Your Future Your Super2022-05-31T10:39:19+10:00

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.

Member email

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 avsinfo@avsuper.com.au.

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.

Michael

Michael Sykes
AvSuper CEO

Frequently asked questions

Updated 1 April 2022

Following are some of the common questions members are asking us. If your question isn’t answered here or you need additional information and assistance, please contact our Member Advice Team via phone (1300 138 751), AvChat, or email.

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.

The AvSuper Growth (MySuper) option was assessed as underperforming in the 2021 YFYS Annual Performance Assessment (APA) for the seven-year period against the benchmark for its strategic asset allocation.

The graph below outlines where AvSuper’s Growth (MySuper) option performed relative to other funds’ MySuper products, in terms of the level of risk and investment returns (after fees and tax) for the same period

Click to see full size version of this graph

The graph demonstrates that each product is assessed against its own individual benchmark based upon its strategic asset allocation and the implementation of its published strategy and this assessment is not a measure of net returns and risk compared to other funds.

The APA result for a fund can vary regardless of comparative net returns or the level of risk undertaken by the fund to achieve a return.

13 out of the 76 MySuper options were assessed as underperforming in the 2021 financial year. Note that the Annual Performance Assessment (APA) in 2021 only applied to MySuper products.

In 2022 the APA has been expanded to all Trustee directed investment choice options that have more than one asset class. Note that this will not apply to the Defined Benefit Option nor to single asset class investment options, such as AvSuper’s Australian Shares, International Shares and Cash options.

In AvSuper’s case, the underperformance of the Growth (MySuper) product was driven by a number of factors, a key one being the difference between the actual and the strategic asset allocation for the option and how that impacted the assessment for the seven-year period. (For more information on the difference between a Strategic Asset Allocation and an Actual Asset Allocation see the FAQ What is a ‘Strategic Asset Allocation’ and why can it vary from the ‘Actual Asset Allocation’?)

During 2020, as the Covid pandemic unfolded, the actual asset allocation of our MySuper product had a more ‘conservative’ profile than its published investment strategy. This means that although the option held its assets within the published ranges for each asset class, the profile of investments leaned towards more defensive assets (such as cash) and fewer growth assets (such as equities) than its target as disclosed in the strategic asset allocation).

This conservative profile was a decision of the Investment Committee driven by concerns with the level of market risk at a point in time and was focussed on capital preservation for members.

The graph below shows the quarterly performance of the Growth (MySuper) Option against our estimate of the applicable benchmark. As you can see, in the June 2020 quarter (with the extraordinary rebound in equity markets), we substantially underperformed against the benchmark, partially due to the more conservative portfolio that was in place at the time.

Click for a larger version of the graph

The graph demonstrates that over time the more conservative approach (i.e. higher actual level of defensive assets such as cash compared to the published strategy) meant that the product often underperformed against its benchmark on the upside (when listed markets rose) but outperformed when there were market falls. This is an investment strategy used to protect capital in volatile markets, especially to protect on the downside.

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 assets (such as Equities and Real Assets) to defensive assets (such as Cash and Fixed Interest) but also considers the right mix of asset classes.

The published strategic asset allocation may not be the same as the actual asset allocation at any given point in time. This can be due to a number of factors such as daily market movements and fluctuations in asset prices, or strategic decisions made by the Trustee in consultation with its professional advisors. The asset allocation ranges for a product (which define the minimum and maximum amounts able to be invested in each asset class) are published next to the strategic asset allocation for the product. The AvSuper Growth Strategic Asset Allocation and asset class ranges can be found here.

It’s a bit like a designated flight plan vs the actual flight path for air traffic control– the designated flight plan is filed in advance of a trip, but the actual flight path can differ due to the current conditions such as storms and winds.

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.

Click for a larger version of the graph

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 for the year ended 30 June 2021 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
Performance 20.48% 7.78% 8.58% 7.68% 8.28%
Ranking 16/64 34/61 30/60 37/47 26/45
Quartile 1st 3rd 2nd 4th 3rd

As you can see, depending on the timeframe, you get a very different comparative result.

