According to this senior adviser, the Australian Prudential Regulation Authority’s (APRA) ‘politicisation of regulation’ has led to issues with the Your Future, Your Super (YFYS) test.
On a recent Australian Institute of Superannuation Trustees (AIST) podcast, industry professional Garry Weaven discussed issues facing the superannuation industry.
The senior adviser at Tanarra Capital and founding executive chair of Industry Fund Services suggested that the YFYS performance test was not on the right track.
“Every expert has got some problem with it and a lot of what the critics say is justified. The fundamental problem was that APRA has been caught in this politicisation of regulation,” he explained.
“They’ve destroyed a certain amount of trust over recent decades. If they were to restore trust in the industry, then they would be able to take a balanced scorecard approach in restricting or limiting licences.”
According to Minister for Financial Services, Stephen Jones, other common complaints about the test included it could unintentionally affect investment decisions to reduce the risk of failure by encouraging short-termism and benchmark hugging as well as discouraging certain investments.
The government had recently made changes to the test following its review, which included:
When asked if smaller super funds could survive, Weaven was realistic about their future.
“Yes they can, but maybe not all of them. They have to work harder than bigger funds in order to achieve the same results because there is no denying the very substantial scale of economies in all aspects of super,” he said.
He recommended smaller funds cooperate together in certain activities that could bring unit costs down, such as collective portfolios alongside other funds.
Moving forward, Weaven was certain that the industry was moving towards a 12 per cent compulsory employer contribution.
“There’s going to be enormous pressure and focus on the trustees to continue to perform in a first-class way,” he added.
“[Funds] need to be concerned about what goes into the members account over medium and long-term periods, which is what APRA should be focused on too.”
Regarding super professionals offering advice, Weaven suggested that funds could have been ‘braver’ over the years to provide advice to members.
“As long as they are acting in the members’ interests, I really don’t think they are going to get into any real trouble,” he said.
“The funds have an obligation to shield their members from bad advice, and the best way to do that is giving them good advice about the basics of retirement income.”
Amid a challenging market environment, three super fund CIOs have warned against ‘jumping at shadows’.
The professional body is calling for the annual performance test to transition to a two-metric test, so it better aligns with the overarching duty of super fund trustees to act in the best financial interests of their members.
AustralianSuper, Rest, and HESTA agree on the need to retain and enhance the test, yet they differ in their perspectives on the specific areas that warrant further refinement.
Australia’s second-largest super fund has confirmed it is expanding its presence in the UK following significant investment in the region.
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