Super funds feel heat with regulator’s push for reforms

Superannuation funds will have to lift their game in dealing with members’ monies under a new set of rules recently proposed by the  Australian Prudential Regulation Authority (APRA).

Oct 16, 2023, updated Oct 16, 2023

The regulator wants super funds to better detail how every member dollar is spent. It also wants more scrutiny on the setting of fees members pay on their superannuation accounts.

One of the areas to be tightened deals with super funds that fail the APRA performance test. This year one industry My Super product and 96 choice products failed, accounting for 12 per cent of products on offer.

Show us the plan

APRA aims to compel failing super funds to demonstrate to members and the regulator their plans to reform operations. They will also have to detail the steps they will take to move customers from dud products, if that is necessary.

Fees, one of the major drivers of superannuation fund performance, will come under scrutiny by both the regulator and members. High fees have nearly always been present in underperforming funds and the APRA performance tests, implemented in 2020, have resulted in fee cuts by as much as 20 per cent.

Under APRA’s plans, funds will have to better explain how fees are set; why fee changes may be necessary, and their fee setting policy must be prudent and transparent. Fee changes will be appropriate and transparent, and in line with the norms across the super industry.

Super fund board members will have to put themselves on the line with fees, having to sign off on any fee changes and the development of business plans for their funds.

APRA stated it plans to “ensure expenditure requirements better align with the best financial interest duty. Under the reforms, trustees must be able to justify the purpose of expenditure relating to business operations”.

The regulator also said it wants funds to “take a prudent approach to … management of member funded reserves”.

These reserves are considered members’ money and are held by the funds to cover unexpected costs. There has been controversy over using these funds to pay for fines or penalties incurred by funds for behaviour found wanting by regulators.

Court battle for AustralianSuper

AustralianSuper is in the Federal Court with ASIC over its failure to consolidate 90,000 member accounts, and for which it has repaid $70 million to affected members. If the courts demand penalties, the fund has said it will pay from its Trustee Risk Reserve.

The proposed regulatory changes would also include closer scrutiny of spending on retired members to ensure it is both in members’ best financial interests, and it fits with demands of Treasury’s Retirement Incomes Covenant.

The covenant requires funds to help their members prepare before they retire. There is a lot of work to be done in this area as a review by ASIC released in July found their performance was seriously wanting.

APRA deputy chair Margaret Cole said the proposed changes were one of its most important policy priorities in superannuation.

What your super fund does for you

While the new rules will not be introduced before consultation with the industry and government there are some important things to know now about what your super fund should be doing for you.

Most funds offer retirement income calculators “to help give you an idea of how much you might need to maintain your lifestyle in retirement,” said  Super Consumers Australia director Xavier O’Halloran.

Many funds now offer financial advice.

“It’s a real mix with some offering intra-fund advice and some having a more comprehensive offer,” O’Halloran said.

That advice can be helpful, but you need to check whether it’s free or if not what the cost is.

Also you should look at what is produced for your fund’s annual member meeting. This can be found on the fund’s home page and is increasingly important.

“We are seeing funds disclose more about their expenditure at annual meetings and that expenditure has a direct impact on the fees you are charged,” Mr O’Halloran said.

Scrutinising those meetings will enable you to get a sense of whether your fund’s expenditures are rising and whether that is resulting in higher fees.

Member meetings

APRA’s planned changes will ensure funds tighten up their disclosure on expenditures and fees.

“At some annual meetings we have seen members ask questions and get some pretty wishy-washy answers back about how fund expenditure will affect them,” O’Halloran said.

The other thing you need to do is keep up with the performance of your super fund. You’ll get a performance update every six months but you can get more information than that by setting up an online account with your fund.

“I’d encourage people to go beyond the letters they get send detailing fund returns and set up online accounts because there is so much more information available there,” O’Halloran said.

This story first appeared in our sister publication The New Daily, which is owned by Industry Super Holdings.

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