“APRA is effectively turning up the heat on underperformers to lift their game or risk being forced out,” she said.
The comments came as the Australian Prudential Regulation Authority said it would reveal the results of its review of individual funds, its so-called “heatmaps” in early December.
The heatmaps will rate more than 100 default MySuper funds in key areas of returns, fees and costs, and sustainability, which includes features such as member demographics and inflows versus outflows.
Ms Rowell said the heatmaps were designed primarily for the industry to look at areas for improvement. They do not reward good fund performers.
“The heatmap is designed to emphasise underperformance. It’s not meant to give a pat on the back to better performing MySuper products,” she said.
APRA will use colour coding for its new measurement system, those registering a satisfactory performance will be listed in a “white” highlighted category, rather than green, as had previously been mooted.
“Light yellow” will mean the fund needs improvement and “crimson red” will indicate the worst performers.
Data used by APRA in preparing the heatmaps is largely already public. It is merely presenting it in a simpler format, so as to make it easier understood by a broader audience.
“Unlike a sea of numbers across a spreadsheet, a row of red across a heatmap sends a clear message that’s hard to ignore,” she said. Its ultimate purpose is “to be blunt” and to galvanise trustees of underperforming funds into action.
ASFA chief executive Martin Fahy said although the new measures were welcome, it was important that regulators did not focus too much on short-term fund performance.
“We would prefer investment performance to be measured by more than a five-year term,” he said. “Superannuation should always be considered over the long term.”
Trustees will face a moment of truth.
Senator Jane Hume
Mr Fahy earlier told the conference that the core focus of regulators should be to foster a “strong and sound” super system.
“We cannot regulate our way to better outcomes through an overly zealous focus on short-term investment performance,” he said.
“This is more likely to detract from, than enhance, net performance within the system.”
ASFA has been a staunch detractor of regulatory and governmental changes to the super system, which it says has suffered too many changes in recent years.
Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, told the conference the super industry “must do better” and the new heatmaps would “place real pressure on underperforming funds”.
“Trustees will face a moment of truth,” she said. “They will be forced to ask is the fund producing the best outcome for members,” she said.
Mergers of smaller, underperforming funds was essential and there were no real barriers to doing so, she said. “The lack of action [on mergers] remains a mystery,” she said.
“It’s a pivotal time for the super system. The changes we make now will reshape the industry for years to come.”
Stephen is Investment Editor at The Age and Sydney Morning Herald. He writes about personal finance issues and markets as well as editing Money.