Helen Rowell, APRA deputy chairman

The prudential regulator has warned trustees of superannuation funds that flashed red or amber on its controversial MySuper heat maps late last year that they should act now to improve performance and reduce fees.

Speaking at Investment Magazine’s Chair Forum in Victoria, deputy chair Helen Rowell said the singled-out funds should not wait for the Australian Prudential Regulatory Authority to tell them what to do or for them to use their new “coercive powers to force action.” She also said the next step for APRA was to tackle the choice segment of the market, despite calls to abandon such plans.

“We have been pleased to see some actions taken that will immediately have a positive impact for members, such as reduced fees,” she said. “This is the type of reaction that the heatmap was intended to prompt, and APRA supervisors will continue to assess the adequacy of all trustees’ responses to identified weaknesses throughout 2020.”

The regulator published the results of the heatmap appraisal system in December, which used a graduating colour scheme to signal how much the performance or fees of the 97 MySuper products available on the market deviated from the trend line. Maritime Super, EISS Super and Christian Super were among a handful to be identified as the worst performers over five years.

Rowell said next on the horizon was the “Herculean task” of assessing the performance of more than 40,000 super fund options available on the market. She added that trustees should get on the “front foot” and think about how they can improve their own data to help with transparency and analysis.

The deputy chair conceded that it was “not feasible or even very useful” to assess the performance of all options individually all the way through to single securities. She also said the regulator would need to come up with a new format because the final choice heatmaps  “won’t be an Excel spreadsheet with 40,000 rows”.

“The number of products we are dealing with will still be substantial,” she added. “Tackling this challenge will be a major, but very important undertaking for APRA this year, given the significance of the choice segment of the industry for member outcomes.”

‘Constructively Tough’

In a wide-ranging address, Rowell used the speech to lay out the regulator’s plans for 2020. She said APRA would roll out a number of policy initiatives that were backed by “intensive supervision” and where necessary a “constructively tough enforcement approach”.

As part of the Strategic Planning and Member Outcomes (SPS 515), which includes a business performance review, Rowell said trustees should conduct a trial outcomes assessment in 2020 that covers a subset of their MySuper and choice products for the financial year.

“A test run will provide valuable insights into the methodology, data and publication issues that may arise in respect of the legislated outcomes assessment required to be completed and published in 2020/21,” the deputy chair said. The “heatmap for MySuper products should also provide valuable insights” for the assessment.

Echoing criticism from the Assistant Minister for Superannuation Jane Hume who spoke at the forum yesterday, Rowell said while the industry had responded to the challenges laid down by the Royal Commission, there was much more to do and “complacency” was not an option. She also said funds would continue to merge.

“APRA will not shy away from taking more forceful steps to compel action,” she warned. “I am confident that the trend of industry consolidation will continue apace in 2020 and the industry’s persistently underpeforming tail will continue to shorten.”

Rowell said the regulator would boost resources for superannuation after creating a supervision division in December. This included increasing the number of front-line supervisors over the next six months and recruiting staff with broader skill sets.

“Growth begins at the edge of your comfort zone,” she concluded. “Trustees will feel further discomfort this year, but I am also confident that trustees will rise to that challenge.”

Sarah Jones is the deputy editor of Investment Magazine. She previously worked for Bloomberg News in London for more than 12 years covering equity markets and global asset management. Prior to moving to the UK, she worked for Australian Associated Press in Sydney covering economics and monetary policy.
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