Clarity is needed around the sole purpose test for super funds which want guidance on where the line can be drawn so as to avoid breaking the law.
Speaking on a panel at CMSF, delegates examined whether the sole purpose test stifled innovation.
Panel members questioned whether this test-introduced back in 1993- is still relevant in today’s world.
Given the sophistication of technology and other business practices, they discussed whether the test should be revamped to ensure funds deliver the best possible retirement outcomes for members.
The sole purpose test is a sacred cow and criticised only in secret, according to AIST chief executive Eva Scheerlinck.
“Most case law on the sole purpose test involves self-managed funds, not APRA-regulated funds so there is not a lot of certainty or clarity in this area,” she adds.
“As the world around us evolves, what might amount to a breach changes and so the questions on the test continue.”
The AIST head noted that the prudential regulator has never commenced proceedings against a breach of the test. Nor, has it ever required a fund to submit an enforceable undertaking.
For Deanne Stewart, chief executive of First State Super, the sole purpose test is highly ambiguous and the law open to many interpretations.
Much has happened in the superannuation industry she went on to say so perhaps the industry needs to see the sole purpose rule in a different way.
“When you think about super and the objective of super it should address sustainability, fairness and so should it be reviewed, “she says, adding that a retiree’s best outcome might include advice, protection and education as well as long-term income streams.
REST chief, Vicki Doyle, argues that superannuation does not act in a vacuum and believes it is up to the funds to view member needs, holistically.
“The income for a member can be altered quite dramatically with the right advice and if we think of the trustees ensuring the best outcome possible, then advice is as important as the product or the fund.”
The panel heard that environmental, social and governance (ESG) is one constant issue in relation to the sole purpose test.
In the last five years, there has been plenty of legal advice that has made clear that funds have a fiduciary duty to understand all the material risks impacting investment, including ESG risks, notes Cbus head, David Atkin.
“ESG risks can be material and need to be assessed when thinking where to deploy capital,” he told the conference.
“Trustees who are not looking at ESG risks and opportunities are not fulfilling their fiduciary duties.”
According to QSuper chief Michael Pennisi, the rub is the balance between wanting to invest for the long term incomes streams versus the amount of weight you place on ESG factors.
“I don’t think they can be separated although to be perfectly frank at the moment, the first port of call is the returns stream.”