the “dud” options being provided to older Australians in the retirement phase.
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There was a wide variation of investment returns across retirement investment options, which can have a real impact on retirement income.
The report found a retiree starting with $250,000 in super in the worst performing options could earn between $57,000 and $205,000 less when compared to the return it would be expected to earn based on peer returns and its allocation to growth assets.
The federal government is currently reviewing the performance test and Super Consumers Australia is calling on it to extend the test to products offered to retirees.
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“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,” Deputy CEO Dr Katrina 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 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.”
Ellis said extending the test and comparison tool would help retirees “avoid the duds” and put their money into better-performing funds.
“Anything less is leaving retirees exposed,” she said.
Around 2.8 million Australians are expected to retire in the coming decade, with the number of Australians retiring each year doubling from 150,000 to 300,000.
AustralianSuper and Australian Retirement Trust are also pushing the government to expand its performance test to cover retirement products to help weed out underperforming and high-fee products for retirees. The industry super funds collectively manage $676 billion in retirement savings between them.
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In its submission to the Treasury, AustralianSuper acting chief strategy officer Mark Comer said the fund “supports a performance testing framework being applied to retirement products, noting that there will be additional aspects to performance that are particularly relevant to retirement”.
Comer said metrics should be designed to take into account individual member circumstances and preferences.
ART chief executive Kathy Vincent said the fund advocated for “government to develop, in consultation with industry, an appropriate performance assessment framework for retirement products”.
Super Consumers Australia deputy CEO Katrina Ellis (left) is calling for the performance test to be expanded to retirement products, while Finance Services Council CEO Blake Briggs (right) has argued it would be inappropriate. (Source: SCA/FSC)
The Financial Service Council, which represents retail funds, is against performance testing of retirement products. It’s argued there’s no “one-size-fits-all” approach when it comes to retirement.
“Retirement products are inherently different to accumulation products,” FSC CEO Blake Briggs said in a statement provided to Yahoo Finance.
“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.”
Briggs said a performance test that focused only on investment returns risked leading people out of products that may be appropriate for their circumstances.
“The industry strongly supports transparency for retirement products to assist those approaching retirement. However, Treasury’s work on a retirement product data framework is a more appropriate step towards this,” Briggs said.
APRA’s performance test currently assesses a product against a performance benchmark. If a product fails the test in two consecutive years, it is banned from accepting new members until it passes.
Super Members Council found 74 per cent of Australians supported extending the performance test to retirement products, while 84 per cent called for greater transparency so retirees can compare how their fund performs.
The report also singled out super funds AMP, Russell Investments, Colonial First State and REST for underperforming compared to peers across all growth categories.
It only considered funds with a 10-year performance history.
AMP rejected the report’s “narrow analysis and irresponsible claims” and noted the fund had delivered strong relative returns for retirement members for the past three years.
“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,” an AMP spokesperson told Yahoo Finance.
Colonial First State also pushed back on the report and noted it had selectively focused on 12 of the fund’s 200 investment options. It also noted the accumulation equivalent of the options had been assessed by APRA and passed the annual test.
“When it comes to retirement, everyone’s circumstances are different. 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,” a spokesperson told Yahoo Finance.
“Retirement policy should prioritise choice, personalised guidance, and informed decision-making through financial advice, rather than one-size-fits-all defaults. Our focus is on working constructively with government and industry on measures that help retirees make informed choices that are suited to their individual needs.”
REST rejected suggestions that its retirement investment options were underperforming, noting that its multi-sector investment options within Rest Pension and the default balanced option for Rest Pension members had exceeded investment objectives for the last 10 years.
“We are confident Rest’s investment performance, and our products and services, are helping our members achieve their best-possible retirement outcomes,” a spokesperson told Yahoo Finance.
A Russell Investments spokesperson said it was aware of the report and “the figures cited for Russell Investments’ options are not accurate”.
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