ASFA makes suggestions for performance test overhaul

The Association of Superannuation Funds of Australia (ASFA) has called for the federal governments annual superannuation performance test to be modernised, arguing the current framework is discouraging long-term investment assets such as housing, infrastructure and renewable energy.

The comments come as Treasury reviews the performance test, introduced July 2021, to assess whether superannuation products are delivering competitive returns for members.

ASFA chief policy and advocacy officer James Koval said the test had achieved its original objective of improving member outcomes but now required reform to reflect today's investment environment.

"The performance test has increasingly been seen as a barrier to productive investment by super funds, and requires modernisation," said Koval.

Koval said the current framework works well for listed assets that can be easily benchmarked but is less suited to long-term, illiquid investments such as infrastructure, private equity, housing and energy projects, where annual comparisons are less meaningful.

"Annual benchmarks are less meaningful for these investments, particularly if the investment horizon spans a decade or longer," Koval said.

The industry body has proposed three key changes to the framework, including the creation of an 'emerging assets' category that would assess investments against inflation-based return objectives rather than difficult-to measure market benchmarks.

Under the proposal, funds would still be required to deliver returns above inflation while removing barriers to investing in assets that support long-term economic growth.

ASFA also wants the performance test expanded beyond the current focus of MySuper and selected Choice products to cover all trustee-directed products.

A third recommendation calls for a review of the benchmark methodology, with greater flexibility for APRA to update benchmarks in consultation with industry experts as investment markets evolve.

Koval said the review comes after Treasurer Jim Chalmers announced the government was looking at changes to the performance test after hosting the Economic Roundtable in August last year.

"There is a clear and united sector position on this issue," Koval said.

"The sector supports three areas of reform: reducing investment barriers in areas that matter, while still ensuring the test remains a strong consumer tool; expanding the coverage of the test; and future-proofing the benchmark framework so that it remains enduring."

Treasury has conducted consultation on strengthening the performance test and is expected to outline the government's position in the coming months.