APRA exec predicts performance test will prompt member exits

The new Australian Prudential Regulation Authority (APRA) member in charge of superannuation has openly acknowledged that the new superannuation fund performance test outcomes which cut in tomorrow will prompt member exits.

With superannuation fund executives and trustees privately expressing concern that the test risks sparking a “run” on some funds deemed to have “failed” the test, APRA member, Margaret Cole not only forecast that members would be moving with alacrity to switch funds but suggested it would help in APRA’s drive for industry consolidation.

Addressing the Women in Banking and Finance forum, Cole said she expected the Government’s new Your Future Your Super laws “to have a positive impact on encouraging further industry consolidation through the performance test and stapling mechanisms”.

She noted that on August 31 “we will release the first performance test results covering all MySuper products. Many super members will learn for the first time, and in crystal clear language, that their retirement savings are in a product that has failed the test”.

“Given that Australians are traditionally disengaged from their super, we don’t yet know what impact this heightened transparency will have, but it’s reasonable to think many members will head to the ATO’s YourSuper comparison tool seeking somewhere else to invest their money.  In doing so, members’ behaviour could drive further helpful consolidation and change,” she said.

Cole also predicted the introduction of stapling, where a member’s superannuation fund will now automatically follow them throughout their career unless they actively choose to change funds, could have a similarly profound impact on consolidation.

“Under the new law, superannuation funds that traditionally attract workers in their first jobs are likely to be advantaged compared to funds that cover jobs people more typically take on in later life,” she said.

“Not only will it be harder for this second group to attract the new members needed to gain scale, they may miss out on investment and administration fees they might once have expected. In this new paradigm, trustees will need to review business models to assess whether approaches that may have served them well for many years remain fit-for-purpose. Many are already doing so, hence a recent spike in superannuation merger activity that is likely to continue.”