Australian Super Funds and the MySuper Performance Test: A Barrier to Sustainable Investing in 2025

Australia’s superannuation system, managing over £2.5 trillion in assets as of 2025, is a global leader in retirement savings. The MySuper performance test, administered by the Australian Prudential Regulation Authority (APRA) since 2021, evaluates default MySuper products based on their 8-year investment performance, with funds failing twice consecutively barred from accepting new members. Whilst designed to protect members from underperforming funds, this test’s rigid structure drives short-term investment decisions, discouraging allocations to long-term sustainable assets critical for the environmental, social, and governance (ESG) agenda. This article reviews recent MySuper performance, the test’s impact, and its hindrance to sustainability, incorporating industry perspectives from 2025.

MySuper Performance (2017–2025)

The MySuper performance test assesses 8-year annualised returns against asset-class benchmarks, adjusted for fees and taxes. Funds underperforming by more than 0.5% annually risk failure, with a second consecutive failure triggering a ban on new members. Despite market volatility, MySuper products have shown resilience:

AustralianSuper MySuper (Balanced): Achieved a 7.94% average annual return over 10 years to June 2025, with an 8.46% return for super accounts and 9.25% for Choice Income accounts in 2024–25.
Australian Retirement Trust (ART) MySuper: Recorded 8.4% per annum for its Super Savings Balanced option over the decade to June 2023, with an 11.2% return in 2024–25, ranking amongst top performers.
Vanguard MySuper: Delivered an 11.8% return in 2024–25, placing it second amongst growth funds.
MLC MySuper Growth Portfolio: Posted a 10.1% return for 2024–25 and 9.2% per annum over five years, driven by listed shares and unlisted assets.
Median MySuper Growth Fund (61–80% growth assets): Returned 10.5% in 2024–25, following 9.1% in 2024 and 9.2% in 2023, totalling ~30% over three years, fuelled by international shares (18.6% unhedged, 13.7% hedged) and Australian shares (13.7%).

In 2024, all 57 MySuper products passed the test, a significant improvement from 13 failures in 2021, five in 2022, and one in 2023 (AMG MySuper, now closed). This reflects industry consolidation and improved outcomes, with 15.7 million member accounts and £0.6 trillion in assets in performing products by June 2024. However, the test’s pressure remains a concern, as highlighted by industry leaders.

The MySuper Performance Test: A Double-Edged Sword

The test evaluates net returns over an 8-year rolling period against benchmarks like the S&P/ASX 200 Index for Australian shares, adjusted for taxes. Two consecutive failures lead to severe consequences, as seen with funds like Colonial First State’s FirstChoice Employer Super (£5.8 billion, 230,000 members) and BT’s MySuper product (£9.5 billion, 540,000 members), which failed in 2021. APRA’s Margaret Cole noted in 2024, “This year’s results demonstrate the progress being made to address underperformance,” but cautioned, “past performance is no guarantee of future success.”

Key deficiencies include:

Short-Term Investment Bias:
- The 8-year lookback, whilst extended from five years, prioritises short-term performance to avoid failure. Industry Super Australia’s Bernie Dean argued in 2020, “The community won’t have confidence [in the test] unless it includes all fees and applies to all products,” highlighting its narrow focus. This pressure discourages investments in illiquid, sustainable assets like renewable energy, which may underperform in the short term.
- A 2025 X post by @mmmiketaylor stated, “It is beyond doubt that the #superannuation performance test has skewed investment decisions,” reflecting industry sentiment that the test distorts long-term strategies.
Benchmark Misalignment:
- Benchmarks focus on listed assets, penalising funds with unlisted holdings like infrastructure, which are often sustainable. For example, Commonwealth Bank Group Super failed in 2021 partly due to unlisted asset exposure.
Regulatory Constraints:
- The “best financial interest duty” mandates prioritising financial returns, limiting ESG-focused investments. A 2025 X post by @superreview noted that funds urged reform to “support investment in housing, clean energy, and emerging local industries,” highlighting regulatory barriers to sustainability.
Impact on Sustainable Funds:
- Sustainable and ethical MySuper products have faced challenges, with some failing the test due to higher fees or volatile ESG investments. In 2023, several such products underperformed, raising concerns about their viability under the test’s criteria.

Hindrances to the Sustainability Agenda

The MySuper test undermines Australia’s sustainability goals in several ways:

Underinvestment in Green Assets: The test’s focus on short-term benchmarks discourages allocations to green infrastructure or renewable energy, which require long-term horizons. Climateworks Centre noted in 2025, “Currently, the performance test measures funds against relatively high-emitting indices… offering little flexibility for superannuation funds to consider climate when investing.” Australian super funds contributed only £3.3 billion to private climate finance in 2021–22, far below the trillions needed for net-zero by 2050.
Member Disempowerment: Over 50% of Australians support climate-focused investments, yet the test’s financial-first approach limits sustainable MySuper options. Funds like AustralianSuper’s Socially Aware option exist, but mainstream products often retain fossil fuel exposures.
Data Gaps: Lack of standardised ESG metrics, such as Scope 3 emissions, hinders funds’ ability to align with decarbonisation goals. Climateworks recommends “climate transition indices” to integrate climate metrics into the test, noting, “Australia is committed to aligning its financial system with the realities of a changing climate.”

Opportunities for Reform

To align the MySuper test with sustainability, industry leaders propose:

Incorporate Climate Benchmarks: Climateworks suggests adding “climate transition indices” to the test, combining market and decarbonisation metrics to incentivise green investments.
Extend Lookback Periods: A longer horizon (e.g., 10–15 years) would better capture sustainable assets’ value, as advocated in a 2025 X post by @Fin_Newswire, which noted funds seeking “key changes to the super performance test” at Treasurer Jim Chalmers’ roundtable.
Flexible Benchmarks: Adjust benchmarks to account for unlisted assets, reducing penalties for sustainable investments.
Member Choice: Reform the best-financial-interest duty to allow ESG-focused MySuper options, aligning with member preferences.

Final Thoughts:

Australian super funds, managing £2.5 trillion, have delivered strong MySuper returns, with AustralianSuper (7.94% p.a.), ART (8.4% p.a.), and Vanguard (11.8% in 2024–25) leading the pack. However, the MySuper performance test’s 8-year lookback and two-consecutive-year failure rule drive short-termism, as noted by industry voices like Bernie Dean and posts on X in 2025. By penalising volatility and misaligning with sustainable assets, the test hinders investments in clean energy and green infrastructure, critical for Australia’s net-zero goals. Reforms like climate transition indices, longer lookbacks, and flexible benchmarks could empower funds to balance financial performance with sustainability, ensuring better outcomes for members and the planet.

Is past performance is not a reliable indicator of future results

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