Some default funds are wiping out returns.

(Photo by Kelly Cestari, World Surf League via Getty Images)

For the first time, underperforming Australian superannuation funds have been identified by the regulator APRA.

Analysing total fees, investment fees and the financial sustainability of the funds, APRA has revealed which default funds are the worst in the country.

It marks part of a renewed push to improve the sector by either overhauling underperforming funds or eradicating them altogether.

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If your money is with one of these superannuation funds you might want to consider swapping.

For the first time, the chief regulator APRA has named and shamed those funds deemed to be the worst underperformers, making lacklustre returns and charging customers highs fees in return.

On Tuesday, it released its much-anticipated ‘heatmap’ tool detailing how all 94 possible default funds – known as MySuper Funds – stack up.

While the sector is intended to grow the nearly $3 trillion of the country’s retirement savings, not all funds are doing a good or even adequate job of it. Given compulsory contributions are held for a period of decades, underperformance can cost an individual hundreds of thousands of dollars over their working lives, swallowed up by grotesque management fees and anemic returns.

READ MORE: Aussies in these 32 super funds could be $200,000 worse off by retirement

“Australia’s superannuation system delivers sound outcomes for most members, but APRA is determined to weed out the industry’s underperforming tail,” APRA deputy chair Helen Rowell said in a statement.

“No one should be complacent. We expect all trustees to use the heatmap to reflect on the drivers of their current performance, and identify where they can do better.”

The heat map rates the worst super funds on several key metrics. For fees on a $10,000 balance. Goldman Sachs was the worst offender charging a whopping 4.37%. First Super, Pitcher Retirement Plan, IAG and NRMA, and Maritime Super’s default options filled out the bottom five.

For fees on a $50,000 balance. Pritcher Partners’ Pritcher Retirement Plan was the worst identified in the group, charging 1.93% in fees. The MySuper choices offered by Maritime Super, First Super, TWU Super, and Club Super followed.

APRA also identified problems with the MySuper options offered by AMP, Christian Super, Mine Super, Westpac-owned BT, Mercer, NAB, and Russell Investments. In total, APRA considered 19 funds – or more than one-fifth of all default funds – to be underperformers.

Since last year’s financial services royal commission, APRA has been on notice to reign in the industry. Its strategy has increasingly become one putting funds on notice and looking to overhaul ailing funds and deregister those who don’t improve.

“We directly contacted the trustees of the worst performing products and asked them to provide or update action plans outlining how they will address identified weaknesses. If they are unable to make substantial improvements in good time, we will consider other options, including pressuring them to consider a merger or exit the industry.”

Unsurprisingly, parts of the super industry immediately went on the defensive.

Just minutes after APRA released the tool, the Financial Services Council (FSC) released a statement that “cautioned that APRA’s MySuper Heatmaps released today should not be used to rank superannuation products.” Coincidentally, the FSC represents underperforming funds AMP and BT Financial Group. It wasn’t alone. Peak body ASFA was hot on its heels too, warning against “knee-jerk reactions”.

The warnings, of course, have some grain of merit to them. Comparing the past five-year performance of super funds certainly doesn’t give a perfect indication of how it will perform over 40 years. Even APRA admits that the tool is first and foremost intended to put underperformers’ feet to the fire.

“[Trustees are] the ones with the statutory obligation to act in the best interests of their members. And, if they are looking at themselves glowing red, then they’ve really got to be asking themselves some serious questions about: ‘Are we doing our job well enough?'” APRA chair Wayne Byres told a parliamentary inquiry last week.

However, despite a few limitations, the tool has been lauded as a necessary step to improve the super sector.

“In a compulsory universal system, it should not be possible to be defaulted into a persistently underperforming fund. The heat maps are hopefully going to be an important mechanism to achieve that end,” AustralianSuper CEO Ian Silk told a separate parliamentary inquiry in November.

It follows that if a fund is doing poorly and charging you fees several times higher than its competitors, Australians should know.

More importantly, they should be ready to switch.

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