By Darin Tyson-Chan, Editor of selfmanagedsuper
In my last column, I highlighted how the 2026 federal budget is going to make investing in the superannuation environment a lot more attractive given the much-criticised changes to the capital gains tax (CGT) rules will not apply to super funds.
To reiterate, the government decided the scrapping of the 50 per cent CGT discount will not apply to superannuation funds.
Nothing in the future is certain, but you would think this detail in the budget will certainly not cause superannuation outflows and indeed may result in larger sums of money being contributed into the retirement savings arena.
The little budget boost increases the onus on super funds to provide strong investment returns and impeccable services for their members, both now and into the future. And it looks as though Canberra has actually recognised this point.
It may be just a coincidence, but I don’t really believe in them, but just days before the budget was handed down, Minister for Financial Services Daniel Mulino announced the annual superannuation performance test is going to be strengthened.
At the time, Mulino claimed the move was being made to ensure the performance test was not discouraging investment opportunities due to the measurement criteria.
In his own words: “While the performance test has played an important role in improving outcomes for members, aspects of the current design may be discouraging investment in some sectors that could deliver strong, long‑term returns.”
In another encouraging sign, he recognised strengthening of the superannuation performance test is to ensure it maintains pace with the evolution of the industry and provides better protection for consumers in the wake of the Shield and First Guardian master fund collapses.
In order to evaluate how significant the proposed changes to the performance test are, it is important to recognise how the regime currently operates.
In short, super funds are assessed against two yardsticks where the results are combined to create a picture of overall performance. One gauges returns whereby a fund’s net return over a rolling 10-year period is measured against the return of a hypothetical investment portfolio that imitates the product’s strategic asset allocations using market indices.
The other provides a comparison of how competitive the fee structure of the fund is. Here a representative member with an account balance of $50,000 is used and the fees and expenses they incur are compared against the median fees and expenses of a comparable group.
Now there are four proposals on the table aimed at making this process better.
The first offers up two components to allow the comparison to take into account less conventional asset classes. In order to do this, one suggestion is to create a new emerging covered asset class to consider investments that existing market indices do not represent well.
The second suggestion would be to redefine what constitutes alternative investments in a portfolio whereby the weightings between equities and bonds could be adjusted, the applicable underlying indices could be altered and the range of assets considered to be alternatives broadened.
Proposal two is for the assessment of a fund’s return be carried out against a hypothetical passive portfolio with a similar risk level. This would scrap the current methodology of using the strategic asset allocation of a benchmark portfolio as a means of comparison.
The third proposal consists of invoking a periodic reassessment of the existing measurement benchmarks to see whether they remain fit for purpose. The suggestion is for this review to occur potentially every three to five years with the evaluation to be performed by the government with the support of a working group with the appropriate qualifications.
The final proposal involves the incorporation of more retirement savings products into the process. This option has largely arisen thorough the acknowledgement the current test is applicable for around 62 per cent of offerings in which member benefits are invested. Importantly, its goal is to capture external accumulation products and those servicing individuals in their retirement years.
To this end, it is estimated a further 7500 accumulation-phase products will be considered in the performance comparison. With regard to retirement interest offerings, it is recommended the Retirement Reporting Framework provide the groundwork for this amended aspect.
The proposed changes to the superannuation performance test were announced on 7 May and Treasury invited submissions from industry and key stakeholders on the policy, with that process closing on 19 June.
So we can expect to find out what the results of this consultation period were and which proposed new model was most favoured, I’m assuming, in the latter half of the year.
And the government must know it can’t drag its heels on this process, having already admitted it is being performed due to the rapidly evolving nature of the superannuation sector.
We can see though some serious thought has gone into this initiative, which is good, and hopefully it will result in a gauge of how the retirement savings of individuals are tracking that will become increasingly more meaningful.
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