While the intention behind the APRA performance test is to protect members, there is growing concern that the current design may be too narrow, potentially creating unintended consequences for the long-term health of the superannuation sector. Critics argue that the rigid, benchmark-driven nature of the test discourages trustees from investing in 'emerging' or non-traditional asset classes, such as renewable energy projects, venture capital, or social housing. Because these investments often have different risk-return profiles than the standard indices used by the regulator, funds may avoid them entirely to ensure they pass the test, thereby missing out on potentially high-growth opportunities that could benefit members in the long run.
There is also a risk that the focus on a single, standardized performance metric encourages 'benchmark hugging,' where funds prioritize tracking the index rather than seeking out innovative investment strategies that could provide superior outcomes. This approach could lead to a homogenization of the industry, where all funds look and act the same, reducing the diversity of investment choices available to Australians. If every fund is incentivized to follow the same path to avoid failing the test, the sector may lose the competitive edge that comes from unique, well-researched investment strategies that deviate from the mainstream.
Additionally, the recent focus on customer service failures highlights that financial performance is only one part of the member experience. A fund could technically pass the investment performance test while still providing poor, confusing, or inaccessible service to its members. Critics argue that the current regulatory framework places too much weight on investment returns at the expense of holistic member outcomes, including digital accessibility, financial education, and support for those in vulnerable situations. As the industry continues to evolve, there is a strong argument for a more balanced regulatory approach that considers both the financial and non-financial aspects of a fund's performance, ensuring that members are not just getting a return on their money, but are also treated with the care and respect they deserve.