The discussion of Australian DC pension administration and what it can teach us, hovered between the question whether we admire Super and  do we want to buy  into Australian administration.

What is clear is that there is a lot of Australian dollars tied up in funded retirement saving. What isn’t clear is whether this is what we call a pension culture and we did not get a discussion here on “decumulation” other than as a bemoaning that there is no collective pension culture in Australia.

There was a lot of discussion from a lot of questioners and former pensions minister Guy Opperman was at the heart of it. In my view, the conversation was more about technology than administration as we’ve known it in the UK. The technology will replace the manual processes we have at present and that will mean people who were cranking mechanisms now providing support to savers and pensioners.

Opperman made the point that AI is capable to take on a human intensive and lengthy process and relieve people of their jobs. What might have been thought impossibly hard (such as the pension dashboard) can be launched quite quickly if we are to accept that there may be initial learning problems for a juvenile AI bot.

When it comes to taking on UK administrators, I could see a number of administrators in the 35 or so participants in the Pension PlayPen coffee morning. They were their I suspect to work out if Australian administration is to learn from or to keep out! Opperman appears to have feet in both camps which you can do if you have a reputation for delivery.

Novigi has a foothold in the UK through its relationship with  Apex , one of whose UK leaders was present on the call.

I was not very clear what the relationship between the two organisations and we no doubt will hear more from both if Novigi establish themselves over here.

Marc Cox and the Novigi contingent were in Liverpool for the Pensions UK Conference where they had a stand and you can make up your mind if between them they have the will to take on UK DC pension administration.

Thanks to Novigi and Atlas, I know more about administration down under –  clearly  technologically advanced . We await what these organisations plan for the UK.

Can the Australian model bring us more VFM in our DC pots?

Thanks to to John Mather for this summary of what we’d call VFM testing  in Australia. It’s a brutal system and one that may be adopted here if what’s being introduced as VFM in the UK turns out to be what Guy Opperman calls a “train crash”

Regulatory Background: Consolidation and “Benchmark Hugging”

Under the Australian Prudential Regulation Authority’s (APRA) prudential framework and the Your Future, Your Super (YFYS) legislation, funds face mandatory consolidation pressures. While APRA does not enforce an arbitrary, statutory asset-size ceiling, it subjects trustees to strict annual Business Performance Reviews (SPS 515) and the statutory Annual Performance Test. Funds lacking the scale to deliver low administration fees, or those that underperform their asset-class benchmark by more than 50 basis points (-0.50% p.a.) over rolling measurement windows, are legally blocked from receiving new default members and effectively forced into successor fund transfers (SFT mergers).

How Scale and Testing Have Impacted Performance

• Incentive to “Hug” Benchmarks: The asymmetric penalty of failing the APRA test (product closure/reputational ruin versus modest reward for outperformance) has forced mega-funds to tightly manage tracking error. Industry research shows funds have reduced implementation tracking error toward 1% or less.
• Quasi-Tracker Portfolios in Listed Equities: To prevent asset-class tracking deviations, the listed equity sleeves (both Australian and International Shares) of major default MySuper options are now largely managed as low-tracking-error, passive or enhanced-index portfolios.
• The “Scale Trap” and Internalization: Funds exceeding AUD $100B–$300B in assets under management (AUM) cannot easily run active, high-conviction listed equity mandates without incurring market impact costs. Consequently, funds have internalized passive asset management to reduce fee drag.
• Unlisted Assets as the Primary Alpha Driver: Rather than pure index trackers, Australia’s largest funds function as barbells: broad, low-cost indexed public equities on one side, paired with heavy direct allocations (often 20% to 35%) to unlisted infrastructure, real estate, and private equity.

Net Returns in Excess of Inflation (Top 5 Providers)

The top 5 superannuation trustees by MySuper/default assets under management are AustralianSuper, Australian Retirement Trust (ART), Aware Super, Hostplus, and UniSuper.

Most default MySuper balanced/growth options target a long-term real return of CPI + 3.0% to CPI + 4.0% p.a. over rolling 10-year periods. Over the 10-year period ending in 2026, headline Australian CPI averaged approximately 3.0% p.a. (reflecting the post-2021 inflation surge normalized over a decade).

The table below outlines the 10-year annualized nominal returns and the net real return (excess over inflation) for the flagship default options of each top 5 provider:

Superannuation Provider	Flagship Default / MySuper Option	10-Year Annualized Return (p.a.)	Benchmark Inflation (10-Yr Avg CPI)	Return in Excess of Inflation (Real Return % p.a.)
AustralianSuper	Balanced (Default)	8.47%	~3.0%	+5.47% p.a.
Australian Retirement Trust (ART)	Super Savings Balanced	8.69%	~3.0%	+5.69% p.a.
Hostplus	Balanced	8.55%	~3.0%	+5.55% p.a.
UniSuper	Balanced (MySuper)	8.35%	~3.0%	+5.35% p.a.
Aware Super	Lifecycle / Balanced Growth	8.15%	~3.0%	+5.15% p.a.

Note: Returns are net of investment fees, administration costs, and superannuation taxes.

Core Findings on Long-Term Real Performance

1. Exceeding Long-Term Objectives: Despite concerns regarding benchmark-hugging in listed equities, all top 5 providers delivered real returns between 5.1% and 5.7% p.a. in excess of inflation over the 10-year period, substantially outperforming their baseline mandate targets of CPI + 3.0% to 3.5%.
2. Fee Reductions from Scale: APRA’s forced consolidation and the resulting economies of scale lowered standard administration and investment fees from an average of ~1.10% to under 0.65%–0.75% across the largest providers, directly feeding into net compound real returns.
3. The Emerging Challenge: While the index-heavy, low-tracking-error strategy was aided by strong global equity bull runs over the past decade, Treasury and industry groups (including the Actuaries Institute and Conexus) have warned that the current test mechanics disincentivize counter-cyclical investing or opportunistic venture capital due to short-term benchmark divergence risk.