QSuper says the Your Future, Your Super bill's proposals may result in higher operational costs at superannuation funds and delays in decision-making, alongside less talent for their boards.
In its submission to the YFYS consultation, the industry fund called attention to the Best Interest Financial Duty's reversal of the burden of proof, and the limitations of APRA's new performance measures for superannuation funds.
Treasury in October 2020 introduced new APRA benchmarking for superannuation funds, which would cut inflows of new member funds to any super funds than fail the test two years in a row.
QSuper said this test needs to use better benchmarks and risk-adjusted returns (adding volatility, Sharpe ratio).
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"The asset class benchmarks may be constraining, and we suggest broadening the adopted benchmarks to better align with a fund's objectives; risk adjusted returns are more appropriate when assessing fund performance and this should be easily communicable to ensure members understand the risk-return trade-off," it said.
The fund also called attention to the lack of clarity around how the performance tests will work for lifecyle products, which automatically change a member's asset allocation to less riskier assets as they age.
It is asking Treasury or APRA together or separately to set up a working group to design a methodology for measuring lifecycle funds' performance.
"The Bill currently does not appear to recognise the challenges in appropriately comparing lifecycle funds - neither its component parts (or individual cohorts) nor how the total lifecycle approach will be collapsed into a single measure," it said in the submission.
It also wants the APRA two-year test to use rolling assessment periods for performance to support funds that fail the test but have taken corrective measures.