Super funds are gambling with members’ money on risky options

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The Australian Prudential Regulation Authority (APRA) has put some major superannuation funds on notice over the inappropriate labelling of investment options.

The funds have been caught investing in the same types of products that led to the Global Financial Crisis in 2008.

In a letter written by APRA’s deputy chairman, Helen Rowell, the regulator called out fund trustees after a review “identified examples in the industry where ‘cash’ investment options appear to include exposure to underlying investments that would not generally be considered cash or cash-like in nature”.

Cash options are generally favoured by retirees concerned about having their savings eroded.

APRA says the cash description needs to be more easily understood by fund members.

“Under the reasonable expectations principles as set out in SPS 530 Investment Governance, APRA considers that a superannuation fund member would understand that exposure to a ‘cash’ investment option or product will be readily accessible (for withdrawal or transfer) without change in value,” states the letter.

“Cash equivalents represent short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.”

It said that assets that APRA had observed forming part of cash options underlying investments included asset-backed and mortgage-backed securities, commercial bonds and hybrid debt instruments, credit-default swaps, loans and other credit instruments.

The APRA letter noted that some funds were mislabelling asset-backed and mortgage-backed securities as cash, as well as commercial bonds, credit-default swaps, loans and other credit instruments.

“These assets do not typically exhibit the characteristics necessary to be considered as cash or cash equivalent,” APRA said.

APRA will continue to monitor superannuation funds and require trustees to review their investment policies. The regulator did not say which funds received the letter.


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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?



Total Comments: 25
  1. 0

    I think, to the vast majority of Super fund members, cash means zero capital volatility. This is the trade off for a relative low yield. If this money is finding its way to funding home mortgages then the risk is increased and moreover the member is being hoodwinked, but banks get 40% of their home mortgage money from the same short term money market.

  2. 0

    I consider the “cash” options within super funds to be very risky for the return. More dangerous than indexed share funds in my opinion. That new APRA legislation is not very clear about exactly what the “instruments ” to be bailed in are but it certainly isn’t your share portfolio that’s up for grabs now.

    • 0

      Cash is great if you need to spend it today but if you don’t need it until 10 years time then it’s not a good investment at all. One need to grow that money so that it at least buys the same in 10 years time as it does today preferably a lot more.

    • 0

      Yes OG but the “cash” option in the super fund isn’t a deposit or even a term deposit. We are talking bonds and hybrids and derivatives which as you know should never be used by those who don’t understand exactly what they are and how risky.

      Right now I don’t know exactly where the risk is in our banking system, do you? This was the very issue that blew up the banks back in 2007.

      Even the Government, both LNP and ALP are concerned or they would not have passed the APRA legislation.

      I have very little in cash deposits. Just enough for a overseas holiday, car or maybe medical if I need it. I do understand the need for growing savings.

      I also understand what is and isn’t a plain vanilla deposit account or even an ordinary old fashioned bond as I do buy bonds as well as shares but I don’t do hybrids, derivatives or any of the “instruments” I can’t understand and can’t see how the risk is spread out.

      Far too many raced into so called “fixed interest” during the GFC when they panicked and have no idea what it is they are holding. They think it is a bank deposit.

    • 0

      I am actually holding a lot more cash than I usually do simply because there is nothing that I am comfortable investing in at the present.

      I am comfortable using all sorts of trading instruments but I simply don’t need to make any more money so what is the point of making money just for the sake of it?

      Biggest problem during in the GFC was the supply of money dried up and inter bank leading didn’t happen as no one knew who to trust. Similar to if consumers just decided not buy anything which would stop the money flow.

      I understand what fixed interest means and agree it is not like holding cash at all.

      I off overseas soon and I need US dollars and just wish I could just get cash out of my forex account instead of the miserable rates they offer at money exchanges.

    • 0

      Yes I agree OG. I’m buying some Euros as I’m prepaying for a River cruise for the daughter and I next year simply to get some funds out of the bank and of course get a much better deal. That’s how nervous I am about all this debt and nonsense going on with the banks and with superannuation.

      I borrowed during the GFC and it was almost impossible to get money then but an opportunity we couldn’t pass up came along.
      All paid back now though.

