Submission to the Annual Superannuation Performance Test Consultation Paper

ASFI welcomes the opportunity to provide feedback in relation to the Australian Government’s consultation paper on design options for the Your Future Your Super (YFYS) Annual Superannuation Performance Test. The YFYS performance test was introduced for the purpose of protecting Australians’ retirement savings by holding trustees to account for the investment performance they deliver and the fees they charge.

While the test may have been at least partially successful in identifying under-performing products and encouraging industry consolidation, there have been unintended consequences. As identified in the consultation paper, these include that it encourages short-term decision making and benchmark hugging; constrains investment flexibility; and reduces member choice, product diversification and active management.

An important consequence is that the test is significantly constraining the ability of super funds to adopt green or sustainable finance investment strategies at scale. This is at odds with Australia’s national transition goals and inhibits appropriate management of systemic climate and other sustainability risks. It may limit super funds’ ability to invest in accordance with member preferences, and potentially to invest in accordance with members’ best financial interests over the long term. This is suboptimal for members. Increasingly, there may also be a tension between satisfying the current YFYS performance test and complying with the emerging sustainable finance policy framework which encourages super funds to develop and disclose climate transition plans, and government recognition of the importance of private capital to support Australia’s climate transition.

While there is no easy solution to the issues identified above, ASFI considers that the Government can and should improve the test through implementing reforms.