Super Funds Suspected of Manipulating Annual Performance Test Results

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According to a prominent industry funds lobby group, the superannuation performance assessment has yet to generate improved returns. Too many investment funds take advantage of the system by classifying high-yield investments as lower-return assets.

The Morrison government’s super reforms referred to as Your Future, Your Super, is currently under review by Labor. The expansive $3.3 trillion superannuation industry is calling for modifications to the yearly evaluation test to maximise the results of their investments.

In a report to Treasury, Industry Super Australia (ISA) proposed that if funds were evaluated against an uncomplicated benchmark like 70% equities and 30% fixed income and cash, it would put an end to manipulation tests.

Before the commencement of last year’s Performance Test, ISA stated that 35 funds reallocated their investments. The majority shifted assets from the “other” asset class (with a 5.1% return benchmark) into the lower-yielding fixed income section, which has a 1.8 per cent return benchmark. 

Funds are measured against a predetermined yardstick dependent on their asset allotment; therefore, riskier assets need higher profits to successfully make it past testing criteria.

A staggering 60,101 modifications were made to 43 super funds in the four months leading up to the inaugural test – an unbelievable 27 times higher than average. The Australian Financial Review discovered this.

There may be some legitimate instances to change asset allocations, but the result of the changes was that funds had lowered the bar and got a boost to test scores without increasing investment returns,” The ISA notified the Treasury Department.

Matt Linden, deputy chief executive of Industry Super Australia, expressed frustration with the numerous subpar funds exploiting their members through poor returns and excessive fees.

While some funds cut fees to pass the test, many of them are still delivering poor returns to their members,” said Mr Linden.

Performance testing is a good thing, but to unlock its full potential, funds should be measured on what value they add to their member’s retirements – not how they can game the system.”

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