APRA’s excessive fee warning on super contingency reserves

Mike Taylor

Managing Editor and Publisher

30 January 2025

Superannuation funds should be diligently exploring and exhausting all avenues for raising financial resources before hitting members with fees to build a contingency reserve, according to the Australian Prudential Regulation Authority (APRA).

While acknowledging the ability of super fund trustees to build contingency reserves, the regulator has told Senate Estimates that the fees charged by funds should not be excessive.

APRA had been asked by NSW Liberal Senator, Andrew Bragg what would happen if a major fund was hit with a regulatory fine and its contingency reserve was not sufficient to pay the fine.

APRA’s formal answer to the question made clear that in such an event superannuation funds would need to find the money elsewhere, or file for insolvency.

“If a trustee incurred a fine/penalty that exceeded the amount in its reserve, the trustee would need to obtain an alternative source of capital to pay the fine/penalty. If a trustee was unable to find an alternative source of capital, the trustee would need to file for insolvency and a replacement trustee or acting trustee would need to be appointed,” the regulator’s answer said.

APRA pointed out that from 1 July this year Prudential Standard 515 (SPS 515) will require superannuation fund trustees to have controls to ensure they are in a sound financial position including a capital management plan to govern the permitted use of financial resources held at the trustee company level.

“SPG 515 outlines APRA’s expectations where fees are charged to contribute to a trustee reserve, including that the amount generated would not be excessive, and that the level would be transparent and evidence-based,” it said.

“SPG 515 further outlines APRA’s expectation that trustees should diligently explore and exhaust all other avenues for raising financial resources before building a financial contingency reserve by charging fees.”