      Having the readies is always good. I suspect a lot of money is sitting out right now just waiting and watching.

      Surprisingly I’m not worried about shares but can see danger coming in debt markets and nothing stopping it.

      There does appear to be a lot of gambling going on as the article says and the Super Funds play with other people’s money making it quite risky in my opinion.

      Hope I am very very wrong about all this.

      Enjoy your trip. I adore travelling in the US myself.

    • 0

      I’m actually off to Canada and Alaska but seem to have to do a milk run through 3 US airport to get there. Hopefully I can pick up a bit of food with plastic but since it will be all happening when I am normally asleep I doubt if I am going to be hungry anyway. Got some Canadian dollars from the travel agent as they had a much better exchange rate than the banks which I thought was unusual.

      I had a line of credit during the GFC so had no trouble borrowing money to pick up some bargain shares and rights issues from the banks.

  3. 0

    If you’re going to have all your superin “cash” then you might as well withdraw the lot and pave it on short term deposit with your bank

    • 0

      Really Raphael? What happens to those on a part age pension who suddenly have a problem with income generated by interest on a term deposit?

    • 0

      What’s the difference between income from interest on term deposit and income from super ?

    • 0

      The super funds are making the profits, not the individual subscriber.

    • 0

      You’re not making sense old man

    • 0

      If individuals are not making money with their super then they should put it some where else instead. I did.

    • 0

      OK Raphael, I’ll type this slowly so you can understand. Super funds are a separate entity under ATO rules and are liable to taxation in their own right. Subscribers to a super fund have already paid tax on their deposits although some of the deposits are tax free. Super benefits paid either as lump sums or income streams from a taxed super fund to people aged 60 years or more are tax-free and not included as assessable income. If you take your super out and place it in a financial institution as a term deposit, you lose the protection afforded to super fund members. The only way around this is to have a SMSF.

    • 0

      Your scenario was where one gets a part pension

      Any additional income one can get will just result in ke OAP being adjusted accordingly

    • 0

      to earn interest income above the tax free threshold , your part pensioner would need to have over $650k in cash.

      like I said – youre not making sense

    • 0

      It is only just worthwhile for me to have money in super as it makes a little bit more than it would elsewhere after tax and fees. Now I pay very low fees less then 0.15% so it would not surprise me that many people would better off taking their money out of super. If my franking credits are not refunded then it my super would be costing me money to have.

  4. 0

    What is needed is a disclosure of those funds who are doing this so people can choose to change funds. What is not needed is an article like this which may send a scare into people who might assume that their fund is one of those who have been found out. More details please.

    • 0

      You can’t name funds like that OM. And it’s a general problem that people are invested in debt “instruments” when they think they have a deposit happening.

      All that is needed is a phone call to their fund and to have a few questions about risk answered.

  5. 0

    How much more evidence is needed to confirm that funds “managed” by commercial entities like banks and fund managers, are always at high risk when profit for the manager is the prime object.
    It is a giant rort and the sooner governments take over all superannuation investments, backed by a government guarantee and minimal charges, the sooner this rort will end.
    Words of warning and condemnation is disingenuous, ACTION, by the Federal government is the only answer.
    Words like risk, complexity, volatility should never be seen in the context of any superannuation product. They are all the antithesis of what superannuation was designed for, to protect people in their years of retirement, the most vulnerable stage of their financial life.

    • 0

      It’s the same with industry funds perhaps worse

    • 0

      No one looks after your money better than you.

    • 0

      Old Geezer. Aren’t some of us talking about compulsory superannuation deducted from wages PRIOR to retirement? THAT is the money that I’m talking about.
      After retirement, it’s their money and everyone has the opportunity to “do their own thing” but, with definite exceptions. Lack of knowledge or willingness to do their own research, plays right into the hands of the unscrupulous “managers”, who are more than happy to do it for them.

    • 0

      Grateful I had control of my super way before retirement age in a SMSF.

    • 0

      Yes, but you are clearly in the minority.
      Salaried employees don’t have that ability and they are the ones who are at greatest risk and require much more protection than they are receiving under the present system.
      Like with the Age Pension, it’s time people stopped being so self centred with their “I’m all right Jack”philosophy, and started to consider the welfare of the vulnerable majority.



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