APRA warns choice funds on “phoenixing” and other rorts

Mike Taylor

Managing Editor and Publisher

21 April 2023

The Australian Prudential Regulation Authority (APRA) has made clear to superannuation funds offering “choice” or trustee-directed products (TDPs) that they will not be able to “phoenix” those products to handle the Your Future, Your Super performance test.

The regulator has used an information paper to point out what will and will not pass muster under the next iteration of the performance test regime which is scheduled to come into force in August.

And the message to the funds is that while they will be allowed to combine the performance history of TDPs they will not be allowed to game the system.

Under the heading, “Avoiding product ‘phoenixing”, the information paper said that, “In line with the policy intent, the choice of when to or how to combine the performance of multiple TDPs must not facilitate situations where trustees intentionally close a product and open a new but similar product to avoid being assessed in the performance test.”

“Combining the performance of multiple TDPs should use the actual return history of products where possible, avoiding using amalgamated data or creating blended returns using data from multiple TDPs,” the information paper said.

“Where two or more products are combined into a new product, a predecessor product should be identified. The following criteria will be considered when determining the predecessor product:

– Continuity of control – for example where there is consolidation of products under RSE licensees within the same corporate group, APRA will consider identifying the predecessor TDP as the one with the same RSE licensee or management as the successor TDP;

– Continuity of product design – for example, where two products are consolidated into one, APRA will consider identifying the predecessor TDP as the one with materially similar product design (such as the investment strategy) as the successor TDP;

– Members impacted – for example, where two products are consolidated into one, APRA will consider identifying the predecessor TDP as the one with the majority of members.

The information paper also said that combining the performance of multiple TDPs should not allow the performance achieved by a continuing TDP to be replaced with the performance achieved by another TDP in the product range.

“Where an RSE licensee replaces the investment strategy of a TDP with the investment strategy of another product within the product range, the performance of the TDP will not be replaced by the performance of the other product in the range.”