Superannuation reforms have lowered the number of dud funds available and cut their fees by 20 per cent on average, a submission by the Grattan Institute has found.
Products that fail the test for two years in a row are not able to accept new members until their performance has improved or they merge.
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According to the Grattan Institute, a number of underperforming funds left the market or merged with other funds as a result of the test.
“From October 2020 [just before the performance test was announced] to June 2022, the number of MySuper products fell by 19, from 88 to 69,” the submission said.
“Of the 13 MySuper products that failed the first test in August 2021, 10 have merged or are in the process of doing so. The other three have all reduced their fees.”
Members of the 13 underperforming super funds had since lowered their fees by around 20 per cent, the Grattan Institute found, saving members more than $100 million a year.
“For a young worker starting out their career in an underperforming fund, the lower fees they now pay will translate into [a] $20,000 boost to the super balance by the time they retire.”
The reforms, passed in mid-2021, also ‘stapled’ employees to their super fund, meaning their fund automatically moved with them if they changed jobs.
This was designed to prevent the creation of multiple super accounts.
Review currently underway
The Grattan Institute made the submission to the Government’s review of the reforms.
The Albanese Government is currently reviewing the reforms, brought in by the previous Coalition government, to check if they create any “unintended consequences”.
The Government has paused the extension of the performance test beyond MySuper products for 12 months.
The Grattan Institute said the objective nature of the performance test must be protected and the expansion of the test should proceed.