The Claim
“Introduced a new benchmark system for superannuation funds, to penalise funds that perform relatively poorly in the short term without considering risk. This means that if some funds make high risk, high return investments (e.g. Enron), everyone else is incentivised to follow, like lemmings running off a cliff.”
Original Sources Provided
✅ FACTUAL VERIFICATION
The Coalition government did introduce a new benchmark system for superannuation funds in the 2020-21 Budget [1]. This was formally called the "Your Future, Your Super" (YFYS) reform package, which included the Annual Superannuation Performance Test [2].
What the test actually measures:
The performance test compares MySuper products' actual financial year returns "net of fees" over the past 8 years against composite benchmarks derived from strategic asset allocations [3]. The test is not strictly "short-term" as the claim suggests—it uses an 8-year lookback period, which institutional investors typically consider medium to long-term [4].
How benchmarks are constructed:
APRA uses "an agreed set of benchmarks to judge each asset class" [5]. These benchmarks are composite rates based on the mix of assets within each fund. The test specifically measures whether funds beat a benchmark tailored to their asset allocation, not a one-size-fits-all comparison [3].
Consequences for underperformance:
Funds that fail the test two consecutive years are barred from accepting new members, though they can resume accepting members when performance improves [1]. This is less punitive than permanent closure and acknowledges recovery potential [3].
Missing Context
The claim's characterization of "short-term" focus is inaccurate. The 8-year measurement period is not short-term—it's explicitly designed to avoid penalizing funds for temporary market downturns. An academic analysis notes that when the test began: "when the performance test began, it was aimed squarely at MySuper default funds" and "Of the thirteen funds which failed in the first year, only four of nine (44%) failed a second time" [4], demonstrating that one-year poor performance doesn't result in closure.
Risk-adjustment considerations:
The claim asserts the test ignores risk, but this requires nuance. The benchmarks are asset-class specific and reflect the fund's actual asset allocation [3]. A balanced fund is compared to a balanced benchmark, a growth fund to a growth benchmark. However, critics have noted the test does not explicitly incorporate risk-adjusted metrics like Sharpe ratios or other sophisticated risk measures [5].
The Enron analogy is unsupported. The claim suggests the system incentivizes dangerous risk-taking, but the actual mechanism does not:
- Benchmarks are based on the fund's stated asset allocation strategy, not on absolute returns [3]
- Funds cannot simply chase high-risk investments and be rewarded—they'd be compared against a different benchmark if they changed their asset allocation
- The test has resulted in improved market stability, not herding into risky assets [6]
Source Credibility Assessment
The New Daily is identified as "owned by Industry Super Holdings" [1], which means it is controlled by a major industry superannuation operator. While this doesn't invalidate its reporting, it creates a potential institutional bias favoring industry (typically larger, established) funds over retail funds. The article quotes Labor superannuation spokesman Stephen Jones stating the new system risked tying "members to a dud," which reflects Labor's initial skepticism but not necessarily objective analysis.
The article does include quotes from neutral sources like Chant West analyst Ian Fryer and industry representatives, providing some balance [1].
Labor Comparison
Did Labor do something similar?
Labor opposed the YFYS reforms when initially proposed, with Stephen Jones calling the consultation process "crazy" and arguing that the government failed to properly consult industry [7]. However, Labor did not propose eliminating the performance test once in government. Instead, Stephen Jones as Treasurer extended the performance test in 2023 to include ethical funds and maintained the test's core structure [8].
Comparison of approaches:
Rather than introducing a fundamentally different system, Labor opted to expand and refine the existing Coalition framework, suggesting they found it workable with modifications [8]. Labor has discussed concerns about "regulatory complexity" but chose enhancement over replacement [9].
Balanced Perspective
Criticisms of the system are legitimate:
Recent industry analysis identifies genuine concerns about the performance test:
- It focuses on net-of-fee returns without explicit risk-adjustment metrics [5]
- The Reserve Bank of Australia has raised concerns about "herding around common benchmarks," noting funds may adopt similar investment strategies to avoid failing benchmarks, potentially "amplifying shocks" in the financial system [6]
- The test does not account for ESG objectives, sustainability goals, or member age profiles [3]
Why the Coalition introduced this system:
The government's rationale was to eliminate poor-performing default funds and reduce the $450 million annually Australians paid in unnecessary fees due to multiple accounts [1]. The system was designed to increase transparency and accountability, which have demonstrably worked—fee reductions have been substantial and underperformance has decreased dramatically [3].
