APRA will release its ‘heatmaps’ of MySuper super fund products in mid-December, and has released details of how they will look.
APRA Deputy Chair Helen Rowell used a speech to the ASFA 2019 conference for unveil the APRA heatmaps for MySuper products, which will be a “key tool” as APRA seeks to enhance outcomes for super fund members.
“The heatmap uses a graduating colour scheme to provide clear and simple insights into MySuper products across three areas: investment performance, fees and costs, and sustainability of member outcomes,” said APRA.
Rowell said the heatmaps were a “major step forward” for transparency and accountability for super funds. But it won’t be a ‘traffic light’ system, Rowell said. For one thing there will be no green, instead shades of orange and red.
“The heatmap is designed to emphasise underperformance; it’s not meant to give a pat on the back to better performing MySuper products, or be seen as a peer ranking mechanism. Any product that is performing above a determined benchmark for each investment performance or fee metric is coloured white,” Rowell said.
“Importantly, there is no overall assessment. Each MySuper product is assessed against each metric. So it is entirely possible for a product to be white for some investment performance metrics, yellow for others and red for fees and costs.”
While using colours to highlight areas of underperformance, the heatmaps don’t appear to be designed for use by consumers, with the example image including measurements such as “5 year NIR relative to Listed SAA Benchmark Portfolio p.a.”. Instead the heatmaps are aimed at driving super fund trustees to action.
“One of APRA’s core strategic priorities is improving member outcomes in superannuation. The heatmap is intended to help drive improvements across the industry by highlighting which MySuper products are underperforming and where they need to improve.”
“Unlike a sea of numbers on a spreadsheet, areas of red in the heatmap send a clear and strong message that is hard to ignore, which is our intent. As much as transparency is important, the ultimate purpose of the heatmap is to have trustees with areas of underperformance take action to address it.”
“To reinforce this, the heatmap will inform APRA’s supervision priorities: trustees can expect APRA’s supervision intensity to reflect the intensity of the colour shading on the heatmap.”
Assistant Minister for Superannuation, Financial Services and Financial Technology, Jane Hume, said in a recent speech that the APRA heatmaps, combined with new powers given to the regulator and the Member Outcomes legislation, would start to put “real pressure” on underperforming super funds.
“Pressure to lift their game, or join a different team, regardless of whether industry, corporate or retail.”
“So it’s no surprise we’re seeing consolidation in some of the bigger funds. But many of them are already performing well. The pressure will be felt even more acutely by the smaller funds; funds in the sub $1 billion category (and climbing); or funds otherwise feeling the burn of APRA’s heatmap.”
APRA intends to extend the heatmaps to Choice super products at a later time.
Industry split on extending heatmaps to Choice products
The superannuation industry has split on the planned expansion of heatmaps to Choice superannuation products – with Industry Super Australia saying it is necessary, while the Financial Services Council (FSC) urging caution.
The FSC – which, in part, represents owners of retail super funds – says it is “lukewarm” on the APRA heatmaps, and “urged caution” on using them to compare super funds.
FSC CEO Sally Loane said APRA had worked hard to present the data in a fair and impartial way, but also said that the information shouldn’t be viewed in isolation.
“Particular care should be taken by commentators in interpreting the heatmaps into simplistic league tables.”
“The industry was not consulted on the methodology, so we don’t have full understanding of mAPRA’s approach, this is why we caution against using the information to make a like-for-like comparison of products. We believe it is far more complex, and in some cases problematic.”
“We urge APRA to be open to engaging on genuine concerns about data and methodology over the coming weeks.”
Loane also urged the APRA be “cautious” about releasing heatmaps for Choice products without “appropriate, comparable data”.
However, Industry Super Australia (ISA) says the heatmaps must be “applied consistently across all sectors” of the super system.
The organisation said the heatmaps would help consumers “compare apples with apples when it comes to performance, fees and sustainability”.
Given the “chronic” underperformance of some super funds, ISA says it is “critical” that the heatmaps – and other tools – cover Choice products, not just MySuper products.
“This is because underperformance is not limited to just MySuper products – in fact, it is more prevalent in the Choice sector.”
ISA Chief Executive Bernie Dean said: “As the custodians of Australians’ retirement savings we all have a responsibility to improve the system and put members’ interests first – and that means dealing with underperformance, wherever it is.”