The number of retirees relying on superannuation is expected to more than double in the next decade. A recent analysis by Super Consumers Australia warns that individuals with poorly performing investment products could lose as much as $205,000 during their retirement years. The consumer advocacy group examined data from the Australian Prudential Regulation Authority (APRA) to evaluate the performance of retirement investment options and their financial implications for retirees.

The report highlights that all superannuation options that failed the federal government's annual performance test this year were also available to retirees. However, the performance test does not apply to these retirement products, leaving retirees unaware of their potential risks. "What we found is that there's basically a huge difference in terms of outcomes, depending on which of those products you're invested in," said Xavier O'Halloran, CEO of Super Consumers Australia.

O'Halloran criticized the current system, stating it is unreasonable for a 64-year-old to be protected by a performance test, only to lose that protection upon retirement. "They're not subject to much scrutiny in terms of the returns and fees and performance," he added. He urged the federal government to extend the performance test and the Australian Taxation Office's comparison tool to help retirees avoid poorly performing funds.

Blake Briggs, CEO of the Financial Services Council, noted that retirement products differ significantly from accumulation products. He argued that expanding the performance test to include retirement products would be inappropriate. "Retirement products combine investment design with other important features that support varied individual retirement needs," he explained. Briggs emphasized that a one-size-fits-all approach does not apply to retirement planning.

The report also pointed out that major superannuation funds, including AMP, Russell Investments, Colonial First State, and REST, have consistently offered underperforming retirement products across various growth categories. It found that of the 140 accumulation investment options that failed the performance test since 2023, 128 were also available in the retirement phase at the time of failure. The report indicated that retirees could earn significantly less in investment returns if they are in the worst-performing options.

For instance, a retiree starting with $250,000 in superannuation could earn between $57,000 and $205,000 less in investment returns compared to what would be expected based on peer returns. A spokesperson for Colonial First State disputed the report's findings, stating that it selectively focused on a limited number of options from their extensive menu. They emphasized that retirement circumstances vary widely among individuals.

Similarly, a spokesperson for REST defended their pension phase funds, asserting that independent ratings demonstrate their strong performance. "We are confident Rest's investment performance and our products and services are helping our members achieve their best possible retirement outcomes," they stated.

AMP also rejected the analysis, claiming it misrepresents their retirement products' performance. They highlighted that AMP has delivered strong relative returns for its retirement members over the past three years.

The report revealed that 74% of Australians support extending the performance test to retirement products, while 84% called for greater transparency to help retirees compare fund performance. Additionally, a review by the corporate watchdog found that some super funds may not be providing adequate information for members to make informed retirement decisions.

The analysis by Super Consumers Australia was based on APRA's quarterly superannuation product statistics, which include detailed information on investment performance, fees, and asset allocations. The report focused on funds with a 10-year performance history and assumed a $250,000 account balance, reflecting the median balance at retirement.