Treasury signals no discretion on performance test fails

The Federal Treasury has used consultation around possible changes to the superannuation performance test to make it clear it does not want the decisions of the Australian Prudential Regulation Authority (APRA) open to challenge.

What is more, the consultation paper goes as far as to suggest that the cost of any legal challenge around the test has the potential to add to the level of the regulatory levies paid by financial services companies.

Discussing the harsh consequences for superannuation funds which fail the test, the Treasury discussion paper has nonetheless made clear that it does not want to hand APRA scope to apply discretion, suggesting it would open the way for legal challenges.

As things currently stand, superannuation funds which fail the performance test on successive occasions face being forced to close to new members but a review of the regime saw stakeholders arguing for APRA to be given the ability to apply discretion.

However, the Treasury discussion paper makes it clear that APRA discretion is not something they favour.

“…introducing discretion into the consequences will impact the efficiency of the test by subjecting the regulator to challenge by trustees, resulting in delays, additional regulator costs and ultimately higher costs to members through a higher industry levy,” the discussion paper said.

“Greater discretion could also lead to less meaningful improvement by trustees, as they shift focus from improving performance to ‘justifying’ their failure,” it said.

The discussion paper suggested that Treasury saw the current consequences for failing the performance test as a genuine disincentive.

“Clear consequences have been effective in eliminating underperformance; however, many stakeholders have advocated for the test to also encourage funds to improve across the board and not only punish under-performers,” it said.