Topic Paper 4 - Expense Reporting

About this paper

This paper (Topic Paper 4) provides detail on draft “Reporting Standard SRS 332.0 Expenses” (SRS 332.0).

The Superannuation Data Transformation (SDT) project is a key pillar in delivering APRA’s strategic focus on improving member outcomes. Analysis by APRA and other stakeholders indicates that there is significant scope for improved superannuation industry reporting of expenses. More granular Registerable Superannuation Entity (RSE) expense data will enable RSE licensees and APRA to focus in on where change is most needed and better enable consideration of whether expenses are in the member’s best interests.



Increased transparency around RSE expenses will also support APRA in focusing its supervisory intensity on areas of the industry that are underperforming or where improvements in expense management practices are needed. Improving the expense reporting of RSEs will improve transparency with regards to the way members’ retirement savings are being used.  RSE licensees will also benefit from an increased understanding of RSE expenditure when seeking to satisfy their obligations in relation to “Superannuation Prudential Standard SPS 515 Strategic Planning and Member Outcomes” (SPS 515).



Data required by draft SRS 332.0 will provide an improved understanding of Registerable Superannuation Entity (RSE) expenses across the superannuation industry. The data will be obtained by utilising a look-through approach, ensuring the alignment of reporting of indirect costs and by establishing more descriptive and informative expense reporting categories.



Topic Paper 4 provides details of the proposed changes to reporting requirements regarding expense reporting including:

• objectives of the proposed changes;
• the current state;
• drivers for change;
• the proposed state; and
• specific areas of the proposals that APRA is requesting feedback on.

The proposals in Topic Paper 4 should be read in conjunction with the Discussion Paper “Superannuation Data Transformation Phase 1”  released on 7 November 2019 and the draft reporting standard SRS 332.0. A summary of the key changes proposed to reporting on expense reporting is provided in Appendix 1.

APRA recognises the impact that COVID-19 is having on the superannuation industry. However, the proposals outlined in this paper are critical as they will ensure that the gaps in the current data collection.

Recognising the impact of COVID-19, in addition to undertaking a formal submission process (refer below), APRA will adopt a flexible approach to consultation to help facilitate stakeholder feedback. This will include: 

• consolidated feedback through respective industry bodies;
• roundtable discussions and forums;
• webinars; and
• bilateral meetings.

APRA will also undertake a voluntary pilot collection of the data set out in draft SRS 332.0. While the pilot data collection is voluntary, APRA considers the process of working through the data collection is an essential component of the consultation as it will enable RSE licensees to provide comprehensive feedback on proposed changes.

Formal written submissions for Topic Paper 4 close on 2 October 2020. 

 

Chapter 1 - Introduction

1.1 Background 

Over the last decade, the superannuation industry has grown in size and importance in the Australian economy, with total assets of superannuation entities increasing from $1.1 trillion to $2.9 trillion. The evolution of the superannuation system has been accompanied by continued consolidation of RSE licensees and RSEs, with large and more complex entities managing the retirement benefits of most Australians. In this context it is critical that regulators and other stakeholders have access to data that appropriately reflects the size, nature and complexity of the industry.

Access to data of sufficient breadth and depth is essential to adequately assess all aspects of the superannuation industry’s operations and the progress of RSE licensees in improving outcomes for members. 

To ensure the superannuation reporting framework is fit for purpose the SDT project will seek to improve the breadth of the data collection in Phase 1, with the depth of the data collection to be improved in Phase 2. Phase 3 of the SDT project will refine the quality and consistency of data reported in the first two phases. 

1.2 Drivers for change

The key drivers for change through the SDT project are outlined in the November 2019 Discussion Paper. Key objectives include improved accountability of the industry and more informed analysis and assessment of the performance of the superannuation industry by stakeholders.



For Topic Paper 4, the key drivers are the inability of APRA and other stakeholders, using the currently available data, to analyse and publish sufficiently granular and comparable expense data across the entire superannuation industry. Increased granularity of expense data is critical for making assessments of the effectiveness of RSE business practices and ensuring that members’ retirement savings are being used appropriately by RSE licensees.



Phase 1, for which this paper has been prepared, will seek to address current data gaps in the reporting framework. By addressing these gaps, APRA, the industry and other stakeholders will be able to appropriately assess member outcomes, industry operations and performance. 



Improvements to the reporting framework seek to facilitate and support a competitive, transparent, well-governed, resilient and efficient superannuation industry comprised of RSE licensees able to deliver quality outcomes for members to and for their retirement.

1.3 Objectives of the proposed changes

APRA is seeking to:

• gain deeper insights on expenses incurred through additional granularity and consistency of expense reporting at the RSE licensee and RSE level; and 
• support consistent and comparable assessment of expense levels and types across the superannuation industry, and assessment of the implementation by RSE licensees of the business planning and expenditure management and oversight requirements in SPS 515.

