APRA has put under-performing superannuation funds on notice and plans to meet with these funds, after raising the option of them shutting down.
APRA says it has identified some super funds which appear to not be consistently delivering “quality member outcomes”, based on an analysis of all super funds under its supervision.
This leads APRA to “question whether these RSE [Registrable Superannuation Entities] licensee’s business operations are appropriately positioned for future effectiveness and sustainability in an increasingly competitive industry environment”. The regulator does not name these super funds.
“APRA’s view is that it is not sufficient for an RSE licensee to simply comply with their legislative and prudential obligations without giving due consideration to how their RSE(s) will deliver quality outcomes for members now and into the future,” says APRA, in a letter written to all RSEs.
APRA says it is “necessary and timely” for all large super funds to review their approach to delivering for members, and in particular asks if insurance is “inappropriately eroding member retirement benefits”.
“As the superannuation industry continues to face significant change and heightened public expectations, it is essential that RSE licensees are continuing to act in the best interests of beneficiaries to deliver quality outcomes on an ongoing basis.”
The metrics used by APRA include net returns, cost per member for MySuper products, cost of insurance cover and operating cost ratio, among other measures.
“Generally, the RSEs that APRA has identified as having concerns in respect of quality member outcomes and future prospects are those RSEs that have performed poorly on an absolute and relative basis on a majority of the quantifiable metrics,” said APRA.
“In APRA’s experience, RSE licensees of these RSEs can also have inadequate strategic and business planning practices, governance and/or risk management frameworks to address the risks arising from poor performance. APRA will review its assessment of RSE licensees and their RSEs regularly.”
APRA plans to request meetings with the Boards of the super funds identified.
“These 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 that strategy.”
“Where it is clear that a particular product or RSE is unlikely to be able to continue to operate in the best interests of its members, APRA expects the relevant RSE licensee to act to ensure a timely and well-managed transfer of members to another suitable product or RSE, either within the RSE licensee’s own operations or those of another RSE licensee.”