Adjectives such as titanic, gargantuan and elephantine do not go far enough to describe the task for superannuation funds of meeting the requirements for data collection of the Australian Prudential Regulation Authority (APRA) and provision of insurance to meet MySuper standards. But from July 1, the job is going to get bigger, as new rules from APRA lift the quota of data per fund from 900 bits to 4000 bits – or almost four and a half times as much – and Treasury’s new standard requires insurance be offered by every default super fund.
Graham Sammells, chief executive of operations, risk and technology consulting firm IQ Group, feels tremors in an industry experiencing the biggest wave of change in the past 20 years. The deadline for July 2013 changeover to a new regime is very tight, what with SuperStream and Future of Financial Advice changes being implemented throughout this year and next. Players in the super fund sector, including its extended web of administrators, custodians, investment managers, fund managers and other providers, will simply need more time, he says. In a November-19 submission to APRA, the Association of Superannuation Funds of Australia suggests the new requirements be phased in from the September quarter of 2014 (see the box on page 36 for ASFA’s submission).
Great opportunity for a standard business reporting framework
In the meantime, it would be a great opportunity for APRA and ASIC to integrate a standard business reporting (SBR) framework, he says. “That amount of crossover in the data APRA wants to collect and the data that ASIC is currently collecting for the efficiency of the reporting entities – the super funds – it would just make a whole lot of sense to extend the SBR framework for superannuation to cover these reporting requirements,” Sammells says.
A lot of the SuperStream changes going through Parliament incorporate the SBR framework, so the industry is already familiarised with it. “It’s like creating a data dictionary for the industry,” he says, “so that everybody understands what a particular piece of data means, and the whole point here is to extend the dictionary to cover these new requirements.” The technicalities are not a big deal, it’s the definitions and taxonomy that will seem like hard work, he says.
At the same time, funds will also have to turn their focus to insurance as the MySuper deadline approaches. The government’s Stronger Super reforms require all APRA-regulated funds to offer life and total and permanent disability cover, and some will be scrambling to put options in place by July 1, says Rice Warner Actuaries head of life insurance, Richard Weatherhead.
“Super funds have had benefit designs in place, but they will have to reassess them based on the fact that they are designing specifically for MySuper,” Weatherhead told Investment Magazine this year. “Insurance is a very important part of the MySuper equation.”
APRA stipulates that trustees’ default levels of cover be calculated using a “reasonable and well documented” depth of data. To do so, Weatherhead says funds would need to hold at least five years’ insurance records.
Many will not be able to meet this criterion, he says. “Many funds are ill prepared for this, just as many of them are ill prepared for issues such as the maintenance of insurance data,” he says.
Coordinating the data chain
Funds that are on the front foot will stand out when MySuper comes into being. The inclusion of income protection insurance is one opportunity to look good. Trustees will have to weigh the cost of income protection insurance against the impact on benefits in drawdown phase, of course. “It’s a balancing act for trustees,” he says.
The new APRA requirements will see a much thicker stack of information about investments delivered, and this fine-grained data may be scattered among outsourced providers to a fund. These providers might have to rely on further providers, and so forth, so that the requirements to comply reach far beyond the universe of Australian super funds. “There’s a whole food chain of data here that’s got to be coordinated,” Sammells says. “No one’s saying it’s a bad thing; no one’s complaining about increased transparency – it’s just the quantum amount of work that needs to happen in the proscribed timeframe.”
The strain of compliance could see further consolidation among providers, who already have to justify every dollar of fees charged. Increased regulatory requirements inevitably lead to increased costs to a business and changes to data collection will be one more catalyst for consolidation, Sammells says.
Between 1996 and 2006, the number of APRA-regulated superannuation entities fell from 4747 to 872. In 2011, there were 347 large APRA-regulated funds. A strict penalty regime that accompanies the new requirements will be hanging over funds.
An agreed set of standards about how parties communicate to each other will lift efficiency across the sector, without doubt. APRA reporting requirements haven’t changed since 2004, and current practice can involve spreadsheet attachments flicked this way and that, faxes, emails and analysts poring over reports from investment managers to pick out only what they need to satisfy the regulator. This sometimes requires interpretation or extrapolation of data that are not an exact fit. “It all goes to the importance of having a commonly understood set of definitions,” Sammells says.
But a common set of requirements will not result in a common platform from which to report to APRA. Not yet, anyway. Maybe the next big shift will be a technological one. But let’s hope that’s a few years away yet.
Super funds find room for improvement
|The Association of Superannuation Funds of Australia in its submission to APRA in November put forward its case for a little more time for funds to ready themselves for a transition to the new data-collection regime.“We note that this exponential expansion of the data collection obligations comes at a time when government is espousing the merits of reducing red tape,” wrote ASFA acting general manager for policy and industry practice, Fiona Galbraith, “and [we] question the degree to which there has been a detailed and critical analysis of the need for each and every data item and whether the information is currently being provided to government through another reporting mechanism.”ASFA included the following among its recommendations:
• That the proposed quarterly reporting due date of four weeks be amended to five weeks, and that for the first three years the due date be seven weeks after the end of the quarter.
• In order to remove unnecessary auditor costs, that a data item-based requirement apply for annual forms, not a form-based requirement.
• That all data items contained in the reporting standards be included in the standard business reporting taxonomy.
• Working groups be established to agree on the definitions of data items.
• Consideration be given to formation of a working group to create data standards for investment information passed between investment managers, custodians and trustees and that protocols be based on the work undertaken for SuperStream.
• That a project be established to develop a standardised investment return methodology.
ASFA also took the opportunity to point out to APRA the issue of different standards applying to different forms of funds. “As approximately one third of the assets of the superannuation system are held within SMS Fs, AS FA queries why there is no parallel proposal by the AT O to replicate in SMS F annual returns the new requirements around the collection of data on investments,” Galbraith wrote. “AS FA considers that this lack of consistency of reporting may impede the development of superannuation policy.”