APRA has used a report drawing further insights from the Your Future Your Super performance test to push funds on reducing fees, arguing the efficiency and cost-saving benefits of merging funds has benefited in lower admin fees.
In a Your Future Your Super performance test insights paper released on Wednesday morning, APRA noted there is “significant variance” in the administration fees paid by fund members within each of the product segments, arguing there is scope for fee reductions across the industry, particularly for trustee directed products (TDP) – a subset of Choice products.
Additionally, these TDPs – offered through platforms – generally had the highest fees, the regulator said.
The YFYS test results were released in August and included Choice products; most failures were among products offered by AMP and Insignia.
There were 96 trustee TDPs that failed to meet the test benchmarks, which included 76 of 305 platform products and 20 of 500 non-platform products.
Wednesday’s analysis of the results found the median administration fee for a platform TDP is 54 basis points (bps), while the average MySuper option was 26bps.
“Platform TDP fees should be reviewed to ensure the additional services provided justify their higher fees and are providing value for money for members,” the report said.
“RSE [registrable superannuation entity] licensees should continue to look to reduce fees where possible, however, fee reductions should not be at the expense of ensuring products and RSEs remain sustainable.”
Financial Advice Association head of policy Phil Anderson says an annual administration fee of 54bps is reasonable, especially if it supports increased functionality and service standards. “Then people in large part are prepared to pay for that,” he tells Professional Planner.
“There are costs involved with having good service standards. What’s the right balance? Do we want cheap funds that are slow to pay death benefits, and very simple product propositions? It’s a balance. It’s what right for individuals.”
However, APRA argued that the push to have super funds to merge to drive economies of scale has paid off for members, with the benefits of operational efficiencies being passed on via lower fees.
“The administration fees component of the 2023 performance test suggest that larger funds tend to operate more efficiently and can pass this benefit to members through charging lower administration fees,” the report said.
But lower fees ultimately means less revenue, and research from CoreData and Professional Planner publisher Conexus Financial has found this has led to funds underdelivering on services to cut costs – which has hurt member satisfaction.
Additionally, Conexus’ philanthropic think-tank The Conexus Institute published research which found larger funds can end up with a raft of challenges that could lead to poor performance. And research from Roy Morgan in August found fund mergers dragged member satisfaction down.
While TDP fees drew the ire of the prudential regulator, APRA also took aim at investment performance: more than half of all platform trustee-directed products are failing to meet the benchmark.
This is contrast to most MySuper products and non-platform trustee-directed products, which are now outperforming the investment component of the performance test.
“The performance test has led to improved performance across the MySuper product population, with the average performance relative to the benchmark improving since its introduction,” the report said.
The insights report replaced this year’s heatmaps as APRA transitions to “a more aligned approach to fund performance scrutiny”.
APRA deputy chair Margaret Cole said the regulator remains committed to increasing transparency around superannuation performance as a tool to drive better outcomes for members.
“We expect trustees to analyse these results carefully, and – where they have products that are consistently underperforming – take firm action to improve outcomes for their members,” Cole said in a media release.