Your Future Your Super (YFYS)
The Your Future Your Super legislation was passed on 27 June 2021. The legislation includes a performance test for all MySuper products, the results of which were announced on 30 August 2021. APRA determined that our Growth (MySuper) option (and only this option) marginally underperformed against the test for the period covering the last seven years.
We understand that this may concern members and that this test is complex so we provide the following information to help you. Please contact us directly if you have further questions.
Here is the email we sent to all members on Friday 27 August 2021:
As I mentioned in my email last week, there is a new annual performance test for MySuper products.
What is the test?
The test looks at the returns for MySuper products for the 7 years to 30 June 2021, and compares those returns to a new benchmark set out in the legislation. At this stage, we understand AvSuper’s Growth (MySuper) option will not pass the test. APRA will notify us of the result in the coming days.
If you are not invested in the Growth (MySuper) option, such as if you have an Income Stream, a Defined Benefit or made an investment choice, this test does not directly affect you.
Our chair, Ben Firkins, has recorded a short video explaining the basics of the test.
What happens next?
We expect APRA to publish the list of funds that haven’t passed the test, probably next week. As a result, there will likely be media coverage.
If we are notified that we have not passed the test, we will be required to write to MySuper members, advising that our MySuper product ‘has performed poorly’. The exact text is set out in the legislation.
Where can I learn more?
Following our initial webinar regarding AvSuper’s response to the Your Future Your Super Performance Test, we have been asked by members to run further sessions outside of normal business hours to enable them to attend.
The remaining webinar will beat 3.30pm on Thursday 30 Sept – you can register now.
The upcoming webinar will provide further information regarding Your Future Your Super and answer your questions about the performance test.
The purpose of the webinars is to provide general information only. If you would like personal advice that takes into account your individual circumstances, consider obtaining financial advice from a qualified financial adviser. You can access personalised financial advice by calling us on 1300 128 751 (local call), using AvChat or emailing email@example.com.
Lastly, I understand this may sound concerning. Please be assured, we are carefully working through what this means for the fund and its members, and we will make the adjustments necessary so we can continue our focus on delivering a quality fund and great service to you, our members.
We look forward to continuing to be of service.
What is Your Future, Your Super, and what is the Performance test?
The “Your Future Your Super” legislation was introduced in the Federal Budget in October 2020 and was legislated in June 2021.
It includes a test for MySuper products, such as AvSuper’s Growth (MySuper) option.
The initial test looked at the returns for MySuper products only for the seven years to 30 June 2021 and compared those returns to benchmarks for asset classes set out in the legislation. The benchmark for the product is derived by applying those benchmarks for each asset class across the reported strategic asset allocation for the individual MySuper product. The assessment is then undertaken after adjusting for prescribed fees and costs.
This means there is no single MySuper benchmark return, and because investment strategies and strategic asset allocations will vary between funds, each fund’s benchmark is likely to be different.
Products whose performance is under their derived benchmark by more than 0.5% over the time frame are assessed as underperforming.
For the 2022 financial year the Annual Performance Assessment (APA) will be expanded to eight years of investment performance for MySuper products and will also measure other investment choice options for the first time. The choice options included in the test are those defined as ‘Trustee Directed Products’ (TDP) where the investment option strategy covers more than one asset class. Please note that the Defined Benefit Option is not a TDP and is not included in the Annual Performance Assessment (APA). Similarly, single asset class investment options, such as AvSuper’s Australian Shares, International Shares and Cash options are not assessed in the APA.
Is AvSuper a poorly performing Superannuation Fund?
AvSuper has underperformed relative to the legislated benchmark in the YFYS test for the Fund’s strategic asset allocation over the 7 year period.
The graph below outlines where AvSuper’s Growth (MySuper) option sits against other funds’ MySuper products, investment returns for the same period after fees and tax.
How many funds ‘failed’ the performance test?
13 out of 80 funds. Note that only funds with a MySuper option are subject to this test
Why did AvSuper underperform against the performance test?
