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AIST has reiterated its concerns about carve outs in the Your Future Your Super legislation following the release of APRA data this week that points to an ongoing problem of underperformance in the retail fund sector.
The Australian Prudential Regulation Authority (APRA) data shows that in the five years to December 2020, profit-to-member super funds, on average, outperformed retail funds by 23 per cent.
Profit-to-member funds (industry funds, public sector funds and corporate funds) returned an average of over 7 per cent per annum over the five-year period. This compares to an average return of 5.7 per cent across retail funds, which consist of mostly bank and insurance-owned funds.
Outperformance was greatest among industry funds, where annualised five-year returns were, on average, one third higher than retail funds.
AIST CEO Eva Scheerlinck, said the fact that underperformance was largely concentrated in the retail fund sector reinforced the urgency for the government and the regulator to address underperformance across the entire super sector.
The Government’s Your Future, Your Super legislation - currently before Parliament – stops short of doing this, with the legislation only prescribing that annual performance testing apply to default MySuper products, which on average tend to be the better performing funds. The Productivity Commission specifically rejected arguments by for-profit providers that non-MySuper products be carved out of a performance assessment.
“A one or two percentage differential in annual investment returns has a huge impact on the financial outcome for members in retirement,” Ms Scheerlinck said. “It should be legislated that every super product is subject to annual performance testing. Any exclusion simply lets underperforming funds escape scrutiny and eats away at member returns.”
The APRA data also shows that despite volatility caused by COVID-19, total superannuation assets grew 2.2 per cent in the 12 months to December 2020 totalling $3.04 trillion.
For APRA-regulated super funds, total contributions continue to outweigh benefit payments. In the 12 months to December 2020, $120.7 billion was contributed to the superannuation system.
As of December 2020, there are 84 default MySuper products compared to 96 MySuper products the previous year, with total assets in MySuper products up by 7.8 per cent in December quarter 2020 (or 1.3 per cent in the 12 months to December 2020) to $812.2 billion.
Australia’s economic rebound has continued with GDP rising 3.1 per cent in the December quarter, according to the ABS figures released this week.
The December 3.1 per cent rise in GDP follows the 3.4 per cent rise in September quarter. This is the first time in the over 60 year history of the National Accounts that GDP has grown by more than 3.0 per cent in two consecutive quarters.
However, despite the two consecutive quarters of strong growth, the ABS noted that economic activity remained 1.1 per cent lower than recorded in the 2019 December quarter."
Meanwhile, the RBA has maintained current policy settings, including the targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond, as well as the parameters of the Term Funding Facility and the government bond purchase program.
It notes the outlook for the global economy has improved over recent months due to the ongoing rollout of vaccines.
ASIC has published the final 2019-20 Cost Recovery Implementation Statement (CRIS). The CRIS provides regulated entities with details of ASIC's forecast regulatory costs and activities by industry and subsector. The final CRIS has been updated to include some of the feedback that arose during consultation on the draft document published in June 2020. ASIC has also published a summary of its actual regulatory costs and actual levies. Levy invoices will be issued shortly. ASIC is acutely aware of the challenges facing many businesses due to COVID-19 and is committed to working with regulated entities facing difficulties paying industry funding levies. ASIC will consider waivers due to the impact of COVID-19 on a case-by-case basis. Total costs to be recovered from superannuation entities via the levy was $24.915m
APRA’s Quarterly Life Insurance Performance Statistics publication provides industry aggregate summaries of financial performance, financial position, capital adequacy and key ratios.
Key performance statistics for the life insurance industry in the year ended 31 December includes data on group insurance through superannuation including Group Lump Sum Risk and Group Disability Income Insurance.
The current status of superannuation Bills currently before Parliament can be found here.