OPINION | As reported by The Australian Financial Review last week, the Minister for Revenue and Financial Services, Kelly O’Dwyer,  is readying to unveil a package of reforms to the MySuper licensing regime that could be announced as early as this week.

The Australian Prudential Regulation Authority (APRA) will be given greater powers to crackdown on, and ultimately shut down, default superannuation funds when the trustee board is deemed to have breached its governance obligations.

These changes will apply to all super funds with a MySuper licence, which gives them access to the $554 billion default market. It is widely accepted that governance standards need to be especially tight in the default sector, because it manages the retirement savings of people who typically never make an active choice to be in their particular fund.

An ‘outcomes test’ is set to supersede APRA’s ‘scale test’, which has been in place since 2012 and has given the prudential regulator the power to force mergers of sub-scale funds or revoke the MySuper licences of those it finds are not up to scratch.

This outcomes test is said to have been designed to expand APRA’s scope to intervene when it sees evidence of poor governance. It will force MySuper trustees to make annual written declarations that they made decisions based on their members’ financial interests above all else.

With the caveat of not having seen the details of the new rules at the time of writing, this looks like a smart move that will help raise standards.

If well designed and properly implemented, a tougher MySuper licensing framework, with the annual outcomes test at the heart of its ongoing registration requirements, should enhance consumer protections.

This means protecting savers not only from overt examples of poor governance – including frauds, as exemplified by the Trio collapse, to which these changes are, in part, a response – but also from the far more widespread problem of incompetence and poor strategic planning.

As at June 30, 2017, there were 116 MySuper funds in the marketplace. The quality and value these funds offer ranges from excellent to poor. And more than a few MySuper funds are reporting net outflows, with no credible plan in place to ensure their business model remains sustainable in the years ahead.

In a pure free-market scenario, that might be fine, but the whole point of the MySuper system is to act as a vetting process to ensure all default members are in an appropriate, high-quality, reliable and good value fund.

The Productivity Commission is due to unveil the final report from its Inquiry into Default Models for Superannuation before the end of August. How the government responds to the commission’s advice is tipped to overhaul dramatically the mechanisms by which employer groups and unions decide which super funds win default business.

Whatever new model for allocating default funds we wind up with, a stronger MySuper licensing regime should ensure a better baseline outcome for the working public.

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