The Association of Superannuation Funds of Australia is suggesting an alternative one-off test to weed out underperforming default funds in place of the government's recent proposals.
ASFA's Lifting the Bar proposal will examine MySuper products and use APRA's annual Member Outcomes Assessment to determine whether a product is considered to be underperforming.
The first stage measures fees and costs against a benchmark of 130 basis points (one standard deviation from the average MySuper fee). If the fees and costs exceed 130 basis points, the product would proceed to the next stage.
Stage two assesses net investment returns and benchmarks funds in the bottom quartile of risk-adjusted returns that fail the first stage.
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An underperforming product will get the opportunity to state its case to APRA and explain why its MySuper authorisation should be retained. If it is unsuccessful, the MySuper authorisation will be revoked.
Federal Treasurer Josh Frydenberg unveiled the government's version of testing underperformance as part of the Your Future, Your Super reforms on budget night.
Among the criteria, super funds that fail the annual APRA-administered test twice not be allowed to receive any new members until they improve their performance.
"The inefficient design of default arrangements means members can fall victim to the 'unlucky lottery' in which they may be placed into underperforming products. This could result in a member being significantly worse off at retirement compared with being in a higher performing fund," he said.
Frydenberg estimates that about $100 billion of members' money is left in underperforming super products.
ASFA chief executive Martin Fahy said Australia does not suffer from a shortage of good funds.
It is imperative that any measures that are designed to address underperformance do not reduce competition, distort investment decisions or damage the nation building role of superannuation, he said.