The prudential regulator has unveiled details of the superannuation “heatmap” it will publish next month, providing insights into the outcomes being delivered by every MySuper product.
Delivering an address to the ASFA 2019 conference in Melbourne last week, APRA deputy chair Helen Rowell revealed a sample of the heatmap, which it said will be a key tool in APRA’s ongoing efforts to enhance superannuation member outcomes.
Outcomes assessed according to a colour scheme
The heatmap uses a graduating colour scheme to provide clear and simple insights into MySuper products across three areas: investment performance, fees and costs, and sustainability of member outcomes.
For investment performance and fees and costs, MySuper products delivering outcomes below relevant benchmarks are depicted from pale yellow to dark red.
The sustainability measures provide an indication of a trustee’s ability to provide quality member outcomes in the future and address areas of underperformance.
Mrs Rowell said the heatmap represented a major step forward for superannuation transparency and accountability.
“One of APRA’s core strategic priorities is improving member outcomes in superannuation. The heatmap is intended to help drive improvements across the industry by highlighting which MySuper products are underperforming and where they need to improve,” Mrs Rowell said.
“It forms part of APRA’s broader suite of actions to enhance member outcomes, including strengthening the prudential standards, enhancing the superannuation data collection, intensifying APRA’s supervision approach and improving industry transparency.”
Mrs Rowell noted that, unlike a sea of numbers on a spreadsheet, areas of red in the heatmap send a clear and strong message that is hard to ignore, which is APRA’s intent.
“As much as transparency is important, the ultimate purpose of the heatmap is to have trustees with areas of underperformance take action to address it,” she continued.
“To reinforce this, the heatmap will inform APRA’s supervision priorities: trustees can expect APRA’s supervision intensity to reflect the intensity of the colour shading on the heatmap.”
An information paper has also been released containing detailed explanations of how it selected the metrics and benchmarks used in the heatmap, and the methodology used to take into account important differences in products’ investment strategy and asset allocation.
APRA said it will engage with trustees to ensure both the heatmap and APRA’s expectations for its use are well understood, which will include meeting with trustees that the heatmap identifies as having clearly underperforming MySuper products and ensuring they deliver on plans to address this in a timely manner.
“In most cases, this will be a continuation of the supervisory action that APRA has already taken with these entities to address identified areas of poor member outcomes. If trustees don’t fix these issues within a timeframe that is acceptable to APRA, we will be requiring them to consider other options, including a merger or exit from the industry in some cases,” Mrs Rowell said.
FSC warns on interpretations of ‘heatmaps’
FSC CEO chief executive Sally Loane said APRA has clearly worked hard to present information in a fair and impartial way and acknowledged the potential value in the analysis APRA is undertaking, but cautioned against the information being viewed in isolation.
“Particular care should be taken by commentators in interpreting the heatmaps into simplistic league tables,” Ms Loane said.
“The industry was not consulted on the methodology, so we don’t have full understanding of APRA’s approach, this is why we caution against using the information to make a like-for-like comparison of products. We believe it is far more complex, and in some cases problematic.
“For example, the reference portfolio used by APRA to benchmark returns appears simplistic, and it is unclear whether the level of risk adjustment is appropriate.
“We are also concerned that the analysis of sustainability relates to the whole of a super fund rather than the specific products being examined, presenting a potentially misleading view.
“We urge APRA to be open to engaging on genuine concerns about data and methodology over the coming weeks.”
The full heatmap will be published on the APRA website by mid-December.
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