Is APRA running a second, unofficial super performance test?

Mike Taylor

Managing Editor/Publisher, Financial Newswire

17 October 2022

ANALYSIS 

The Treasury closed off submissions to its Review of the Your Future, Your Super (YFYS) measures on Friday, with the appropriateness of the current superannuation fund performance test listed as the top priority. 

But, after hearing evidence given last week by the Australian Prudential Regulation Authority (APRA) to a Parliamentary Committee, the technical working group appointed by the Government to undertake the review might care to seek ministerial approval to dig a bit deeper. 

Because what the APRA member in charge of superannuation, Margaret Cole, told the House of Representatives Standing Committee on Economics was that the YFYS performance test was not the only test being applied by the regulator. Indeed, even when funds pass the official MySuper performance test, APRA then applies its own “metrics”. 

Cole referenced APRA having “observations and calculations using certain metrics which we publish” which suggested that some funds which had passed the performance test “did not have a long-term sustainable future”. 

It is on this basis, that the technical working group might care to ask Cole to specify what, specifically, she was talking about when it comes to “observations and calculations” and whether APRA is running a behind-the-scenes ancillary test, for what purpose and under what Government mandate? 

The situation becomes even more complex when it is considered that the Government is actively considering allowing a different performance test approach for “faith-based” superannuation products. 

Cole seemed quite proud of the fact that based on APRA’s “observations and calculations” the regulator was encouraging the trustees of a number of superannuation funds to consider merging or exiting the industry. 

The position being adopted by APRA is disturbing because it suggests that the regulator is trying to determine market outcomes when it is neither qualified nor specifically legislatively empowered to do so. It is even more concerning when it is considered that the methodology underpinning the official performance test is already under review. 

The bottom line, of course, is that the performance test has worked to encourage a dozen superannuation to enter into merger arrangements because of their performance, not because of their scale. 

APRA’s continuing position that most small funds are necessarily going to under-perform is not supported by the facts. Numerous smaller funds have easily sailed through the performance test while it is common knowledge that a number of large funds have cut fees and otherwise struggled to reach the benchmark. 

In these circumstances, the review of YFYS and the performance test should be also closely examining the appropriateness of APRA’s conduct.