The prudential regulator has warned that its focus on superannuation fund performance will intensify to the point where trustees will be told to “get better or get out”, according to Wayne Byres.
The Australian Prudential Regulation Authority chairman said on Thursday that the conversations would be difficult, but the sector had received fair warning.
“You only have to look at the shape of the superannuation industry over the past decade — the persistent ratcheting up of standards has driven the number of trustees to decline significantly,” Mr Byres said.
“A decade ago, there were 278 trustees; today that has contracted to 114, so it is not as though there hasn’t been any pressure driving the exit of trustees and funds that can no longer meet required standards. My point is simply that that pressure will only increase from here on.”
APRA’s stronger enforcement powers have been enshrined in legislation earlier this year that gives the agency a long-sought directions power, the power to take civil penalty action against trustees for breaching their obligations to members, including the duty to act in members’ best interests, and control over the transfer of trustee licenses.
New statutory powers and a new prudential standard on member outcomes, which come into effect at the beginning of next year, require trustees to undertake an annual business performance review to assess if they are delivering value-for-money outcomes.
Trustees will have to look backwards as well as forwards, asking themselves if they’ll continue to deliver good outcomes.
Mr Byres also flagged a new approach to data, with consultation to start soon on an overhaul of the superannuation data reporting regime.
The new regime aimed to provide greater coverage, more detail, enhanced consistency and better quality data.
Data collection for MySuper was now in “pretty good shape”, so most of the focus would now be on the choice segment of the market where the largest data gaps remained.
The APRA chief acknowledged that cries of complaint were inevitable because new data collection ultimately came at a cost that was borne by members.
“But the current data collection has been deemed insufficient, so the status quo is not an option,” he said. “Moreover, if in this day and age a trustee cannot reliably, accurately and quickly provide information on assets, returns, fees and costs for all their products across a range of dimensions, and including in relation to key service providers, one wonders how they will meet heightened standards for assessing the outcomes being delivered for their members.”
The third leg of APRA’s new approach related to transparency, starting later this year with the publication of a set of performance-related measures and benchmarks.
The initial focus would be on investment returns, fees and charges, and measures of sustainability and viability.
The goal was “pretty simple”: to identify trustees who were not delivering value-for-money outcomes.
“It will add to the pressure on trustees to address persistent underperformance, or reconsider their continued presence in the industry,” Mr Byres said.
“Our view is: let’s have the debate. We do not intend to issue pass/fail marks to trustees, nor will their status hinge on a particular metric beating a particular benchmark.
“Rather, we will be looking to highlight those funds that seem to persistently, across a range of metrics, produce poor returns and appear to have high costs.”
By Richard Gluyas
20 September 2019