PoliticalClaims.au

**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]