DB and custom fee products escape APRA’s CPPP scrutiny

The Australian Prudential Regulation Authority’s new superannuation performance metrics will exclude products which are the subject of custom fee arrangements and defined benefit products.

As well, APRA says that the new methodology should not, on its own, be used to select a superannuation product.

The regulator has made clear in the methodology paper outlining its new approach that custom fee arrangements which are not offered to the general membership of a fund such as discounts for a large participating employer would place products outside of the scope of the Comprehensive Product Performance Package (CPPP).

As well, it said that defined benefit products, whole of life or endowment products and investment options offered for insurance purposes only would also be excluded noting that “investment returns do not directly impact or fully account for the return outcomes experienced by members in these pathways”.

“For defined benefit interests, employers generally bear the investment risk. A small number of investment options that remain identified as ‘accumulation’ in SRS 605.0 have been excluded given they are either bundled with insurance arrangements or have the sole purpose of providing insurance which do not make them comparable to other accumulation products,” the APRA methodology said.

APRA said the CPPP brings together the performance metrics underpinning the Your Future Your Super performance test and the APRA heatmaps with the result being that it covers 876 MySuper and choice products “which, collectively, represent most types of investment offerings for accumulation members”.

“When looking at investment performance more broadly to factor in asset class selection and performance relative to peers, the CPPP identifies additional products that have underperformed,” the regulator’s explanation said.

The methodology said that the CPPP would provide information on relative outcomes for members, in particular poor outcomes, of the in-scope investment options with the expanded metrics including:

• legislated performance test results and metrics;
• investment return metrics over three, five, seven and ten-year time horizons; and
• administration and total fees and costs metrics covering representative member account balances of $10,000, $25,000, $50,000, $100,000 and $250,000.

The methodology paper said that the CPPP highlights the areas of poor outcomes for members and enables like-for-like comparisons between different offerings.

“The CPPP is intended to improve transparency, hold trustees accountable for outcomes they deliver to members, and to foster a culture of continuous improvement across the superannuation industry,” it said.

“The primary users of the CPPP are RSE licensees, although it provides insights that benefit a wide range of stakeholders including policymakers and advisers. APRA also uses the CPPP as part of its supervision activities to ensure RSE licensees are focussed on member outcomes.”

“The CPPP does not provide information on all the relevant factors that should be considered when assessing the outcomes or appropriateness of a particular superannuation offering. It should not be used in isolation to inform decisions regarding choice of a superannuation product.”