APRA heatmap should not deter from member outcomes assessment

While the Australian Prudential and Regulation Authority’s (APRA’s) superannuation heatmap should be a valued additional piece of transparency, super funds should not lose sight of the need for the business performance review to consider the fund’s own target member outcomes, Rice Warner believes.

In an analysis, the research house said in the post-Royal Commission environment, APRA had been left with little choice but to become a more “active and interventionist regulator and that increased market disclosure and scrutiny is an inevitable consequence of this environment”.

It recommended that funds reviewed the heatmap and considered how each metric could be incorporated in the fund’s member outcomes framework:

  • Does the metric assist the fund to consider whether the MySuper offering is promoting the financial interests of members, relative to other MySuper products? If so, would it be a useful inclusion in the annual outcomes assessment?
  • Does the metric align with a target member outcome for the fund? If so, should it be incorporated in the business performance review?
  • Is it prudent to ignore the metric? Even if the fund disagrees with a heatmap metric we would suggest that the metric should not be ignored, rather it should be substituted by another metric which more appropriately considers the circumstances and performance of the fund.
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“Ultimately, the member outcomes process asks each fund to think critically about what outcomes the fund is aiming to achieve for its members and how the fund’s business plan supports this,” the analysis said.

“This is not a one size fits all approach, in which all funds aim to deliver the same outcomes and service proposition, and in which the only differentiating factors are having the lowest fees and the highest past investment performance.”

During the Association of Superannuation Funds of Australia (ASFA’s) conference last week, a poll conducted found that only 20% of trustees were ‘very confident’ they would deliver their member outcomes assessment.

Rice Warner noted that funds that were highlighted in the heatmap as underperforming was independent high-level feedback that the fund needed to consider as an element of its performance and questions they should consider were:

  • Is the fund genuinely under-performing? Why/why not?
  • How can the fund explain this performance to its members and APRA if it disagrees with the assessment? Does that explanation pass the “pub test”?
  • If necessary, what can be done to improve performance?

Rice Warner said considering APRA’s “Superannuation Data Transformation” project a broader heatmap including Choice products and investment performance would first be collected by APRA for the June 2020 quarter and would be published late in 2020.

“If APRA can meet these timelines, funds will have at least one quarter of comparative data for Choice products, when many funds conduct their first annual outcomes assessment in the summer of 2020-21,” the analysis said.

“For any point in time measures, this could warrant inclusion, though it is likely that a full incorporation of Choice products may have to wait another 12 months.”

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