Vanguard backs current performance test

championing its effectiveness in eliminating underperforming investment options and improving member outcomes.

"At present, it is the only option presented that is objective, efficient, and timely to administer for both APRA and super funds and has clear consequences of failure. That's why we support maintaining the status quo - the current performance test methodology - with consideration of minor amendments," Vanguard said.

Vanguard Australia head of Australian public policy Sara Dix said the firm supports the current performance test and principles set out by Treasury but did suggest adding other principle: simplicity.

"It's critical for members to understand how the test operates, which means it needs to be simple for super funds to explain and simple for APRA to administer. Introducing additional complexity such as risk-adjusted or absolute measures is unlikely to enhance the benchmarking approach," Dix said.

She also noted the importance of continuing to include fees in the performance test because of its impact on retirement savings.

"Fee transparency not only allows members to assess and compare costs between funds, but also drives competition across the super industry which ultimately improves outcomes for members," she said.

Additionally, Vanguard submitted that mandating product closures for choice investment options isn't appropriate given the "differing nature" of choice members.

Although not explicitly in scope for the performance test, Vanguard also recommended that the ATO YourSuper comparison tool should sort by fees, as it's "the only forward-looking measure" for consumers to compare superannuation products.

"Sorting by investment performance and the performance test as it stands may risk misleading consumers about the future returns they could achieve," she said.

The performance test was introduced to protect Australians' retirement savings, assessing trustees on investment performance and fees charged to members. The test has been applied to MySuper products since 1 July 2021 and was extended to Trustee-Directed Products (TDPs) on 1 July 2023.

In the latest test, which was the first to include TDPs, 97 products failed; 96 of these were TDPs, with 75% used by four trustees: AMP, Nulis Nominees, Oasis Funds Management, and OnePath Custodians - Nulis, Oasis and OnePath are all Insignia Financial trustees.

Treasury has noted that while the test effectively holds trustees accountable, it might also negatively influence investment decisions, possibly discouraging investment in asset classes to the detriment of member outcomes.

Consequently, Treasury has considered reforms to the test and has just concluded its consultation to gather feedback.