Actuaries Institute proposes new performance test measure

The Actuaries Institute has proposed revising the annual superannuation performance test, so it better aligns trustees' investments with the best financial interests of members.

In its Treasury submission, the Institute said the test should include two metrics: the current one and a new risk-adjusted performance measure for super fund products.

"This two-metric test would ensure trustees can continue to have confidence around decisions they've already made to ensure they pass the test, while also encouraging them to pursue investments more closely aligned with the best financial interests of their members on a forward basis," it said.

The submission said adding a risk metric would allow the test to better cater for investments and strategies that do not naturally align with the prescribed asset classes and benchmark indices used by the test, such as ESG-focused investment strategies.

"... the risk-adjusted metric should ensure sufficient weighting is placed on fees by testing investment performance after accounting for both investment and administration fees. This also avoids the risk of any gaming in trustees classifying different fee types to pass the performance test," it said.

The submission also recommended continuing to assess super fund fees in the test but suggested raising the representative member to $100,000 for non-platform products and $250,000 for platform products, up from the current $50,000, as member balances grow.

Additionally, the Institute called on the government to consider a greater role for trustees and the APRA in how areas of choice option underperformance are understood and rectified. It suggested the consequences for failing the test for choice options could instead require trustees to provide to regulator an action plan to address the underperformance.

The Institute also supports the removal of barriers to consolidation of some choice options, particularly facilitating capital gains tax relief when trustees initiate product transfers that are in members' best financial interests.

However, the Institute didn't support expanding the test to include more investment options such as retirement products, single sector or externally managed options, and self-managed super funds.