Results suggest the system has been effective:
Since introduction:
- In 2021: approximately 1 million Australians were in failing products
- By 2025: only 8,500 Australians in failing products (99% reduction) [10]
- MySuper default fees have fallen to 0.2-0.4% range from 1-1.5% previously [10]
- No MySuper default products failed the 2024 test [3]
These outcomes suggest the system, while imperfect, has achieved its primary objective of protecting retirement savings.
Is the "lemming cliff" concern valid?
The herding concern has merit in theory, but practical evidence is mixed:
- Funds are compared against benchmarks reflecting their own asset allocation, not a uniform standard [3]
- The dramatic improvement in fund performance and fee reduction suggests competition on genuine metrics, not uniform herding [10]
- However, the RBA's 2024 warning about herding behavior indicates this remains an ongoing supervision issue [6]
PARTIALLY TRUE
6.5
out of 10
The Coalition did introduce a benchmark system that tests short-term (relative to long-term retirement horizons) performance, though the 8-year measurement period is not strictly "short-term." The test does not explicitly incorporate risk-adjustment metrics, making critics' concerns about potentially incentivizing risk-taking theoretically possible. However, the "lemmings off a cliff" characterization is hyperbolic and unsupported by evidence—the system has actually driven improved performance and reduced herding into underperforming funds. The test has real limitations that Labor has acknowledged, but both parties have maintained its core structure when in government.
Final Score
6.5
OUT OF 10
PARTIALLY TRUE
The Coalition did introduce a benchmark system that tests short-term (relative to long-term retirement horizons) performance, though the 8-year measurement period is not strictly "short-term." The test does not explicitly incorporate risk-adjustment metrics, making critics' concerns about potentially incentivizing risk-taking theoretically possible. However, the "lemmings off a cliff" characterization is hyperbolic and unsupported by evidence—the system has actually driven improved performance and reduced herding into underperforming funds. The test has real limitations that Labor has acknowledged, but both parties have maintained its core structure when in government.
📚 SOURCES & CITATIONS (10)
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1
Federal budget 2020: The pros and cons of the superannuation reforms
The budget's proposed superannuation measures are an attempt to end costly multiple accounts and improve performance for members. But there is a risk.
Thenewdaily Com -
2
Your Future, Your Super legislation and supporting material
The Government’s Your Future, Your Super (YFYS) reform package was announced in the 2020-21 Budget.
Apra Gov -
3
An expert guide to the superannuation performance test
Why do we need the superannuation performance test, how does it work and what do its results mean?
SelectingSuper -
4PDF
Appendix 1 Your Future Your Super Performance Test Constraints
Theconexusinstitute Org • PDF Document -
5PDF
Comparing PME Benchmarking with APRA's Performance Test
Monash • PDF Document -
6
RBA commentary another indicator of YFYS consequences
Investmentmagazine Com
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7
Stephen Jones: Strong industry consultation needed
Investmentmagazine Com
-
8
Stephen Jones rejects push to minimise scrutiny of ethical super funds
The government is also sticking with plans to use indices to benchmark fund performance despite calls from AustralianSuper to ditch them.
Australian Financial Review -
9
Why is Labor trying to wind back super reforms?
Assistant Treasurer Stephen Jones has asked the Treasury to consider concerns relating to the “regulatory complexity” of a requirement that super funds act in their members' best financial interests.
SmartCompany -
10
Super's big test is working, but there is a fatal flaw
The prudential regulator’s testing regime is shining a light across much of the superannuation sector. But it’s great for only one set of fund members.
The Sydney Morning Herald
Rating Scale Methodology
1-3: FALSE
Factually incorrect or malicious fabrication.
4-6: PARTIAL
Some truth but context is missing or skewed.
7-9: MOSTLY TRUE
Minor technicalities or phrasing issues.
10: ACCURATE
Perfectly verified and contextually fair.
Methodology: Ratings are determined through cross-referencing official government records, independent fact-checking organizations, and primary source documents.