“We are going to have another look at the super performance test” says Australian Treasurer Jim Chalmers

Australia’s Economic Reform Roundtable, a three-day policy gala convened last week, had a lot riding on it. It was intended to shape the Albanese government’s reform agenda. If all went to plan, a Canberra consensus would emerge, around what needs to change and how.

That consensus has now emerged and a willingness to reform Australia’s superannuation performance test is part of it.

Having a look

“We are going to have another look at the super performance test”, said Jim Chalmers, the Australian Treasurer.

The performance test has been criticised for its unintended consequences of constraining capital allocation to climate solutions. Its benchmark-led focus on short-term performance was to blame.

The government’s decision to rethink the test is welcome news for Australian asset owners with a widening appetite for climate solutions. It signals a vital and timely recognition of a problem at hand.

“Government, finance and industry are aligned behind a common goal, mobilising capital to reach Australia’s net zero emissions target, where finance and super are essential to delivery”, says Cassandra Williams, head of enterprise programs and strategy at Climateworks, a research centre.

“With Your Future, Your Super being looked at, now is the moment to seriously consider the solutions on the table”, Williams told Net Zero Investor.

Column B

Consensus on the test’s new form has been more challenging to arrive at. Climateworks has long advocated for rethinking the benchmark.

In a briefing paper published last month, the organisation recommended the use of optional ‘climate transition indices’. The choice then would be a voluntary ‘column B’ that sits alongside the current benchmark.

If the Albanese government were to go down that road, there are several options to choose from. Providers such as S&P, MSCI and FTSE offer a readily available product suite.

Ethos

Importantly, the Treasurer stated emphatically that a willingness to reform the test is not an opportunity to rethink its intention.

The test was introduced back in 2020, as part of the Your Future Your Super (YFYS) reform package. It was motivated by prudential concerns over rising fees and underperformance.

Concerns that the Treasurer says, are not up for debate.

“I want to make it perfectly clear that we are not talking about abolishing the performance test, and we are not talking about in any way interfering with the sole purpose of super funds, which is to deliver the maximum returns that they can for the members”, said Chalmers.

Reformers concur with this view. “We shouldn’t expect super funds to invest in assets that don’t generate long term returns”, commented Williams.

The implication then, is that a reformed test will retain its initial ethos.

Heading into the roundtable, investors hoped the performance test reform would be up for discussion. The Canberra consensus seems to have taken these concerns into account. A more detailed roadmap of the reform remains to be seen, but an agreed upon problem statement is a long-awaited first step.