Three of Australia's peak industry bodies have called on the Australian Prudential Regulation Authority (APRA) to rethink its approach to communicating investment risk to superannuation fund members.
In a joint letter to APRA deputy chair Ross Jones, the Australian Institute of Superannuation Trustees, Actuaries Institute and Industry Super Network each raised serious concerns about APRA's proposed standard risk measure (SRM) for members.
"We are writing to express our serious concerns about the labelling, form and potential uses of the [SRM] defined by APRA as the expected frequency of negative annual returns over a 20-year period," the bodies said in the letter, dated 22 August.
The associations' concerns come off the back of government policy statements and draft consultation documents that indicated the SRM will be included in new APRA data collection and the MySuper product dashboard.
"We recognise that there is a clear need for consistent descriptions of risk and that no single measure of risk will be prefect," they said.
"Nonetheless, it is apparent that the measure can be improved on and if adopted in offcial communication, will take years to recast.
"We note that in some contexts the SRM has been suggested for the use on an 'if not, why not' basis, allowing room for alternate presentations of risk. While such flexibility is advantageous, it potentially undermines the goal of industry-wide consistency, and is not an effective argument against efforts to make the measure stronger if possible."
The bodies suggested that before APRA and ASIC began to "utilise the SRM", direct consultation with industry was undertaken on the issues of labelling, calculation/methodology and enhanced investment risk.
"We recommend that APRA establish a formal process for the development of enhanced measures and announce this in the forthcoming discussion paper on data collection," the letter said.
"We are also concerned that where a particular risk measure is mandated by the regulator (even on an 'if not, why not' basis) this needs to be supported by adequate legal protection for trustees.
"We are committed to working together with the whole of the superannuation industry, both as an industry and with government, in pursuit of the recommendations made in this letter and other outcomes consistent with the core requirements of the Stronger Super reforms."
In August last year, the Association of Superannuation Funds of Australia and Financial Services Council launched industry guidelines on investment risk for inclusion in product disclosure statements.