The performance test is complex and includes a number of factors.
In essence, it reviews actual performance of a MySuper product, against a new benchmark for the Strategic Asset Allocation for that MySuper product over 7 years to 30 June 2021. MySuper products that are under the benchmark by more than 0.5% over the time frame do not pass the test.
During 2020, as the Covid pandemic unfolded, the actual asset allocation of our MySuper product had a more ‘conservative’ profile. This is allowed under superannuation law.
The graph below shows the quarterly performance of the Growth (MySuper) Option against our estimate of the new benchmark. As you can see, in the June 2020 quarter, we substantially underperformed against the benchmark, due to the more conservative portfolio that was in place at the time.
What is a ‘Strategic Asset Allocation’?
The Strategic Asset Allocation is a Trustee’s view on the appropriate asset allocation targets for the long term. It primarily considers the ratio of growth to defensive assets but also considers the right mix of asset classes.
It’s a bit like a weather forecast vs air traffic control – the forecast is a long-term view of what is likely to happen, while at the airport, we have to deal with the actual weather.
The graph below shows AvSuper’s MySuper allocation to growth assets over time. As you can see, while the Strategic Asset Allocation only changes every few years, the actual asset allocation is updated more frequently as investment conditions change.
When will the letter go out?
The letter will go out in September and it is prescribed in its nature.
The letter is the same for all funds that are required to send it out.
We are holding on Friday (3 September) at 3pm AEST to answer member questions about the test. Members will also be invited to attend the annual Member Meeting on 7 October 2021 where you can ask any questions of the executive and the Board.
Webinar registration – https://bit.ly/avsuperwebinar
If the current year is so good, why did you underperform against the test?
There are different ways of looking at performance returns. You can look at performance over different time frames, say 2, 5 or 10 years.
The data below is provided by Rainmaker and compares AvSuper’s MySuper option to most other MySuper products. (Large employer funds and a few others are excluded).
|Growth (MySuper) option||1 year||3 years pa||5 years pa||7 years pa||10 years pa|
As you can see, depending on the timeframe, you get a very different result.
How is the new benchmark calculated?
However, the basics are that the legislation specifies a benchmark for each asset class. These are then compared to the Strategic Asset Allocation that was in place for that MySuper product for each period, in order to come up with an overall number that the MySuper product’s performance is compared to, after taking into account prescribed fees and costs, for the 7 years to 30 June 2021.
I’m in a defined benefit option, what does this mean for me?
This test only relates to the MySuper option, not to the defined benefit option or other any options.
Defined benefit retirement savings are calculated using a multiple and are based on your final average salary.
You can read more about how this works here: https://www.avsuper.com.au/members/corporate/defined-benefit/
Is AvSuper likely to Merge?
There is significant activity within the superannuation industry at present with many funds merging or considering a merger. At the same time, many new funds are being launched.
AvSuper believes that there is a place for smaller boutique Funds who provide competitive fees, insurance and investment performance.
The Trustee is however always cognisant of movements in the Industry and will continue to act in your Best Financial Interests in respect of merger opportunities that may present themselves from time to time.
The Trustee regularly reviews its strategy and considers what is in the best interest of members, and that includes considering potential mergers.
If a merger were to become the best option for AvSuper members, we would let you know as soon as any decision was made.
Will members be included in the decision making around a potential merger?
We welcome the views of members and plan to continue to provide members with regular updates on what is happening at AvSuper.
Strategic decisions, such as a merger, are made by the AvSuper Trustee in support of Members best interests, however, we will continue to engage with employers including Airservices, employee bodies and other stakeholders in respect of any merger activity.
If a merger did become the best option for AvSuper members, we would let you know as soon as any decision was made.
Are AvSuper fees high compared to other industry funds?
The fees you pay are dependent on the products you are invested in and your account size.
We are always looking for opportunities to reduce fees and have reduced both admin and investment fees in the last 18 months.
In fact, we will be announcing a fee cap for high balance accounts in the coming weeks.