It is tempting to join the media pile-on about the Australian Prudential Regulation Authority’s apparent lack of action on underperforming superannuation funds, but in terms of true legal powers, the regulator appears to have more bark than bite.

This point will probably loom large in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s fifth round of hearings.

This latest round began yesterday and will put the focus on superannuation for a fortnight.

We know APRA and the Australian Securities and Investments Commission will be called to give evidence, but as of last night, we were still in the foothills, with National Australia Bank/MLC’s Paul Carter sweating under the hot lights on the matter of how grandfathered commission streams made it less tempting for advisers to move clients to products that might better meet their needs.

Shades of Round Two.

The Australian dialled up the heat on Saturday under the heading “super fund laggards ignore calls to merge,” to be backed up yesterday, in headline terms at least, by The Australian Financial Review’s back page, headed: “APRA must explain its inaction”.

Productivity Commission super inquiry chair Karen Chester concluded in the PC’s recent widely praised report that 1 in 4 pooled super funds (both retail and industry) underperform persistently. It’s also a widespread belief that APRA has failed to pull the underperformers into line; for instance, by leaving them to shrink slowly rather than forcing them to merge.

She noted that APRA and ASIC needed “to become member champions but instead focused too much on funds”.

APRA apparently put together a list of 28 underperforming funds in 2017 and after APRA approached those funds to do something about the problem, just two-thirds of them obliged.

What seems to rankle, to the extent that someone appears to be running around with matches and paper planning a bonfire under APRA’s chair, is that no action appears to have been taken against the backsliders.

To the cynics, this all smacks of what was described at the HIH Royal Commission back in 2002 as “the London Tea and Biscuits Approach” to prudential regulation.

But let’s stand back a bit from all this. What’s APRA’s role in pooled superannuation? Number one is to stop super funds from going under, which isn’t hard given the guaranteed flow of money.

Number two appears to be supervision of superannuation trustees.

In both of cases, APRA has done all right,; the only exception so far being the Trio Capital scandal, in which a Hong Kong-based crook was able to divert $180 million of super funds from an Albury-based business, never to be seen again. Trio collapsed in 2009.

The problem we have here is that supervising the returns provided by super funds is a bit less of a clear-cut business than with other types of prudential activity. What’s a fair rate of annual return? What sort of member fees are fair?

It’s one thing making sure deposit-taking institutions are doing the right thing, because there’s an intensity of promise at work. A bank promises you a fixed rate of return on your deposit and if it doesn’t pay it, all hell breaks loose. A promise has been broken.

General insurance is a little bit woollier than banking because different policies have different exclusions, mostly related to flood and storm damage – and superannuation is woollier still.

Nowadays, it’s all about defined contribution, and only the luckiest of retirees can luxuriate in defined benefits.

You hand your money to the fund, which invests it and gives you back more than you put in, although sometimes it’s not a lot more.

My modest research indicated that APRA doesn’t have much power to do intensive, intrusive analysis of individual super funds.

It was given more powers about 18 months ago to help put pressure on underperforming funds to lift their returns or merge, and if you were a “glass half full”, person you would say that getting two-thirds of underperformers to take measurable steps to fix the problem is a reasonable start. Particularly since, as I understand it, APRA doesn’t have the power to force an actual merger.

There’s an argument in some circles that if APRA doesn’t want to get down and dirty on superannuation and pensions, perhaps a new pensions regulator should be created.

To me, that smacks of “there ought to be a law”, the desire of officious bystanders to move the long arm of regulation further into the system than it currently goes.

I put that to one super expert, who laughed and said, “If you are talking about the wisdom of increasing the number of regulators from two to three, I’d go the other way and argue it might be more logical to merge APRA with ASIC, and go from two to one.”

That’s a debate for another day, clearly, but it’s a reminder that nothing stays the same forever.

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