Heatmaps require refinement and validation

The Australian Prudential Regulation Authority’s (APRA’s) MySuper heatmaps are only as good as the data on which they are based, and the regulator has already received complaints and queries about the accuracy of its data.

Of course those superannuation funds which have fared well in the inaugural heatmap exercise will naturally be feeling happy about the outcome, but a like any such exercise their level of happiness may only last as long as it takes the investment markets to change and APRA to rebalance its data.

Then, too, there is the question of how APRA has treated the various types of investments held by superannuation funds, particularly unlisted investments and strategies heavily weighted to capital preservation.

As well, there is the question of how the exercise has treated fees in the context of the fund type and member demographic.

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For all of the above reasons, the Financial Services Council is right to have counselled caution in how the heatmaps are used and, indeed, that they are a point in time analysis that should not be treated as some sort of league table.

For her part, the primary author of the exercise, APRA deputy chair, Helen Rowell has asserted that the heatmaps are a game-changer but has acknowledged that the regulator “needed to make certain assumptions with the data in some areas”.

Her caveat regarding the assumptions is important, as is her undertaking that APRA “will continue to refine our models and methodology in response to industry feedback”.

The bottom line is that the objectives inherent in publishing the heatmaps are laudable but unless and until the regulator can be sure it worked through the contestable issues, then the heatmaps must be regarded as indicative rather than definitive.