Aussies who did not exit underperforming super funds that failed the inaugural Your Future, Your Super (YFYS) performance test have lost out on a combined $1.6 billion in the past year.
This figure was determined by Industry Super Australia, who compared the performance of the 13 funds that failed last year’s performance test with the top 10 MySuper products.
Around 90 per cent of members in the underperforming funds, or roughly 850,000 people, failed to switch to one of the better-performing products at an average cost of $1,900 each despite receiving a letter informing them that their fund had failed.
As a result of super stapling, which came into effect last year, Industry Super Australia also warned that losses could be further extended if members fail to take action.
It found that an individual on the median wage with a $50,000 super balance could be around $25,000 worse off if they stuck with a “dud” fund for the next 10 years while a 30-year-old could be $225,000 worse off at retirement if they did not switch out.
“This is a reminder that there is huge cost to doing nothing if you are in a dud super fund,” Industry Super Australia chief executive, Bernie Dean.
“Lots of people don’t know you can be stapled to a super fund that has failed the government’s performance test, and that could punch a huge hole in a person’s nest egg.”
Five products failed this year’s performance test, including four that failed for the second time.
Industry Super Australia suggested that additional members may also be unknowingly stapled to an underperforming fund since the Choice sector has yet to be assessed by the test.
The peak body has called for the test to be expanded to the entire Choice sector as soon as possible and for the government to consider linking super stapling to the performance test as part of its YFYS review so that members can only be stapled to a fund that passes.
“Switching out of a dud fund and into a good one is easy, but plenty of people don’t think about it until it’s too late, so it is up to the government to tighten consumer protections, so people are only stapled to the best funds that have passed the performance tests,” said Mr Dean.
Recent research from the Conexus Institute argued that the YFYS test is significantly constraining the investment strategies of funds and restricting them from constructing portfolios which they believe are in the best interest of their members.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
