APRA Annual Performance Test and WealthSolver
In 2021, the Treasury Laws Amendment (Your Future, Your Super) Bill introduced a requirement for APRA to conduct an annual performance test for superannuation products.
Initially, the test only covered MySuper products. However, in 2023, it was expanded to include a subset of Choice products (trustee-directed products). It is expected that the test will be expanded to all Choice funds in the future.
What is the Annual Performance Test?
The legislated Performance Test is conducted by APRA and assesses the past performance of three types of investment options: MySuper, non-platform Trustee Directed Products (TDP), and platform TDPs. Members in an investment option that fails the Performance Test must be informed of this fact in writing. An investment option that fails for two consecutive years is required to be closed to new members. The Performance Test assessment metric is based on two components:
- Investment Return Component: This component, also known as ‘the investment implementation component,’ assesses the RSE Licensee’s implementation of the investment strategy of the option by evaluating the net investment return (‘NIR’) against a tailored benchmark over nine years.
- Administration Fees Component: This component compares the latest year of administration fees and costs charged to an industry benchmark. For each option, a representative administration fees and expenses (RAFE) measure is determined based on fees over the latest year for a representative member with an account balance of $50,000. This is compared to a benchmark (‘Benchmark RAFE’ or ‘BRAFE’), which is the median RAFE of all options within each product group (so that there are separate BRAFEs for MySuper, non-platform TDP, and platform TDP options).
An investment option fails the Performance Test if its assessment metric is below a threshold of minus 0.50 percentage points per annum.
(Source 2023 performance test insights paper https://www.apra.gov.au/insights-paper-2023-performance-test )
WealthSolver
To assist WealthSolver users in recognising a fund that has failed the performance test we have added a flag in the plan research and modelling screens.
An orange triangle will appear for options that have failed the APRA test once. These options may also be updated to Closed/Restricted by the product provider and this will be reflected in WealthSolver based on disclosure documents.
A red flag will appear for any option that has failed multiple times. These options will display as Closed/Restricted as they must be closed under the APRA rules.
The Compliance report that is available when modelling will also reflect any failed options that may be present.