While the Growth(MySuper) option was ranked in the first quartile of this survey for one year for the 2021 financial year, the Annual Performance Assessment (APA) assessed the option over a seven year period against its own individual benchmark based upon its strategic asset allocation and is a measure of the implementation of the product’s published strategy.

The APA is not a measure of net returns compared to other funds.

The regulations specify a benchmark for each asset class. Asset class benchmarks are weighted for the Strategic Asset Allocation that was in place for that MySuper product over the assessment period to come up with an overall benchmark for the product.

The MySuper product’s actual performance is then compared to this benchmark, after accounting for prescribed fees and costs for the assessment period (for seven years to 30 June 2021).

For 2022, the assessment period will be the eight years to 30 June 2022.

As result of being assessed as underperforming in 2021 (the first year), AvSuper was required to send a prescribed letter in September 2021 to all members who held an interest in the Growth (MySuper) option advising them of the outcome. All wording for this letter is prescribed in the YFYS legislation.

If a product is assessed as underperforming in two consecutive years (eg: 2021 and 2022), the RSE licensee will be unable to accept new members into that product. That would apply both to new members of the Fund wanting to invest into the option and also to existing members who wish to switch into the option.

Existing members already invested in the option can continue to contribute to the option.

As soon as the product’s most recent year investment performance (for the eight-year period) is again assessed as performing, the regulator may allow the fund to accept new entrants back into the product.

There is no impact on Defined benefit accounts.

The  Annual Performance Assessment (APA) only related to the MySuper option in 2021.

In 2022, the APA will be expanded to other Trustee Directed Options (investment choice options that have more than one asset class), but this will not include the Defined Benefit Option.

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.

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 in 2020 and 2021.

For the 2021/22 financial year, we introduced an administration fee cap for high balance accounts.

Our investment fees can appear at the higher end, because we use active investment management including private equity and other specialist investments in order to achieve our investment objectives while managing risk. The use of active managers is based on the belief that active investment management strategies can add value (acknowledging that this can vary across markets, asset classes and over time). Active investment management requires significant research, analysis and specialist knowledge and is therefore more expensive than low cost passive management. Therefore, when comparing fees for different products it is important to consider both the types of assets which the product is invested in and the approach to investment management.

You can see the fees you pay on our website at https://www.avsuper.com.au/fees/ or on your most recent statement (available within AOL).

As part of the Your Future Your Super changes, the YourSuper comparison tool was established and is available on the ATO website. The tool currently provides the seven-year net investment returns, a combined figure for current fees (including both investments and administration fees) and the Annual Performance Assessment (APA) outcome for each MySuper product to provide a general comparison of these measures between products.

The tool does not provide information around other factors which an individual might use to assess the suitability of a MySuper product including:

  • The product’s investment strategy and approach,
  • Its Standard Risk Measure
  • performance over other time periods
  • available insurance
  • investment options and services.

The tool includes websites links to each MySuper product to enable further research.

The ATO notes that the YourSuper comparison tool:

  • is for general information only
  • It should not be taken as constituting professional advice from the Australian Taxation Office (ATO) – or as a substitute for professional advice.
  • It does not take into account your financial situation or retirement objectives.
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.

Late last year AvSuper announced that it was seeking Expressions of Interest (EOI) from a select group of other funds to potentially partner with us into the future.

This has progressed and you can read about the process here

At the end of the EOI process, AvSuper may choose to sign a ‘memorandum of understanding’ with one fund, and then commence a due diligence process to investigate a merger.

We will continue to provide members with regular updates on this process and what is happening at AvSuper.

The AvSuper Trustee is charged with delivering the best it can for members including strategic decisions, such as a merger. Of course, 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. At the end of the day, our first and last priority is our members, and we will do whatever is required to deliver the best outcome to them.