Regulator determined to lift standards of super funds

New APRA rules to crackdown on underperforming superannuation funds.

super funds told to prioritise member outcomes

The regulator has thrown down the gauntlet to superannuation funds, instructing them to produce better quality outcomes for members.

In a revised draft set of rules released on Wednesday, the Australian Prudential Regulation Authority (APRA) will direct super funds to “identify and work towards addressing any deficiencies between existing practices and the new requirements” throughout 2019.

APRA suggested there had been little engagement from the industry during the consultation period for the revised rules. Further, with the exception of one organisation, no funds had wanted to discuss with APRA their likely compliance costs under the new regime.

APRA’s public consultation was open for 15 weeks during which 15 public and two confidential submissions were received, and a number of roundtable discussions were held with industry representatives.

The regulator had invited all fund respondents to assess their compliance costs using the Commonwealth Regulatory Burden Measure “to ensure the data supplied to APRA could be aggregated and used in an industry-wide assessment”.

“Ultimately, none of the respondents made use of this tool, and only one respondent provided an assessment of the likely costs that would be incurred in relation to the full proposal,” APRA said.

Each year, funds will be expected to benchmark and evaluate their performance “in delivering sound, value-for-money outcomes for all members” in both MySuper and other products.

APRA deputy chairman Helen Rowell said the regulator was committed to lifting standards across the industry for the long-term benefit of superannuation members.

“As the prudential regulator, APRA’s primary focus is on the sound and prudent management of the $1.8 trillion APRA-regulated segment of the superannuation industry; that includes seeking to ensure that registrable superannuation entity (RSE) licensees meet their obligations to put their members’ interests first,” Ms Rowell said.

“These changes to the prudential framework set a higher bar for RSE licensees by requiring a robust assessment of the outcomes delivered for members to be reflected in their strategic and business planning.”

APRA’s final package requires super funds to meet strengthened requirements for strategic and business planning, including management and oversight of fund expenditure and reserves.

The new rules, known as SPS 220 and SPS 515, are due to be enforced from 1 January 2020. Before then, funds will be required to:

  • undertake gap analysis of existing practices against business planning and expenditure management requirements in SPS 515
  • address gaps
  • design outcomes assessment
  • discuss with APRA draft design of outcomes assessment
  • plan to undertake first outcomes assessment in conjunction with 2020 annual reviews of business plans

From 1 January 2020, the funds will need to ensure spending decisions meet new requirements, undertake outcomes assessment and review and refine business plans.

APRA said it would require super funds “to take into account a broad range of factors when assessing the outcomes assessment metrics” in addition to net investment returns.

“These new policy proposals address weaknesses in the current superannuation regulatory framework and would greatly assist APRA in driving the superannuation industry towards addressing underperformance and improving member outcomes,” Ms Rowell said.

“In the first year APRA supervisors will look for reasonable efforts by RSE licensees (super funds) to conduct the assessment in a comprehensive way and align it with their business planning processes.”

The new rules are consistent with the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill 2017 now before Parliament.

Do you think APRA’s new rules go far enough to guarantee that super funds put members’ interests first?

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    COMMENTS

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    13th Dec 2018
    10:20am
    If APRA were to actually do something to those groups which are breaking the rules then the warning might be taken more seriously. Their record with the banks is nothing to write home about. What was it Keating once said about being flogged with a wet lettuce leaf?
    MICK
    13th Dec 2018
    1:23pm
    Yeah...APRA ignored what it would have known was going on within banks for decades. Now that the cat is out of the bag they become proactive? What an act!
    Old Geezer
    13th Dec 2018
    11:32am
    More regulation means more fees so the consumer pays more.
    Karl Marx
    13th Dec 2018
    1:19pm
    And no regulation will mean you pay even most & make less OG as has been proven by the RC. Self regulation doesn't work, never has & never will
    mogo51
    13th Dec 2018
    11:56am
    I am in an industry fund and the fees are very reasonable. The performances have been excellent except for this year, but that is due to our friend Donald Trump causing mayhem in the market.
    You look at the highs on the DOW but the Aussie market has been a lame duck most of the years. Funds cannot predict such things.
    I have seen charges of friends' super with private funds and they are disgraceful. I do not believe funds should make any charges if they don't make money on behalf of the retiree.
    Old Geezer
    13th Dec 2018
    12:37pm
    I got some quotes for fees on industry super funds and the cheapest quote I got was $20,000 a year. That is more than 10 times what it costs for my SMSF.
    MICK
    13th Dec 2018
    1:29pm
    Never read such a load of BS.

    Somebody stop this guy from posting unless he posts something which is not rubbish. I am not aware of anybody who pays fees of $20,000.
    What the above crap ignores is that a SMSF cannot match a well run Industry Fund. Property has had a great run but mums and dads who own property in their SMSFs should work out what a potential 40% drop in value will do to their returns. Then add in interest rate increases which are coming.
    Old Geezer
    13th Dec 2018
    2:04pm
    Mick that means an industry fund has to make me $20,000 a year just to cover the fees. My SMSF more than matches any industry fund so much so I'd be very disappointed with the results of an industry fund.

    Might just buy one of the grandkids a property in my SMSF when property prices fall 50%.
    johnp
    15th Dec 2018
    9:49am
    OG did not get a quote of $20,000- from an industry fund, he is a liar !!
    GeorgeM
    13th Dec 2018
    1:30pm
    Olga, it is not correct to say "...during which 15 public and two confidential submissions were received...". I don't believe Public were invited to give submissions. The APRA document itself says "..APRA received submissions from a wide range of industry stakeholders on the December 2017 consultation package, including RSE licensees, service providers and industry bodies. A total of 17 submissions were received, 15 of which are publicly available on APRA’s website. APRA also conducted three industry roundtables in Melbourne and Sydney...".

    In any case, this all sounds like bureaucratic gobbledygook, and ultimately the "Outcomes" are what's important. For example, is there any control of Greed as in excessive CEO Bonuses being stopped? I can't imagine they would consider that would they? Even though that would reduce Outcomes for Returns available to Fund members?

    On the other hand, I am sure the Industry would claim excessive fees to cover additional expenses for such controls - is there a fixed limit on these compliance costs?

    Finally, will APRA impose Penalties including large fines & jail time for the crooks? Without leniency, just like when you get caught for speeding, the Police say "we have no choice but to issue this fine as the camera caught you", i.e. with NO Discretion?