The superannuation sector closed the 2025 financial year with a flourish, delivering impressive double-digit returns that bolstered member balances across the country. This strong investment performance, however, was set against a backdrop of intensifying pressure on funds to address systemic challenges. A stark gap in member satisfaction has emerged between retail and industry funds, fuelling urgent calls for mandated service standards. Meanwhile, a significant product development push in the retirement income space is underway, even as the industry grapples with looming policy battles over the Division 296 tax and the implementation of Payday Super.
A Year of Stellar Returns Driven by Diversification
Superannuation funds have delivered a stellar year for members, with a broad-based market rally lifting returns well into the double digits. The median MySuper default option delivered a strong 10.3% for the 2025 financial year, demonstrating the power of diversification. Funds thrived by looking beyond Silicon Valley, with strong performance from a range of asset classes.
Individual fund performance underscored this success. UniSuper delivered a 10.3% return to members in its default option, beating its own cautious outlook. Similarly, TelstraSuper’s balanced option returned 9.3%, and Hostplus also saw most of its options achieve double-digit returns after rebounding from a more defensive stance in the prior year. This strong performance has been positioned by the Association of Superannuation Funds of Australia (ASFA) as evidence that the superannuation system is a key engine for lifting national productivity.
The Decumulation Dilemma: An Arms Race in Retirement Products
While accumulation results were strong, the industry’s focus has pivoted sharply to the retirement phase, where funds are still seen to be letting members down. In one of the most significant product developments of the year, MLC, owned by Insignia Financial, had launched a significant retirement push, entering a tripartite partnership with TAL and Challenger. The collaboration will see the launch of MLC Retirement Boost, a new solution integrating lifetime income streams, signalling a serious attempt to solve the decumulation puzzle.
This move is part of a broader strategic repositioning across the sector. The group insurance market has seen a major shake-up, with Australian Retirement Trust (ART) inking a new mandate with Zurich, which won the prized contract. Meanwhile, Hostplus has extended its long-standing partnership with MetLife. These moves highlight the critical importance of insurance offerings within a fund's overall value proposition, particularly as members with large super balances may need to look beyond their fund for adequate cover due to the impacts of the new Division 296 tax.
The Service Gap and Looming Policy Battles
A significant divide has opened up in member satisfaction, with retail super funds hitting a record high satisfaction rate while their industry fund counterparts lag. This service gap has prompted forceful calls from bodies like the Super Members Council (SMC) for the government to fast-track mandatory service standards. The push for better service extends to administration, with industry funds urging the government to digitise death benefit nominations to streamline a problematic and often paper-based process.
This is all occurring as the industry faces several critical legislative battles. The SMC is urging the government to stop delaying and pass Payday Super laws to address the ballooning unpaid super bill, which now stands in the billions. At the same time, ASFA is strongly supporting the expansion of collectively charged advice and has urged the government to pass the Delivering Better Financial Outcomes (DBFO) bill without further delay. However, the government's proposed Division 296 tax on balances over $3 million faces a potential constitutional challenge once it passes, creating long-term uncertainty for high-net-worth members and their advisers.
Context, Looking Ahead & Takeaways
This week’s results confirm the strong investment performance anticipated in previous updates. However, the narrative has now decisively shifted from celebrating accumulation to solving the decumulation and service delivery challenges. The launch of the MLC/TAL/Challenger retirement product is a direct market response to the "retirement income gap" that has been a consistent theme throughout 2025. The widening satisfaction gap between retail and industry funds gives political weight to the calls for mandatory service standards, moving it from a discussion point to a probable policy outcome.
Looking ahead, the legislative agenda will dominate. The passage of Payday Super and the DBFO bill are now top priority for industry bodies. The performance and uptake of new, sophisticated retirement income products will be a key test for the industry. All funds will be under pressure to lift their service standards, with the threat of mandated requirements now very real.
Key Takeaways:
- Short-term (0–3 months): Superannuation trustees must urgently benchmark their retirement income strategies against new market offerings like MLC's Retirement Boost. A passive approach to decumulation is no longer viable.
- Short-term (0–3 months): Advisers need to become experts on the new generation of retirement income products and continue to model the long-term impacts of the Division 296 tax, including its effect on insurance needs, for their clients.
- Medium-term (3–12 months): All funds, particularly in the industry fund sector, must proactively address member service levels. Investing in technology and streamlining processes is now critical to close the satisfaction gap and pre-empt regulation.
- Medium-term (3–12 months): Businesses and payroll providers should prepare for the implementation of Payday Super. The consistent and forceful advocacy from across the industry suggests its passage is a matter of 'when', not 'if'.
