The super performance test has been one of the most effective consumer protection reforms introduced in the past decade.
Since 2021, more than 150 super products have failed the Australian Prudential Regulation Authority’s performance test and been forced to cut fees, improve performance, close or merge. Super members now have far greater visibility over performance, and trustees face real consequences for persistent underperformance.
That’s exactly how the system should work and it benefits every Australian with a super account.
Long before the performance test existed, Stockspot published its annual “Fat Cat Funds Report”, comparing super funds based on fees, long-term returns and after-fee value delivered to members.
At the time, many funds resisted this scrutiny. Some argued the comparisons were unfair and several even threatened legal action if we didn’t remove them from the report. Yet thousands of Australians were trapped in expensive underperforming products with little visibility into how badly they were being let down.
As it turned out, every fund that threatened us was later either shut down or merged away.
APRA’s eventual introduction of the performance test embedded this accountability into the regulatory system itself, rather than leaving super members to navigate a highly opaque market alone.
Why the super performance test works
Now, five years after it was introduced, pressure is already building to weaken it.
Parts of the super industry argue that the current test discourages investment into venture capital, renewable energy, housing and other “nation-building” projects because these assets are harder to benchmark against public markets.
Parts of the super industry argue the performance test discourages investment in areas such as renewable energy. Picture: Getty Images
Treasury is now consulting on changes including special treatment for “emerging assets” and greater reliance on subjective risk-adjusted measures.
While these proposals may sound technical, they could significantly weaken one of the few protections super members currently have.
In practice, they risk turning compulsory retirement savings into a vehicle for pursuing political and industrial policy objectives with weaker accountability for financial outcomes.
The current performance test framework works because it’s relatively simple and objective. Funds are measured against transparent market benchmarks and poor performers can’t easily hide.
Why objective benchmarks matter
Parts of the industry argue these benchmarks are too simplistic and have encouraged some super funds to “hug the index” more closely rather than pursue aggressive active management strategies.
That criticism largely misses the point.
For years before the test was introduced, many super funds consistently underperformed simple low-cost market benchmarks after fees, costing Australian members billions of dollars in lost retirement savings. The evidence globally has repeatedly shown that outperforming broad market indices over long periods is extraordinarily difficult, particularly after fees and costs.
That’s precisely why objective public market benchmarks work so well. Any Australian can access broad market index exposure at relatively low cost through simple passive investment products. If a super fund wants to charge higher fees, invest in more complex assets or pursue more active strategies, it should be able to clearly demonstrate that those decisions improve returns over time.
This is particularly important in a compulsory retirement savings system where most members have low engagement and limited ability to assess complex investment strategies themselves. That creates an even greater obligation on regulators to maintain simple, transparent and objective accountability standards.
Investing in private assets should still require accountability
Importantly, nothing in the current framework prevents super funds investing in venture capital, infrastructure, housing or renewable energy projects if trustees genuinely believe those investments will improve long-term member outcomes.
Many large super funds already do and the hurdle is not especially restrictive either. Trustees are free to invest in these often higher risk projects provided they can reasonably justify that returns should at least match comparable equity market alternatives over a 10-year period.
Given many of these projects are much less liquid, harder to value and often riskier than listed market alternatives, that already appears to be a fairly generous standard.
If opaque, illiquid and often higher fee investments consistently fail to outperform simpler listed market alternatives after fees, that’s not evidence the benchmark is broken. It may simply indicate the investments themselves are failing to deliver sufficient value to justify their additional complexity and cost.
What some parts of the industry now appear to be seeking is not greater flexibility to invest differently but flexibility to be judged against a much lower bar.
That should concern every super member.
The risks of weakening the performance test
A fund investing heavily in unlisted renewable infrastructure, for example, could potentially justify years of weaker returns by arguing the assets deliver broader societal benefits or have different long-term risk characteristics. But super funds trustees have a fiduciary duty to act in members’ best financial interests and to maximise retirement outcomes, not to pursue broader economic or political objectives at the expense of returns.
That accountability isn’t a flaw in the system. It’s the safeguard that prevents retirement savings being used to pursue ideological objectives at the expense of member outcomes.
There are also practical risks in weakening the framework.
Many proposed changes would make it easier for funds to conceal underperformance through opaque and infrequently valued unlisted assets. Unlike listed shares, private assets are not priced daily by markets and valuations can remain artificially smooth for long periods. A more subjective framework creates greater scope for gaming and weaker comparability between products. Super members ultimately bear the cost when transparency declines.
The super performance test should be expanded, not weakened
Of course, the performance test should keep evolving. Many platform and retirement products remain outside the framework despite managing billions in retirement savings. These products should also be included in the performance test to ensure super members are getting transparency and accountability across the entire super system.
But weakening the core principle of simple, objective accountability would be a major mistake.
Australia’s super system already gives trustees enormous flexibility to invest across virtually every asset class imaginable. What must remain non-negotiable is that trustees continue being held accountable for the financial outcomes they deliver to members.
Compulsory super works only if members trust that the system is designed first and foremost for their financial benefit, not as a low-cost funding source for political or industrial agendas. Weakening objective accountability risks undermining that trust.
This article is adapted from an opinion piece originally published by The Australian – “Why weakening the super performance test is a big mistake“ (10 June 2026).
