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APRA seeks to combat ‘costly and failed’ successor fund transfers

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As consolidation continues in the super industry, the prudential regulator has noted that transfers often run into problems that erode the benefits for members.

An increase in transfer activity within the super industry has prompted APRA to propose new enhancements to ensure that successor fund transfers proceed more smoothly and efficiently.

In a discussion paper released this month, the prudential regulator said that it is planning to introduce requirements so that all super trustees are appropriately prepared to transfer or receive members, elevating what was previously guidance.

It also intends to introduce new requirements relating to the transfer of MySuper assets within 90 days, in the event that APRA cancels a trustee’s authority to offer a MySuper product.

In a statement, APRA deputy chair Margaret Cole said that successor fund transfers often run into problems that erode the benefits to members of the super funds involved.

“One of the best ways for trustees to improve outcomes for their members is through a merger that delivers the benefits of increased scale, or by transferring them to a better performing fund,” she said.

“The transfer process itself, however, isn’t always straightforward, and that can be exacerbated when a lack of robust planning puts members at risk of a protracted, costly or failed transfer that fails to improve their outcomes.”

APRA noted that heightened transfer activity in the industry has been amplified by the regulator’s focus on combating underperformance via a number measures including its annual performance test and heatmaps.

Ten of the 13 funds that failed APRA’s inaugural performance test in 2021 are reported to have either merged or exited the industry.

“With industry consolidation likely to increase in coming years as poor performers and those with sustainability issues exit, and strong performers seek a competitive edge, it’s important that all trustees are prepared to initiate a timely transfer of members where indicators point to this achieving better outcomes for members,” said Ms Cole.

“By updating our framework in this way, we also aim to help trustees identify, and avoid or overcome, barriers to effective member transfers.”

The regulator said that it is also looking to strengthen and simplify transfer planning guidance contained in Prudential Practice Guide SPG 227 Successor Fund Transfers and Wind-ups.

Consultation on the proposals put forward by APRA in its discussion paper will remain open until 10 March 2023, before draft transfer planning enhancements are released following further consultation on SPS 515 Strategic Planning and Member Outcomes in the first half of 2023.