APRA has doubled down on its efforts to improve the superannuation sector and will force poor performing funds out of the industry if they can’t lift their game.
The prudential regulator is stepping up its focus on super fund member outcomes and from 1 December will have a dedicated supervisory division for super, led executive director Suzanne Smith. APRA’s investment risk and members outcome teams will form part of the new superannuation division.
Super trustees have been busy progressing towards the implementation of APRA’s legislated member outcomes assessment (SPS 515), which is effectively a fact-finding process that identifies where funds sit in comparison to their peers and relevant benchmarks.
Speaking at the Australian Institute of Superannuation Trustees Forum on Monday (14 October), APRA deputy chair Helen Rowell said that for some trustees, the path to self-discovery will be a confronting one, as it becomes clear they are responsible for funds, products and options that are underperforming, and therefore have an obligation to “lift their game or exit the playing field.”
“Where areas of underperformance are identified, SPS 515 requires trustees to take steps to address them,” Ms Rowell said.
“Those trustees that are willing and able to rise to the challenge will enhance the retirement incomes of their members, as well as help secure their continued participation in the industry. On the other hand, those that are unwilling or unable to rise to the challenge will find APRA intensifying the pressure to improve the member outcomes they deliver – and we have new tools and powers that we can exercise to make clear that change is not optional.”
APRA will publish heat maps on the performance of all MySuper products, which will cover investments, fees and costs, sustainability and insurance.
Ms Rowell said the heat map is intended to be a starting point for member outcomes and performance assessment. Trustees will be expected to build on the heat map and consider a broader range of metrics appropriate to their operations, and to also consider performance at a cohort level, she explained.
“As we’ve said in our guidance supporting SPS 515, assessment at the product level may mask performance issues at the cohort level,” Ms Rowell.
“We are well aware of the difficulties of comparing funds with different member profiles or investment strategies. That’s why the final design of the heat map will be the culmination of more than a year’s considered analysis that seeks to incorporate like-for-like comparisons and appropriately reflects these differences.
“To ensure our methodology is robust and reliable, we have also engaged external consultants to validate our approach. Our aim is to find the optimum balance between presenting the data so that it can be understood by a broad audience, but is not so simplified as to be meaningless or misleading.
“We are well aware of the scope for misuse and misrepresentation and are considering that in how we design, present and explain the new system. But we aren’t allowing difficulty to be an excuse for inaction.”
Ms Rowell said trustees that view these heightened requirements as simply a burden to be endured are more likely to find themselves under pressure from APRA to justify their continued licence manage members’ retirement savings.
“A smarter alternative is for trustees to embrace the opportunities that change provides – to genuinely reflect on their performance, take decisive action to address areas of weakness, capitalise on the insights flowing from enhanced transparency, and emerge stronger and more effective as a result,” she concluded.
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