What are MySuper products, and which super funds have MySuper products?

If you are now, or ever have been, an employee and can’t remember choosing a superannuation fund, chances are you have retirement savings sitting in one or more MySuper accounts.

As we’re talking about more than 10% of your income and possibly hundreds of thousands of dollars by the time you retire, it’s worth following the money trail to see how your MySuper fund works and how it compares with other funds in the market.

Being in an underperforming MySuper product can leave a typical new workforce entrant $375,000 or 36% worse off by retirement, according to the Productivity Commission, and that’s not the outcome you want.

If you are a member of a MySuper fund, you’re not alone. As at September 2022, approximately 27% of all super assets (or $887 billion) was invested across almost 14 million member accounts. This is close to 60% of all super accounts. At the same time, the number of MySuper products is falling. There were 69 MySuper funds in June 2022, down from 75 the previous year and 103 four years earlier, as small underperforming funds either merged with bigger funds or exited the industry.

What are MySuper funds?

MySuper funds act as a default account for people who don’t choose their own super fund when they start a new job. They are designed to be:

• Simple. You will be put into either a single diversified investment option or a lifecycle option, depending on the fund. Your fund’s features and investment returns are explained in plain English and easy to read graphs on a ‘dashboard’ that is readily available online or in print form with your annual statement.
• Low cost. A bit like a basic home loan, you don’t pay for features you don’t need. There are restrictions on the type of fees you can be charged, and fees are restricted to the cost of providing a service.
• Easy to compare. MySuper fund dashboards follow a standard format so they can be easily compared. Be mindful, though, that single option funds should not be compared directly with lifecycle MySuper products.

Retail, industry, and corporate funds can all offer MySuper accounts to members in accumulation phase (pre-retirement). However, MySuper funds can’t be defined benefit funds and they are not available as super pension accounts for retirees.

A little history

MySuper is relatively new to the super landscape. It began as part of the Stronger Super reforms introduced in 2011 by the Gillard Government to replace existing default super products.

Legislation was enacted in 2012 and since 1 January 2014 only funds offering a MySuper product have been eligible to receive default super contributions for new employees. These days, if you start a new job and don’t choose a super fund, one of two things will happen:

• If you already have an account with a super fund, this fund is ‘stapled’ to you as you move from job to job. In this case, your new employer will make Super Guarantee (SG) contributions into your stapled fund.
• If you don’t have an existing account with a super fund, your employer will put your SG contributions into a MySuper account in your name. The account may be chosen by your employer or be part of an industry agreement.

Stapling was introduced to combat the estimated one in three super accounts that were unintended multiples, accumulated as people moved employers. Historically, member accounts were attached to the employer, not the employee.  

To remedy this situation, and answer one of the criticisms of both the Productivity Commission and the Financial Services Royal Commission, the government enacted legislation to staple super accounts to employees. This was part of the Your Future, Your Super package announced in the October 2020 Budget and took effect on 1 November 2021.

The other big issue for MySuper is defaulting members into poorly performing funds.

As part of the Your Future, Your Super package, the Australian Taxation Office (ATO) launched an online MySuper comparison tool that ranks funds by fees and net returns, updated quarterly. Funds that fail to meet annual performance tests are required to inform members and persistent underperformers are prevented from taking on new members. This is designed to give ‘teeth’ to an existing comparison tool created by the industry regulator, the Australian Prudential Regulation Authority (APRA).

APRA turns up the heat on underperforming funds

In December 2019, in an effort to shine a light on underperforming funds, APRA published its first colour-coded ‘heatmap’. The heatmap looked at over 80 MySuper funds at the time, comparing investment performance, fees and costs, and sustainability.

Some of the key findings of APRA’s latest annual heatmap covering 69 MySuper products, published in December 2022, include:

• Fees and costs have fallen for most MySuper products. APRA estimates 8.1 million members (56% of member accounts) have experienced a drop in total fees in the 12 months to June 2022, for a total annual saving of $210 million.
• 28 MySuper products have closed since APRA published its first heatmap in 2019.
• 350,000 fewer members are in MySuper products with “significantly poor” investment performance than in 2021, but 800,000 remain in these underperforming products.

APRA deputy chair Margaret Cole says the heatmaps have been an important tool for improving performance, transparency and member outcomes, but more needs to be done.

“There are still hundreds of thousands of members in funds with sub-par investment performance, and the industry has serious sustainability issues to address.”

How do they work?

If you have a MySuper account and want to get better acquainted, the first thing to check is whether you are in a single diversified investment product or a lifecycle product. The two approaches can result in very different risk and return profiles, especially early and late in your working life.

