The APRA deputy chair has signalled the regulator will be watching funds as they respond to the COVID crisis, forecasting the pandemic will bear dampened contributions, sustainability challenges and increased pressure to merge for the medium to long-term.
Speaking at the Stockbrokers and Financial Advisers Association (SAFAA) Virtual Conference, APRA deputy chair Helen Rowell said the prudential regulator has turned from the immediate impacts of the early release scheme to considering the long-term effects of the crisis for super funds.
On Monday, APRA released data revealing net super contribution flows had turned negative for the first time during the June quarter, at -$2.3 million, as payments through the early access scheme outweighed money flowing in. Voluntary contributions had also dampened across the three months.
“We have seen a short-term reduction in contribution flows, I think we can expect that to continue both from a reduction in inflow contributions, but also importantly, what we’ve seen in our latest statistics is a reduction in voluntary contributions,” Ms Rowell said.
“And our super division’s focus is actually now turning more towards future sustainability. And the fact that for some funds, the pressures of responding to COVID will have brought forward some of the sustainability challenges they were already facing and they need to be positioning for that and thinking about how they’re responding to the future.”
She added the pressure on funds to deliver strong outcomes for members had already been there previously; it had only been exacerbated by the crisis.
“That pressure has been there for some time and it’s not going away,” Ms Rowell said.
“What we’ve seen is that the current environment is increasing that, it’s not so much about increasing regulation – although it is one factor. It’s actually about being able to meet the expectations of the stakeholders in the system and having the systems and the capacity and the scale and ability and expertise to do it and do it well.”
APRA is still pushing funds to consider merging, with the deputy chair noting the industry is still “extremely diverse” and it has a “way to go” before the players are of sufficient size, scale and capability.
The watchdog’s superannuation division director Suzanne Smith has previously urged lagging super funds to merge, telling them to exit and save their members from “suffering” further deterioration. The regulator has also pushed for trustees to simplify their product ranges, in an attempt to address the excessive number of options available on the market.
“We make no apologies for raising the bar and setting high expectations,” Ms Rowell said.
“And so, if you want a right to manage members’ money... then you have to meet that threshold and you have to be able to demonstrate to us that you can do it well into the future.”
The prudential watchdog also released the final consultation package for the first phase of its project expanding its superannuation data collection on Friday, seeking feedback for draft reporting standards and templates across funds’ fees and costs, insurance arrangements, expense reporting and asset allocation.
The data will be key for the regulator’s plan to include choice products and options in an expanded version of its MySuper heatmap.
“Trustees should already be using this type of data to help them fulfil existing regulatory requirements, such as their [business performance review] and legislated outcomes assessment,” Ms Rowell said in a statement on the data project.
“If not, it would seem unlikely that they could truly understand the outcomes being delivered to their members and how they’re performing relative to their peers.”
The regulator will next be entering phase two of the multi-year Superannuation Data Transformation project.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].