APRA cracks down on failing super funds preparations

Eradicating unacceptable product performance is a key priority for the Australian Prudential Regulation Authority (APRA) this year, with particular focus given to those who fail the annual performance test.

Outlining its priorities for the year ahead, APRA said its two main focuses were rectifying sub-standard industry practice and eradicating unacceptable product performance.

The performance test, which was introduced for the first time in 2021, would be extended to include trustee-directed products and a “much broader set” of products and investment options.

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This had been a subject raised by the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA) who argued many super members’ funds were excluded from the test.

In last year’s inaugural test, 13 MySuper products were determined to have failed the test and APRA said it would ensure these licensees remediated performance or took timely steps to transfer their members to another product.

With this in mind, APRA said it would hold funds accountable to assess the risk of failing the second time this year and ensure they had prepared for this scenario.

“APRA is assessing the remediation plans of RSE licensees operating the products that failed the annual performance test to ensure timely action. APRA will pay particular attention to the steps RSE licensees are taking to adequately address the risk of failing the annual performance test for a second time.

“In certain circumstances, APRA has required relevant RSE licensees to prepare, and will hold RSE licensees accountable to give effect to, contingency plans that include pre-positioning for an orderly transfer of members to another fund if required.”

Data from APRA last year found only around 7% of members in super funds that failed the performance test opted to move funds, despite receiving communication that their fund was underperforming.

It also stated the heightened supervisory approach regarding investment performance and mergers would continue and be extended to non-MySuper (choice) products.

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