A Queensland-based construction superannuation fund has failed the Australian Prudential Regulation Authority’s (APRA) annual performance test, marking the first such failure in three years and triggering an automatic halt to new member enrollments.
The Australian Prudential Regulation Authority (APRA) has confirmed that a Queensland construction superannuation fund failed its annual MySuper performance test, the first time any super fund has failed the test in three years. Under the rules, a second failure within two years could lead to the fund being barred from accepting new members, a significant blow to its growth and competitiveness.
The identity of the fund has not been disclosed, but it is understood to be one of the industry-specific funds serving Queensland’s construction sector. The test measures investment returns and fees against benchmarks set by APRA, aiming to ensure that default superannuation products, known as MySuper, are delivering value to members.
Industry observers note that the failure is a stark reminder of the pressures facing smaller industry super funds, which have struggled to keep pace with larger rivals in terms of investment performance and operational efficiency. The construction fund’s failure will likely prompt a review of its investment strategy and fee structure.
The failure comes amid a broader push by the federal government and regulators to improve transparency and accountability in the superannuation sector, following years of scandals including poor returns, excessive fees, and governance lapses. The MySuper performance test, introduced in 2021, has already led to several funds being closed or merged after failing.
For members of the affected fund, the failure raises immediate concerns about whether their retirement savings are being managed effectively. While funds are required to notify members of any failure and explain steps to address it, affected individuals may consider switching to better-performing alternatives.
APRA has not indicated any immediate further action, but the regulator’s scrutiny of the fund is expected to intensify. The fund has 12 months to improve its performance before a potential second failure triggers a ban on new members.
Analysis
Why This Matters
- This is the first MySuper failure in three years, highlighting ongoing challenges in the superannuation sector despite regulatory improvements.
- For members of the affected fund, poor performance directly impacts retirement savings, potentially reducing their nest egg by tens of thousands of dollars over time.
- The failure could spur broader industry consolidation, as smaller funds struggle to meet regulatory benchmarks and may seek mergers to survive.
Background
The MySuper performance test was introduced by the federal government in 2021 following the Financial Services Royal Commission, which exposed widespread misconduct in the super industry. The test assesses MySuper products on investment returns and fees against tailored benchmarks. Funds that fail twice in a row are prevented from accepting new members, though existing members can remain. The last failure occurred in 2023, when several small corporate funds failed. Since then, most funds have improved outcomes, but this result shows that some still lag behind.
Key Perspectives
The affected fund: Will be under pressure to explain the poor performance, review its investment strategy, and potentially restructure management or merge with a larger fund to avoid a second failure. The fund likely argues that market conditions or sector-specific challenges have impacted its returns.
APRA: The regulator will view the failure as a vindication of its performance test framework, which has forced funds to lift their game. APRA may signal that it will not be lenient and will enforce the rules strictly to protect member interests.
Critics and consumer advocates: Some argue that the test, while useful, is blunt and can penalize funds with long-term strategies that underperform in the short term. Others worry that consolidation reduces choice for members, especially those in niche industries like construction.
What to Watch
- Whether the fund announces a merger or strategic partnership within the next six months to shore up its performance.
- APRA’s next assessment cycle in 2027, which will determine if the fund faces a second failure and potential ban on new members.
- Industry-wide reaction: Will other small funds preemptively merge to avoid a similar fate?