Chapter 2 - Expense Reporting

Through draft SRS 332.0 APRA proposes to collect information on expenses at a more detailed level. APRA also intends to provide greater transparency through publication of the collected expenses data.

It is proposed to collect the data under draft SRS 332.0 on an annual basis as at 30 June or for the year ending 30 June where appropriate.  The due date will be aligned with other annual collections. 

2.1 Enhanced Expense Reporting

Existing requirements

Under the current superannuation data collection framework, expenses are reported at the RSE level. Reporting includes the collection of data relating to services and is based on the financial statements (Statement of Financial Performance) for RSEs.

Proposed changes

APRA proposes that all expenses incurred at both the RSE licensee and RSE level will be required to be reported under a new reporting standard dedicated to expenses. This will ensure that all expenses incurred by RSE licensees, RSEs, eligible rollover funds (ERF) and defined benefit RSE (DB RSE) will be collected by APRA, and at a more granular level by expense type as outlined below. 

2.2 Look through provisions

Existing requirements

APRA expense reporting is aligned to the Australian Accounting Standard AASB 1056. While AASB 1056 captures expense data at the RSE level, it does not apply to RSE licensees or service providers, which limits its usefulness when seeking to fully understand expenses for the superannuation industry.

Proposed changes

APRA proposes to take a look though approach to the collection of expense data. Taking a look through approach will enable APRA to see how members money is being used by capturing actual expense payments made to the provider for the services rendered. This “looks through” the RSE fee charged to reveal the underlying services provided and the expenses incurred.  



Recent legislative changes to the Superannuation Industry (Supervision) Act 1993 (SIS Act) through Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Act 2019 (IAMOIS Act) amended APRA’s powers to collect RSE expenses data on a look-through basis. These new powers enable APRA to gain a more complete picture of expenses relating to the management and operations of RSE licensees and their RSEs, including the service providers they engage.

2.3 Alignment to Financial Statements

Existing requirements

Expenses reported in relation to services under current reporting standards are not currently required to align or be able to be reconciled with expenses reported by RSEs in their Statement of Financial Performance or financial statements.

Proposed changes

APRA proposes that the total expenses reported be aligned to, and be able to be reconciled with, the expenses reported in the financial statements.  This will enable a complete picture of how members’ money is being spent by RSE licensees and for these expenses to be appropriately understood and benchmarked.

2.4 Expense reporting categories

Existing requirements

Currently APRA only collects expense data in the following categories: investment expenses, administration and operating expenses, and advice expenses. However, some additional expense data relating to service providers is collected based on descriptions of each service provider; for example: fees for consultant services.

Proposed changes

APRA proposes to increase the granularity of expense reporting through the introduction of ‘expense groups’ and ‘expense types’ in draft SRS 332.0. The expense groups are proposed to be: 

• administration services;
• member services;
• marketing distribution;
• RSE licensee office; and
• corporate overheads.

Underlying each of these expense groups are proposed new expense types that will provide more detail, for example: record keeping and member transaction processing will be collected as separate expense types under administration services. These new categories for grouping expenses will provide additional information to enable transparency with regards to where members’ money is being spent and enable more consistent and comparable benchmarking of both RSE licensee and RSE expenditure. 

2.5 SPS 515 alignment

Existing requirements

There are no existing specific requirements regarding expense reporting data to support the additional SPS 515 obligations in relation to expense management and oversight.

Proposed changes

APRA proposes to introduce an expense category to capture any significant expenditure identified in accordance with SPS 515. This will assist APRA in assessing the extent to which the RSE licensee is able to demonstrate, as required by SPS 515:

• the purpose of the expenditure, including how the expenditure will contribute to the RSE licensee meeting its strategic objectives;  
• how it will assess whether the expenditure is achieving its intended purpose, including any metrics used; 
• the circumstances that would trigger a review of the expenditure decision, including whether any further related expenditure should take place; and 
• how the expenditure will be funded and, where relevant, how the use of reserves as the source of funding for the expenditure accords with the strategy formulated pursuant to section 52(2)(i) of the SIS Act. 

Chapter 3 - Overlap with existing reporting standards

There is an overlap between data to be collected through the proposed SRS 611.0 and member account segmentation data that is provided under current reporting standards:

• Reporting Standard SRS 330.0 Statement of Financial Performance; and 
• Reporting Standard SRS 331.0 Services

APRA will consider granting exemptions from reporting these data items under existing reporting standards or, where relevant, discontinuing collection under an existing reporting standard, to the extent that new reporting standards duplicate data that is already collected.

Chapter 4 - Proposed non-confidentiality determination

APRA’s SDT project will lead to significant changes to reporting requirements.  As a result of these changes, APRA is considering whether the data reported under the Financial Sector (Collection of Data) Act 2001 (FSCODA) should be determined to be non-confidential and publicly accessible.



