Appearance before Senate Standing Committee on Economics Public hearing on Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 and Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017 and Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017
10 October 2017
APRA welcomes the opportunity to appear before the Committee today as part of its inquiry into the Government’s proposals to improve governance, transparency and member outcomes in superannuation.
The proposals in the Bills address weaknesses in the current superannuation regulatory framework. Some of the proposals, such as the enhanced directions power for APRA and provision for APRA to approve changes of ownership of trustees, were identified as necessary in the aftermath of the Trio collapse in 2009. Other proposals, such as those related to MySuper authorisation and cancellation, the broadening of the MySuper scale test, and enhanced reporting on expenditure, address areas that APRA believes warrant strengthening based on our supervision activities following implementation of the Stronger Super reforms in 2012/13.
Enhanced supervisory powers
Turning to some of the specific proposals in the Bills, the proposal to enhance APRA’s directions powers will provide the same scope of direction powers for superannuation that are in place for other APRA-regulated industries. Where APRA identifies a specific prudential concern, this proposed power will enable APRA to intervene at an earlier stage, with a wider range of options, than is currently the case. At present, APRA is limited to taking action where a trustee has already breached the law, rather than being able to intervene to prevent the breach.
The proposed capacity for APRA to approve changes of ownership of trustees will also provide APRA with similar powers to those in place for other APRA-regulated industries. At present an entity wishing to operate as a superannuation trustee must be authorised by APRA but there is no requirement for APRA approval where ownership changes after authorisation. This makes it difficult for APRA to prevent a change of ownership that may adversely impact the interests of fund members, such as occurred with Trio.
Assessing outcomes for members
The proposal to replace the legislated MySuper ‘scale test’ with a broader ‘outcomes assessment’ is a positive initiative. The metrics considered under the existing scale test are insufficient to indicate whether a trustee is promoting the financial interests of, and providing quality, value-for-money outcomes for, fund members. Accordingly, in recent years, APRA encouraged trustees to go beyond the minimum legislative requirements by conducting a broader assessment as part of their strategic and business planning processes.
In addition, and concurrently with the Bill, APRA is proposing that a similar ‘outcomes assessment’ be undertaken by trustees beyond MySuper products. APRA’s view is that all superannuation fund members are entitled to have confidence that their trustee is operating efficiently and effectively, and delivering quality, value-for-money outcomes.
MySuper authorisation and cancellation
The proposals in relation to MySuper authorisation and cancellation seek to strengthen APRA’s ability to ensure that all authorised MySuper products are of appropriate quality. During the initial MySuper authorisation process in 2012/13, APRA encountered instances where it was difficult to refuse to authorise a product, even where there were concerns about some aspects of it, such as its investment strategy or level of fees. The proposals in the Bill will enable APRA to require any such concerns to be addressed before a MySuper product is authorised. Similarly, APRA will have greater ability to cancel authorisation of MySuper products that are not meeting the legislative requirements.
Enhanced data collection powers
The proposal to permit APRA to collect additional data about expenditure on a look-through basis will address deficiencies and inconsistencies in the information that is currently reported to APRA. This will also provide additional transparency on the ultimate purpose and destination of payments than is currently available.
Finally, APRA continues to support the proposed amendments to require a minimum of one-third independent directors and an independent chair on superannuation boards. This will enable the appointment of directors from a broader pool, so that boards have the necessary skills, capabilities, experience and diversity of views to enhance decision-making and better meet the current and future needs of their members. It will ensure all boards have a meaningful proportion of directors free from association with related entities – whether that is a parent organisation within a retail group or a nominating member or employer representative body of an industry fund – so there is adequate objectivity and challenge in decision-making, and more effective conflict management. While some in the industry contend the existing arrangements serve their members well, APRA sees little downside to an additional injection of independence.
With those opening comments, we are happy to take questions.