By 2027, Australia’s $3.4 trillion superannuation landscape should have grown in value and consist of fewer and larger funds more focused on risk management and retirement products, according to regulator Margaret Cole.

But first, funds will face more scrutiny with about 1000 products set to undergo performance testing in 2022, the Australian Prudential Regulation Authority (APRA) executive board member told delegates at Investment Magazine’s Fiduciary Investors Symposium.

The latest performance tests are part of the Federal Government’s Your Future, Your Super reforms introduced this financial year to lift funds’ transparency and performance, and designed to consolidate the industry, Cole said.

In August, APRA failed 13 MySuper products, with a combined $56 billion in assets under management, for not meeting the objective benchmark. Trustees of these products informed members in September and must improve performance to pass next year or transfer members to a better-performing fund.

The $2 billion fund Christian Super, which failed the performance test with its My Ethical Super product in August, was this week ordered to merge with a better performing fund by July 31 next year to rectify “persistent investment underperformance”, APRA said.

Test gives demonstrable evidence

Seven of the 13 MySuper products that failed the performance test in August have now merged, or are in discussions with, better performing super funds.

“The performance test gives us demonstrable evidence… it does give us a lever to push through some consolidation,’’ Cole said.

“I think that is as it should be. That’s the best way to get the best outcome for members.

“There are smaller players here who have not produced some great results for members. Of course we would encourage merger activity but it has to be sustainable. Not a merger for mergers’ sake.”

Mergers are forecast to shrink the sector within five years but APRA does not have a mandate on numbers, Cole said.

“It’s possible to have a vibrant, competitive market with a lot fewer; I think that should bring a better outcome for members,’’ she said.

“The larger entities that will be the big players in this market need to work a lot harder on engagement. It’s clearly a tough nut to crack but should be within the wit of the people in these big funds to come up with more effective approaches to member engagement.”

Cole says large-scale players could create a competitive advantage by innovating around retirement products and member engagement, but agreed that regulation could create a brake on investment decisions, such as sustainable or carbon neutral strategies, if impacted by performance testing.

“I do feel this is one of the areas where perhaps we can have conversations there with the Treasury and Government such as choice products where people want to invest in such products and yet the fund is worried about performance tests,’’ Cole said.

Need to commit to better outcomes

While performance testing was currently a “bluntish tool designed to do a variety of things to attract attention of the industry”, Cole said those trustees with products close to failure or those at the top end of the scale, still had to commit to better outcomes to members.

“I know it’s not perfect but we have to work with what we’ve got,’’ she said.

A trained lawyer, Cole, worked in private sector regulation, including with PwC in the UK before joining APRA in July.

When asked what were her main aims when stepping into the role she replied: “I’m certainly determined and want to get things done.’’

“I want in this role to achieve beneficial changes in this industry and for super members. I tend not to flinch from challenges.

“As a regulator I am perfectly aware of the nature of our role sometimes we have to do things you don’t like us doing. That’s the nature of the role.”


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