New research from Super Consumers Australia has found products which failed the annual super performance test have on average cut their fees by 20%.
The performance test is protecting Australians from poorly performing super products. In just over one year, every fund bar one that failed the first performance test is addressing its underperformance through either fee reductions or a merger with a better performer. This has led to real benefits for consumers through lower fees.
The research looked at changes to fees that have taken place since the test results were announced and found that failed products have, on average, experienced a 20.64% reduction in fees.
“The test is doing what it set out to do, chopping off the tail of poor funds. The performance test’s objective ‘bright line’ and clear consequences for failure have driven dramatic positive fee changes for people in poor products,” says Xavier O’Halloran, Super Consumers Australia Director.
“Now is the time to extend these clear benefits to people with their super in the untested choice segments of the market. The regulator’s most recent data on performance in this segment found that more than 60% of the investment options had failed to meet a heatmap benchmark. So there is clearly still work to do to clean up underperformance in the super sector.”
The research also found that products which passed the test by a significant margin (at least 50 basis points), on average increased their fees 5.7%.
“This is a worrying trend and shows the need to turn up the heat on funds that are clearing the minimum bar of the performance test.”
“The Productivity Commission outlined the test was designed to remove the tail of underperformance. The next step is to drive healthy competition among funds at the top end of the market. A lot can be achieved through improvements to the comparison tool and helping people to either default into or select high performing funds when they change jobs or enter the workplace.”