The Australian Superannuation Performance Test: Sensible but flawed?

By Stephen Bennie

In July 2021 several changes were implemented as to how superannuation (super) funds were run in Australia, under the banner of the “Your Future, Your Super” (YFYS) reforms (1). The intention was to make it easier for Australians to follow what was happening with their retirement savings and compare the performance of their super scheme. One of the most significant changes was the introduction of an annual performance check. I think it’s worth taking a closer look at how this performance test works and some of the issues it raises because New Zealand has been known to follow in Australia’s footsteps when it comes to retirement savings, which could lead to the introduction of a similar test here at some point in the future.

The YFYS performance test is now done every August and compares the net return of every super fund for the past 8 years to a performance benchmark based on its Strategic Asset Allocation. If you fail the test you are required to notify all your members of the failure and develop a plan to address the underperformance. If you fail it two years in a row you must close your superfund to new members and, if appropriate, work out a plan to close the superfund and exit the industry. A somewhat nuclear outcome for the manager of the super fund. Hence the diagram below.

A diagram that shows priorities in a Performance Test world