APRA has outlined the “poor business planning practices” of various super funds, coinciding with the government’s announcement this week that it plans to replace the ‘scale test’ with an ‘outcomes test’.
In the new Insights publication, APRA has revealed the results of a year-long review of a ‘cross-section’ of superannuation trustees and their application of the government’s ‘scale test’.
The Coalition is planning to replace the current scale test with an ‘outcomes’ test as part of a package of superannuation governance reforms announced on Monday.
The group of registrable superannuation entities (RSEs) examined by APRA included funds that have, over recent years, demonstrated net member benefit outflow ratios “consistently greater than 100 per cent”.
APRA found that in general, RSE licensees with “poor business planning practices” failed to consider the longer-term implications of key factors such as the net member benefit outflow ratio of declining membership.
“APRA also observed that a number of RSE licensees failed to adequately identify and/or address challenges that would likely impact their ability to attract and retain members or drive strong member outcomes,” said the regulator.
Common features of weak business planning identified by APRA included:
APRA said that RSE licensees who are unable to “demonstrate sound practices and an ability to deliver appropriate member outcomes on a sustainable basis” will be subject to “heightened supervisory action”.
“This is likely to include requirements to develop and implement plans to quickly address areas of underperformance, or a plan to merge or wind up underperforming funds in order to ensure that the best interests of members are adequately protected,” warned the regulator.
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