APRA tightens the screws on superannuation trustees

Australian Financial Review

14 December 2017

Alice Uribe and Sally Patten

Superannuation funds will be forced to disclose and justify their expenditure on items such as marketing, member education, sponsorship, advertising and media as part of a crackdown by the prudential regulator.

In an effort to stop wasteful spending and force super funds to adopt a more business-like approach, the Australian Prudential Regulation Authority said on Wednesday that it planned to strengthen existing prudential standards and introduce a new standard requiring funds to report annually on ways they could improve their performance.

APRA is proposing to require super funds to demonstrate that all spending is monitored against objectives and is successful in meeting those objectives. It is expected that spending on publications such as online news site New Daily, which is owned indirectly by a group of industry retirement schemes, will be included. The New Daily lost $2.7 million in 2017In September, The Australian Financial Review revealed industry superannuation funds spent more than $37 million last yeato promote themselves in the media. Both retail and industry funds spend thousands of dollars on marketing and conferences.

The launch of a consultation package on the proposed revisions to the standards comes less than two weeks after the Turnbull government was forced to withdraw legislation that would have required funds to be more transparent and appoint more independent directors to their boards.

The prudential regulator wants to know more about how superannuation funds spend their members’ retirement savings as part of an ongoing clampdown on wasteful spending by underperforming funds.

The Australian Prudential Regulation Authority has today released a consultation package it says is designed to ensure trustees in the $2.3 trillion sector go beyond “minimum legislative requirements”

“Every super fund member deserves confidence their fund is delivering quality, value-for-money outcomes. APRA’s proposals, supported by our ongoing supervisory focus, will help registrable superannuation entity [RSE] licensees lift their standards for the long-term benefit of their members,” APRA deputy chairman Helen Rowell said.

APRA also proposes widening a current prudential standard to require super funds to make it easier to opt out of life insurance.

“Such practices include insufficient rigour around decision-making and monitoring in relation to fund expenditure, setting of fees and costs and the use of reserves, and how expenditure decisions are made to secure sound outcomes for members,” APRA said in a discussion paper outlining its proposed prudential framework changes.

APRA has proposed the addition of a new prudential standard that will require all registrable superannuation entity [RSE] licensees to assess every year the outcomes of their members, as well as new practice guides that it says will assist trustees with business planning and “outcome assessment”.

Industry Super public affairs director Matthew Linden welcomed the proposed standards and APRA’s commitment to enhanced transparency and member outcomes but argued that “it was vital the measures demand high standards from all APRA-regulated super funds in respect to all of their members.” He said he was concerned that savers not in default products would not be given the same protections.

“A two-tiered regulatory framework which involves lower standards and expectations in respect to ‘choice’ superannuation products that account for most system assets is no longer appropriate,” he said.

Eva Scheerlinck, chief of the Institute of Superannuation Trustees of Australia, said: “For any outcomes test to be meaningful, it must apply to every superannuation option and have long-term net returns as the number one priority.”

APRA wrote to the boards of Australia’s worst-performing superannuation funds in August summoning them to individual meetings to discuss their failings, and requiring trustees to make “quick” changes or be shut down.

“These registrable superannuation entity [RSE] licensees will be required to develop a robust and implementable strategy to address identified weaknesses within a reasonably short period and to engage more regularly with APRA to monitor the implementation of the strategy,” Ms Rowell wrote.

APRA said its proposals were independent of, but aligned with, the legislative proposals which the government hopes to reintroduce in 2018.

“In considering the final form of the standards being issued for consultation today, APRA will have regard to both feedback from consultation on its own proposals and the final form of any new legislation passed by the parliament,” it said in a statement.

In July, Financial Services Minister Kelly O’Dwyer put trustees on notice that they will face civil penalties for breaches of director duties, be forced to certify every year that they are looking after the financial interests of members and hold annual member meetings as part of government reforms designed to strengthen the governance of Australia’s $2.3 trillion retirement savings system.

The proposed start date for the new prudential measures is January 1, 2019.