APRA Deputy Chair Margaret Cole - Speech to the Conexus Financial Superannuation Chair Forum

Setting a clear course for better member outcomes

2022 saw several positive changes in the superannuation industry: fewer MySuper products failed the performance test; a significant new entrant was licensed; and a range of fund consolidations of all shapes and sizes were completed.

These successes were achieved against the backdrop of a global economic downturn, an escalation of geopolitical tensions especially in Europe, and significant cyber breaches on our own shores.

It has been an eventful year. But a new year brings new impetus.  And the reality is that every year has its share of challenges and change. 

At APRA we don’t feel the need to start each year with a shiny new set of initiatives. We continue to build on the foundations we have set, focusing on the improvements we need to make, to drive a better outcome for the community we serve. But let’s be clear, responsibility for outcomes for members of superannuation funds rests with you. We may referee the game, but we don’t play it.

Superannuation members have simple expectations of the APRA-regulated entities in which they have entrusted more than $2.2 trillion in combined retirement savings. Members want well-managed funds, simple clear information, and good retirement income options. This helps ensure that their money is well looked after for their future and a dignified retirement. They rightly expect trustees to act in their best financial interests.

These expectations are not new and they are, after all, what this system is all about. 

Later this week APRA will publish its supervision and policy priorities for 2023 for superannuation, banking and insurance. 

I summed up APRA’s priorities for super a year ago as “transformation through action”.  You can expect more of the same in 2023. 

APRA will continue to prioritise initiatives that strengthen the prudential framework and provide trustees with guidance, guard rails and supervision to drive better member outcomes. 

Rectifying substandard industry practices

Rectifying substandard industry practices remains a key priority. 

It’s been just over a year since APRA called on trustees to address risks and vulnerabilities identified in three thematic reviews. The reviews focused on strategic planning and member outcomes, fund expenditure and unlisted asset valuation practices.  

APRA expects all trustees to have undertaken self-assessments in each of these three areas and to develop plans to remediate any deficiencies identified. 

Many of you will have already experienced APRA’s ongoing focus on these areas last year. We called for additional information from a number of you in relation to your valuation practices of certain unlisted assets. We explored marketing and sponsorship expenditures to understand how your decision-making process had considered the best financial interests duty. Our supervisors will continue this focus this year, and APRA will also assess the preparedness of trustees to respond to investment market stresses, including possible liquidity stresses.

We will continue our scrutiny of business models that are challenged in delivering long-term sustainable, competitive outcomes for members. Our actions to date, including the issuance of licence conditions requiring some funds to find a suitable merger partner, are a clear message to funds that have sustainability issues that we expect them to consider with clear eyes whether consolidating into another fund is in the best interests of members.

Transparency of underperformance

The annual performance test has proven to be a valuable tool in identifying underperforming MySuper products and encouraging trustees with failed products to address their underperformance or exit. Two rounds of the performance test have now been conducted.  Overall,14 MySuper products have failed the test, including four which failed for a second time in 2022 and are now closed to new members. 

We all know that the Government’s review into the Your Future, Your Super reforms is yet to conclude. But we encourage trustees not to delay examining the performance of all their products as well as the fees that are charged. Regardless of the outcomes from the review, performance and sustainability will remain a key focus of our supervisory work, so don’t sit back and wait.

Alongside the annual performance test, APRA publishes a range of data to increase transparency of the superannuation industry for all stakeholders. This includes new publications using the expanded granular data from the Super Data Transformation (SDT) project. 

The first publication using this new data was published in October 2022, including information on the number and types of products and investment options, and quarterly member demographics which were previously published annually. 

APRA will continue to develop what it publishes over 2023 so that meaningful information is accessible. In particular, APRA will finalise enhancements to expenses reporting in 2023 with the aim of improving transparency on expense details in the future. APRA will also continue to consult widely with industry with proposals for the second phase of SDT collections.

Influencing improved retirement outcomes

Another significant priority for APRA this year is retirement income.

In 2022, APRA participated in a range of productive roundtable discussions about how trustees are implementing the new retirement income covenant – the benefits you’ve found and the challenges you have faced. Since coming into effect in July last year, the retirement income covenant has sharpened the industry’s focus on the post-accumulation phase of superannuation. This is a welcome development for the many Australians who are nearing retirement.

As foreshadowed in our March 2022 joint communication with ASIC, APRA is considering how the prudential framework might be adjusted to ensure trustees are focused on improving retirement outcomes for their members and are managing new risks that arise.  

APRA and ASIC are currently undertaking a thematic review to examine how a sample of trustees have implemented the retirement income covenant within their business strategies and operations, for the benefit of members. 

While the primary intention is to use the findings to consider enhancements to prudential standard SPS 515 Strategic Planning and Member Outcomes, we will address deficiencies where they are identified.

Updating member outcomes regulations

Speaking of SPS 515, one of APRA’s most important policy priorities in superannuation this year is to improve member outcomes more broadly through updates to the standard.

Our policy team will consult on proposed revisions and guidance that incorporate legislative changes and our findings from supervision and thematic reviews.  

We will also progress connected reforms on prudent transfer planning, financial resilience and investment governance.

Other important areas of focus

I’ve limited my comments today to APRA’s priorities for superannuation although some of our cross-industry priorities, specifically in relation to cyber, climate and operational risk, will impact you too. 

The high-profile 2022 cyber breaches have rightly raised awareness of cyber vulnerabilities and the need for boards to pay attention to cyber risk. Elements of our recent discussions with your boards have focused on this topic.

Similarly, the availability of stolen personal data has increased fraud risks that superannuation funds face in terms of protecting the integrity of their members’ superannuation accounts. APRA is working with the ATO, ASIC and an industry working group to examine this risk from an end-to-end perspective and to work towards uplifting risk controls where new vulnerabilities are identified. We believe this is important work and are encouraged by the collaborative approach being taken.   

In conclusion 

As the last year has shown, the superannuation industry operates in a complex and ever-changing environment. 

Through the priorities I have outlined today, APRA will continue to strengthen the resilience and prudential management of the superannuation industry, ensure a stable financial system and work to protect the financial interests of fund members.

Ultimately, though, the success of your fund is in your hands. Don’t wait for APRA to blow the referee whistle. When it comes to delivering the best outcomes for your members, you know best what needs to be done.