APRA is generally able to publish aggregate industry-level data without restriction. To achieve the objectives of the enhanced superannuation data collection, which includes improved accountability of the industry and more informed analysis and assessment of the performance of the superannuation industry by stakeholders, it will be necessary to publish data at an individual entity level.



Under section 56 of the Australian Prudential Regulation Authority Act 1998 (APRA Act), data reported to APRA under FSCODA is protected information and generally cannot be disclosed at an entity level, unless APRA determines the data to be non-confidential.



However, section 57 of the APRA Act permits APRA to make a determination that data provided in a particular reporting document, which has been submitted in accordance with a reporting standard made under FSCODA, is non-confidential. APRA may make such a determination if it considers the benefit to the public from the disclosure outweighs any detriment to commercial interests that the disclosure may cause.



FSCODA also requires that APRA must not make such a determination unless it has: 

• given interested parties (bodies or associations representing the relevant kind of financial sector entity) a reasonable opportunity to make representations as to whether information of the kind that is proposed to be released is confidential; and
• taken any such representations into account.

APRA proposes to determine under section 57 of the APRA Act that all data collected under draft SRS 332.0 is non-confidential. 



Data which APRA determines to be non-confidential can, when published, identify individual entities but will not breach the privacy of individual members.  The scope of the proposed publication of data and treatment of privacy protection in public data releases will be set out in the Phase 1 Consultation Response.

Reasons for the proposed determination

The data to be collected under draft SRS 332.0 will provide essential material to fulfil the objectives of the SDT. Publicly releasing draft SRS 332.0 data at an entity level will provide necessary information on expense reporting to allow APRA, other regulators and industry stakeholders to understand and assess RSEs that may require increased supervision. 

APRA intends to release proposals with regards to publication and sharing of data for the proposed data collection later in 2020.

4.1 Feedback sought on confidentiality proposals 

As required under subsection 57(3) of the APRA Act, APRA seeks submissions from RSE licensees and other interested parties on whether data to be collected under draft SRS 332.0 should remain confidential. The submissions should include: 

• details of the data items that should remain confidential (if any); 
• information on how the disclosure of that information would lead to detriment to member interests, and the extent to which that could occur; and/or 
• information on how the disclosure of that information might lead to detriment to RSE licensees or other parties’ commercial interests.

Chapter 5 - Consultation questions: Expense Reporting 

Comment is invited on the proposed reporting changes outlined in this paper, and the draft reporting standard, specifically in the below areas:

1. What difficulties, if any, may arise in providing the expense reporting that relate to your specific operating model? Please provide information on these, and possible solutions.
   
    
2. Are there other ‘expense groups’ or ‘expense types’ that should be considered to be collected by APRA for expense reporting?
   
    
3. Potentially what expenses would be included under the ‘Other’ expense type? What options would you suggest for enabling these to be included within the proposed or additional ‘expense groups’ or ‘expense types’?
   
    
4. Feedback is sought on the expense reporting definitions, and suggestions to improve consistency in reporting on these.
   
    
5. Feedback as outlined in item 4.1 Feedback sought on confidentiality proposals. Please ensure feedback is specific on which data items should remain confidential and any detriment to member or commercial interests.  

5.1 Submission of responses

Written submissions on Topic Paper 4 should be sent by 2 October 2020, preferably by email to superdatatransformation@apra.gov.au. Alternatively, submissions can be mailed to:

General Manager  

Data Analytics & Insights

Cross-Industry Insights and Data Division  

Australian Prudential Regulation Authority

GPO Box 9836 

SYDNEY NSW 2001

5.2 Submission of pilot data

Through Phase 1 of the SDT project, APRA is seeking to collect pilot data on a voluntary basis to test and inform areas for clarification prior to finalising Phase 1 reporting standards.  As the pilot data is based on draft reporting standards, this data is not collected under the auspices of FSCODA and will be submitted on a best endeavours’ basis.  

While provision of the pilot data is not mandatory for entities, past experience has indicated that it is difficult for the industry to provide comprehensive feedback on proposed data collections without actually working through the provision of data. Therefore we view the pilot collections as a fundamentally important part of the development of an effective and enduring data collection.

Each Topic Paper will be accompanied by draft reporting standards, a reporting template to collect pilot data, specified reporting periods for which RSE licensees are requested to provide data for in the template and due dates for submission.

Following the collection and review of the Phase 1 pilot data, an updated data template will be provided to entities for completion to further test and clarify the draft reporting standards.

Following the first data collection after the Phase 1 Reporting Standards have been finalised, APRA intends to publish the data received.  It is intended that the released data will assist RSE licensees in meeting their obligations under SPS 515. It will also inform Phases 2 and 3 of the SDT project.

This table summarises the key features of the initial pilot data collection for this topic paper: 

Appendix I – Key changes proposed to expense reporting