APRA deputy chair Helen Rowell has used what was possibly her last speech with primary responsibility for overseeing superannuation to highlight the fact that while the “numbers” in the industry are broadly successful there are still serious shortfalls.

Speaking to the AIST’s conference of major superannuation funds in Adelaide, Rowell said superannuation was “fundamentally” still a numbers game, where the ultimate determinant of success was measured by the monetary benefits delivered to members in retirement.

“While that… has been a broadly positive story,” she added, “some of the numbers we are seeing still work against the best interests of members: too many funds overall, too many underperforming funds, fees that need to come down further, and a number of funds that probably lack the scale needed to deliver optimum member outcomes over the medium to long term.”

Rowell said trustees needed to continue to raise their standards and improve the outcomes they deliver for their members.

“With superannuation becoming larger and ever-more integral to both members and the broader economy, the fiduciary role of trustees is likewise growing in importance,” she told the conference.

APRA has announced that Margaret Cole will assume Rowell’s role from July 1, while Rowell will assume primary responsibility for overseeing insurance.

Rowell also issued a warning, saying despite a “generally positive trajectory”, there could be no let-up in regulatory scrutiny of trustee performance. She singled out promotional expenditure as being a particular area of interest.

“The industry’s increasing size and complexity, its wider economic impact and influence, and most significantly its fundamental importance to the quality of retirement living for Australians, means there is simply too much at stake,” she said.

“At the sharp end of this work is the current thematic review focused on trustee promotional expenditure. The review’s objective is to better understand how trustees demonstrate the value that is being delivered to members when they decide to make these expenditures, and the metrics that trustees use to measure success.”

Commenting on the current trend of fund mergers she indicated APRA agreed with the “sentiment” that there was a threshold level of assets needed for a fund to be competitive.

“The emerging industry view seems to be that any fund with less than around $30 billion in assets under management is increasingly going to be uncompetitive against the so-called mega-funds,” she said.

“Smaller, underperforming funds would ideally consider merging with a larger, better performing partner rather than another small fund – especially one that is also underperforming,” Rowell explained.

“APRA doesn’t intend to let perfection be the enemy of the good. But we expect trustees to consider whether a small fund to small fund (or bus-stop) merger is going to tackle underlying issues or just be a temporary stop on the way to the ultimate destination of sustainability.”

Stewart Hawkins is a financial journalist, editor and TV producer who has worked for Bloomberg, the Australian Financial Review, the South China Morning Post and News Limited. For the past two decades he has covered markets and the broader financial industry in both Australia and Asia.
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