APRA takes aim at super funds over member interests

APRA has lobbed a warning shot to trustees over lax approaches to weighing up the interests of their members.

Ms Rowell also detailed the regulators’ plans to expand and refine its superannuation heatmaps.

The prudential regulator has taken aim at super fund trustees that apply a “tick-the-box” approach to assessing member outcomes and called on funds to weigh up whether the interests of members “would be better served in an alternative fund” in the wake of the coronavirus pandemic.

Speaking at an Australian Institute of Superannuation Trustees forum on Wednesday, APRA deputy chair Helen Rowell also flagged that a heatmap of member “choice” super products would be published in the second half of next year and would sit alongside the existing MySuper product heatmap released in late 2019.

“Despite the intense scrutiny the industry is under at present, and APRA’s past and ongoing engagement with industry and individual entities on the need to address underperformance, not every trustee appears to have embraced these requirements with equal gusto,” Ms Rowell said.

“In particular, we are concerned that some trustees are approaching implementation of SPS 515 (strategic planning and member outcomes) as a ‘tick-a-box’ compliance exercise, and may not be planning appropriately for the future.”

The SPS 515 prudential standard requires funds to regularly assess member outcomes and identify opportunities for improvement.

A benchmarking exercise into practices across the industry found funds varied widely in how they implemented the requirement, Ms Rowell revealed.

“The trial outcomes assessments for MySuper products were generally simpler and better structured than for choice products. The latter were broadly not done well,” she said, noting that some trustees failed to document how they determined members’ financial interests were being promoted for each of their choice products.

The financial and operational challenges created by the COVID-19 pandemic posed additional questions that trustees needed to reflect on in meeting their strategic planning and member outcome requirements, Ms Rowell said.

“Is the board’s strategy still relevant and appropriate given the dramatic shifts since the beginning of the year? Will changes in the membership profile of your fund require a different response, including the consideration of whether the interests of members would be better served in an alternative fund?” she put to trustees.

Ms Rowell also detailed the regulators’ plans to expand and refine its superannuation heatmaps, and to provide more transparency on how the industry is performing for its members, including by publishing a heatmap of funds chosen by workers in place of the default option.

“Work is well advanced to create a “choice” heatmap,” she said.

“Given that there are an estimated 40,000 choice options, we are still in the process of deciding how to present the choice heatmap so it is both comprehensive and comprehensible.”

The MySuper heatmap is due to be refreshed in December, while the choice product heatmap should be published in the second half of next year, she flagged.

Separately, APRA on Wednesday told life insurers that from Thursday they will be subject to upfront capital penalties until they stop selling unsustainable income protection insurance.

The industry lost $3.4bn over the five years to the end of December due to flaws in the design of income protection insurance, including that benefits in certain cases exceeded the policyholder’s income at the time of claim.

Since December, insurers have lost a further $1.4bn on income protection sales.

“(Income protection insurance) plays a valuable role in providing replacement income to policyholders when they are unable to work due to illness or injury. APRA wants to ensure it remains available to Australians who need it, but that won’t happen if life companies continue to haemorrhage money through the sale (of it),” APRA executive board member Geoff Summerhayes said.

“Our assessment is that the pandemic may further exacerbate the problems with this product, so decisive action can no longer be delayed,” he added.