In practice the MySuper product offered by a fund is just their default investment option. The fund will have a range of other investment options and you can even hold some of your account in the MySuper option and the rest in another option (or a range of other options).

The majority (roughly two thirds) of MySuper products are diversified options with a fixed asset allocation. This is usually a ‘balanced’ approach with around 70% invested in higher risk growth assets (shares and property) and 30% in lower risk defensive assets (cash and fixed interest). The risk/return profile remains at medium-high throughout your working life.

The remaining one third of MySuper accounts use a lifecycle or lifestage approach and automatically reduce your exposure to growth investments, and increase defensive investments, as you age and get closer to retirement. Most retail sector MySuper funds are lifecycle, but some industry funds also use this approach.

The mix of growth and defensive investments in lifecycle accounts is usually based on your age and the decade of your birth. For example, a typical investment mix might be the following:

• 85/15 (growth investments/defensive investments) for under 45s
• 75/25 for members aged 45–54
• 55/45 for those aged 55–64
• 40/60 for those 65 and older.

This results in a progressive reduction in risk and returns, from high for younger members to medium-high for those in mid-career and low for older members. However, some big funds are beginning to refine their MySuper lifecycle approach on concerns that lumping people into decade cohorts is too broad. For example, QSuper takes account of a member’s account balance as well as their age while the Australian Retirement Trust (previously Sunsuper) transfers small amounts from growth to defensive investments every month from age 55. (QSuper is now part of Australian Retirement Trust after merging with Sunsuper)

MySuper returns

The returns earned by MySuper products in the relatively short time they have been around indicate that simple does not mean you have to compromise on performance.

According to Chant West, the median return for MySuper Growth funds (71% growth assets) since January 2014 (when MySuper was introduced) to November 2022 was 7.1% per year after investment fees and tax. This is well above the average MySuper fund target return of CPI (a measure of inflation) plus 3.5% over rolling five-year periods. Inflation averaged below 2% for much of that period.

MySuper dashboards are required to display in graph form, and explain in plain English, the fund’s target return, actual returns and level of investment risk.

Chant West also reports Lifecycle fund returns separately from diversified funds to make it easier to compare like with like. In the period from January 2014 to November 2022, median returns have been best for younger Lifecycle fund members with a higher exposure to growth investments. This is as you would expect during a period of strong share and property markets. The median return for young members born in the 1970s, 1980s and 1990s over that period was 7.0% to 7.2% per year. This compares with 4.2% per year for members born in the 1940s, who had more exposure to lower risk cash and fixed interest at a time of historically low interest rates. However, it should be remembered that the lower risk weighting of older members will protect them if the market falls in the years leading into their retirement when there may not be time to make up for lost ground.

Fees and insurance

One of the guiding principles behind MySuper was the need for greater transparency, and this is particularly so where fees are involved.

MySuper funds are required to disclose all fees and the type of fees that are permitted are defined in law. Some fees must be limited to the cost of providing a service. Fees are charged for administration, investment and other services such as switching funds or contribution splitting.

One of the main features of MySuper dashboards is that fees are added up and reported as a single dollar figure for a member with a $50,000 balance. This allows for an easy comparison of total fees across MySuper funds.

As mentioned earlier, since APRA introduced its heatmaps in 2019, fees and costs have fallen significantly although some high fee hold-outs remain. The biggest falls in percentage terms have been for lower account balances.

For a representative member with a $50,000 account balance, total fees and costs have fallen from $523 in 2021 to $488 for the median product in the 2022 heatmap, and now sit below 1% of asset value. This includes a fall in median administration fees from $160 to $143.

MySuper funds are also required to offer a basic level of cover for life and TPD (Total and Permanent Disability) insurance for most, but not all members. Insurance is now ‘opt-in’ for members aged under 25 or with an account balance below $6,000 to avoid fees eroding their retirement savings and/or unnecessary cover. This change was part of the Putting Members’ Interests First legislation that came into effect on 1 April 2020.

How to compare MySuper funds

If you know which superannuation providers you are interested in, you can go directly to their websites and check their MySuper dashboard.

In addition to the APRA heatmap mentioned earlier, The ATO’s comparison tool allows you to search and compare MySuper funds. You can search under type of fund, ranked by fees or returns.

When you compare MySuper funds, make sure you are checking like for like. For example, don’t compare the performance of a lifecycle fund with a single diversified investment fund. And when you check fees, drill down to see if services you need are covered.

List of all MySuper funds