Heatmap Q&A

I’ve heard something about a superannuation Heatmap – what is it?

The Heatmap is a colour coded matrix that was developed by the Australian Prudential Regulation Authority (APRA), as a tool to help superannuation funds understand how they are performing compared to other funds in Australia.

Who was the Heatmap designed for?

APRA has stated that the Heatmap was primarily designed to be used by superannuation funds. But they believe that the insights that the Heatmap provides will also be beneficial to other stakeholders such as policymakers, advisors and employers.

What does the Heatmap measure?

The latest Heatmap that was released in December 2020 only compares MySuper products, and covers three areas:

  1. The sustainability of the overall superannuation fund, based on member growth and net cash flow measures. This indicates whether a super fund will be able to provide sound outcomes for members in future, and whether they will be able to address areas of underperformance.
  2. Investment performance of each fund’s MySuper product.
  3. Administration and total fees of each fund’s MySuper product.

In future years, the Heatmap will be expanded to also compare the insurance offered by super funds as well as the other investment options that funds offer (collectively known as ‘Choice’ products).

Why does Christian Super have some colour in the Investment Performance section of the Heatmap?

During the past 12 months, our My Ethical Super investment returns have been in the top 25% of all MySuper product investment returns. However, in the prior 5 year period, we took a defensive approach to our MySuper investment strategy, designed to protect members’ balances and to minimise the likelihood of highly variable returns. Many other super funds had a more aggressive investment approach for their MySuper product during this timeframe, which is one of the reasons our relative returns are lower in the periods measured in the current Heatmap. There was also a degree of underperformance in some areas of our investment strategy, which we have addressed.

We have already seen significant improvement during the past 12 months, which we expect to continue in future.  This should result in our Heatmap colours changing over time as new years are added to the results.

Our Investment Team is continually monitoring market conditions to determine the best way to deliver good returns for our members while taking an appropriate level of risk. At the end of the day, our goal is to be good stewards of the money entrusted to us, and this overarching principle guides our decisions about the way we invest.

Why does Christian Super have some colour in the Fees section of the Heatmap?

Christian Super is a profit-to-members super fund which means our fees cover the costs of running the fund and we don’t pay profits to shareholders. We’re continuing to look for ways that we can reduce our fees while still providing our members with products and services they value.

Our MySuper members with a $50,000 balance currently pay $645 p.a. in fees, which is slightly above the average fund’s fees of $627 (source: SuperRatings). We’ve reduced our fees twice in the last 18 months, most recently on 1 October 2020. For our MySuper members with a $50,000 balance, this was a fee reduction of nearly 10%.

Christian Super does not have any colour against the sustainability metrics on the Heatmap, which means the fund is growing well and cash flows are healthy. This will increase the likelihood that we can continue to identify and pass on further fee decreases to members in the future.

Should I be worried if my super fund has some coloured boxes on the Heatmap?

Here are 3 things to consider:

  1. The current Heatmap only considers the fees and investment performance of MySuper products, so it won’t apply to you if your superannuation is invested in a Choice product. Check your latest annual statement or call your super fund if you’re not sure where your money is invested.
  2. There are many factors that affect investment performance, including the amount of investment risk taken or the way that each fund classifies certain assets. Over the period that this Heatmap reviews, funds that have taken more risk have generally had higher returns as the share market has generally been strong. Conversely, funds that have been more defensively positioned due to the demographic profile of their members, have generally not performed as well during this period. Many of these funds have delivered their investment objectives, but their performance relative to other super funds is the reason that they may have coloured boxes on the Heatmap.
  3. The Heatmap considers MySuper fees but doesn’t take into account the additional services, features or benefits that fund members are getting for those fees. In other words, the coloured boxes indicate the relative difference in fees rather than the relative difference in value for money.

Finally, don’t forget that past performance is not an indicator of future performance. Super funds closely monitor global economic conditions and market movements in order to try to achieve the best financial outcomes for their members.

How is the Heatmap different from tools provided by other organisations that rate superannuation funds?

APRA have said that the Heatmap doesn’t provide a complete picture of the performance of various super funds, but it provides insights into the outcomes provided by some fund options. In addition, they have stated that it is not intended to be a single means for members to determine the appropriateness of their super fund – it doesn’t provide an overall assessment, each MySuper product is assessed against a series of metrics.

Conversely, there are a number of independent super fund ratings agencies that evaluate super funds on a more holistic basis, to help people find the right one based on their individual needs. SuperRatings is one such agency. We’ve received a Gold rating from them every year for over a decade and have also received their Infinity Award or have been Infinity Recognised every year. This means that our fund is a leader with regards to sustainable behaviour, and has made a genuine commitment to responsible investment principles.

You can find SuperRatings’ two page overview of our MySuper product here.

If you need help choosing the right super fund for you, check out our free guide here.

What are MySuper products and how are they different from Choice products?

MySuper is the default investment option that is offered by many (but not all) superannuation funds. In other words, if you or your employer have opened a new account with a superannuation fund and you haven’t chosen an investment option, your super is probably invested in the MySuper product of that super fund.

Your super fund will also offer a number of other investment options, which are collectively known as ‘Choice’ products. As the name suggests, these are products that super fund members can actively choose to invest in, depending on factors such as their investment time horizon, tolerance for risk, etc.

You can also read more about MySuper products in our MySuper Explained blog.

 

If you have any further questions please contact us on 1300 360 907 Monday to Friday, 9am to 6pm AEDT or email members@christiansuper.com.au