APRA reinforces communication of super fund failures

The ability for superannuation funds to move beyond their failure of the Australian Prudential Regulation Authority (APRA)-administered performance test has been further limited, with the regulator making their performance test outcomes integral to the annual outcomes assessments.

Superannuation funds are required to write to members informing them of any failure of the superannuation performance test and regulatory guidance provided by APRA makes it clear that that message will need to be reinforced in communications around the fund’s annual outcomes assessment.

APRA has made the requirement clear in an extension to guidance around the outcomes test and its decision to do so comes against the background of the regulator having been challenged during parliamentary committee hearings about how many members had so far failed to leave ‘failed’ funds.

In an update of its frequently-asked questions guidance around the annual outcomes assessments, APRA said it was its view that the outcomes assessment required a RSE (superannuation fund) licensee to “consider the most recent pass or fail result and how that affects the RSE licensee’s ultimate conclusion as to whether the financial interests of the beneficiaries holding the product are being promoted”.

“As noted in the Explanatory Memorandum to the Treasury Laws Amendment (Your Future, Your Super) Bill 2021, an RSE licensee of a product that fails the annual performance test will find it very difficult to show that the product is promoting the financial interests of beneficiaries in their annual outcomes assessment,” the regulator said.

APRA also made clear that while, as at February 2022, the arrangements only apply to MySuper products, they will become “relevant to choice products that are trustee-directed products once the performance test for such products is conducted in 2022”.

The regulator said that it also expected that superannuation funds would also use APRA’s heatmap data to “assess the relative performance of their products and to validate the RSE licensee’s determination”.