APRA deputy chair Helen Rowell said on Wednesday that the prudential regulator will review the sole purpose test as the super funds believe it is ambiguous and open to differing interpretations.
In a letter to superannuation trustees, she said the aim of the review is to clarify the law and identify potential breaches.
“Some examples of questionable practices in this area were also highlighted by the royal commission,” she said in the letter, adding that the corporate watchdog would also be called in where compliance with the test has been called into question.
The sole purpose test is a hot topic among super funds – and with good reason. At CMSF this year, many of Australia’s top super funds said they have been privately grappling with the rule, worried that they might break the law.
David Knox, a partner with Mercer, says it is high time that the test is clarified as there are there are too many grey areas.
The consultant further argues that the scope of what a super fund can explore should be broadened, since super is not just about providing a pot of money at retirement, but delivering outcomes in retirement.
“We need to focus on the provision of retirement benefits such as aged care, health care advice and retirement income – these go way beyond the sole purpose test even though it’s all part of preparing people for their retirement.”
“The Members Outcomes bill makes it clear that retirees are an important part of the industry so how far can we take this? The answer is with the sole purpose test it is not clear.”
This view chimes with David Carruthers, a principal with Frontier Advisors. If the primary objective of the sole purpose test is to provide income in retirement to substitute or supplement the age pension, then the sole purpose test should allow funds to meet this objective.
Carruthers pointed to the Hayne royal commission report which said “it is not consistent with the sole purpose test for a trustee to ……..pay fees charged by an adviser….. or re-consider, how best the member may order his or her financial affairs generally or may best make provision for post-retirement income.”
“If this is a correct interpretation of the test – that funds can’t provide advice in respect of post-retirement income – then I think there is a need for clarification, as it appears at odds with the proposed objective.”
Industry Super Australia chief Bernie Dean disagrees that the sole purpose test is ambiguous. He says the test is “crystal clear” and he argues there are more pressing areas for reform such as inactive accounts and multiple accounts.
“Funds aren’t crying out for assistance with the sole purpose test but they would like to see some leadership around the objective of super as well as issues that have a direct and immediate effect on peoples’ accounts,” he said.
To Dean, the priority is reaching an agreement on the objective of superannuation –a bill which has been before parliament since 2016.
“People have been talking about an objective for super for many years and we still haven’t got a clear simple objective for super enshrined in law.
“That objective needs to align with the existing sole purpose test in reminding people that super is supposed to be about a good income for members when they retire.”
AIST welcomes a review into the sole purpose test.
“It’s been a long time since APRA provided guidance on the test and the industry has evolved considerably since then,” said AIST chief executive Eva Scheerlinck.
