Australia’s top superannuation regulator has welcomed the Turnbull Government’s move to hand her office more powers to shut down sub-standard funds.
Australian Prudential Regulation Authority (APRA) deputy chair Helen Rowell, who is in charge of the watchdog’s oversight of the superannuation sector, told an industry gathering that she “certainly hopes” a draft bill to expand the regulator’s powers to intervene in under-performing funds is enacted in legislation.
Rowell was speaking as part of a panel at the Financial Services Council 2017 Leaders Summit, in Sydney on Tuesday, July 25, 2017. It came one day after the Turnbull Government unveiled its latest package of reforms to the default superannuation sector, which are set to hand APRA greater powers to intervene in the running of default super funds that are found to be in breach of their duties to act in their members’ best interests.
On Monday, APRA revealed that it has identified a watchlist of at least 21 super funds that it is concerned about and plans to write to their trustees seeking further explanation about how they intend to serve their members best interest in the future.
Speaking on Wednesday, Rowell said she hoped the industry would take initiative rather than wait for regulatory intervention.
“It will be preferable for everyone, including the industry, if funds do not have to be dragged along kicking and screaming,” she said. “It is not unfair to ask trustees to set themselves an objective and take responsibility for measuring their performance against that.”
Mercer Australia chief executive Ben Walsh, who was also part of the FSC conference panel, noted that Rowell had been “saying this for years” and that the move by the government to expand APRA’s intervention powers should “give her more teeth”.
“Yes, I certainly hope so,” Rowell replied.
A sterner test
At the heart of the planned changes to the MySuper rules is an expansion of APRA’s ‘scale test’ – which the prudential regulator uses to assess the overall governance and performance of default funds – into a broader based ‘outcomes test’.
The industry is awaiting the findings of a Productivity Commission Inquiry into alternative models for allocating default funds. Rowell indicated she believes strengthening the MySuper licensing regime will lay good groundwork for whatever changes the government decides to make to the rules around how employers select default funds for their staff.
“From an APRA perspective, our goal is to lift standards across the whole industry so the conversation about default models is almost a moot point…because you can be confident all funds are delivering good value,” she explained.
Rowell also reiterated that she shares the government’s concerns about group insurance arrangements not always providing good value to default super members, particularly those with low balances. As part of the super reforms announced on Monday, the government has tasked APRA with forcing funds to make it easier for default super members to opt out of the automatic group death and disability insurance that funds are legally obligated to sign them up to.
Addressing the FSC conference on Wednesday, Minister for Revenue and Financial Services, Kelly O’Dwyer, said the “superannuation accountability and member outcomes” package, launched on Monday, reflected a need to modernise the system in response to a changing workforce.
“The single industry, single employer funds that were the hallmark of the ’90s are virtually non-existent, replaced by public offer funds, which now manage over $1 trillion in public offer money,” O’Dwyer said. “Superannuation funds make up the second-largest sector of the financial system, with assets larger than both Australia’s annual gross domestic product and the collective value of stocks listed on the ASX.
“Given that this $2 trillion largely represents the forced retirement savings of millions of Australians, and given that some projections have the sector doubling to over $4 trillion in just over 10 years, the government has a duty to protect members’ money through the highest standards of transparency and accountability, and with a stronger regulator to ensure funds are managed in the best interests of members.”