APRA warns super trustees they must improve or they will face enforcement

The retirement savings watchdog says funds need to address critical shortcomings in every stage of the superannuation life cycle.

APRA deputy chair Margaret Cole. Picture: John Feder

The Australian Prudential Regulation Authority has warned superannuation funds that they need to address critical shortcomings in order to keep pace with the impending demands of the expanding $3.5 trillion sector.

In a speech published on Tuesday, APRA deputy chair Margaret Cole said the super industry was “coming of age” and that trustees needed to ”step up and be accountable” to ensure that they were delivering better outcomes for their members.

“Super funds play a core role in a system that is fast approaching a pivotal point in its history,” she said. “Trustees will need to address, with urgency, critical shortcomings in every stage of the superannuation life cycle to keep pace with the impending demands of the vast and expanding system.”

She identified a number of key challenges facing the superannuation industry, including management of climate-related financial risks, system-wide risks associated with asset valuation, liquidity management practices, and operational resilience challenges around cyber security risks.

She said the regulator was writing to funds to “set out a clear forward plan of APRA’s priorities to assist with their business planning for the next 12 months”.

“Superannuation is an increasingly important driver of national savings,” she said, noting the more than twenty-fold growth of assets in the system to $3.5 trillion, from $148bn, over the past three decades.

Ms Cole said that given member assets were projected to keep growing to represent 218 per cent of Australia’s GDP – close to double the 116 per cent they represent currently – a “strong and stable super system” was vital for Australia’s social and economic wellbeing.

The regulator warned it would continue to build resilience in the super industry through a combination of stronger prudential settings and targeted supervision, and enforcement too where necessary.

She also said that APRA would continue to investigate potential breaches of the prudential or legislative framework and would take enforcement action where appropriate as part of ensuring accountability and sending important messages by way of deterrence.

Ms Cole’s remarks are a signal to the superannuation industry that APRA expects trustees to lift their game and to be more accountable to their members.

“As a prudential regulator we won’t be enforcement-led but we will not shy away from fulfilling our mandate to make sure that superannuation trustees are managing people’s money in their best financial interests,” Ms Cole said.

“The Australian community expects the super industry to be held to account, so in considering how we can reduce (regulatory) burden there is always a balance to be struck.”

Federal Assistant Treasurer Stephen Jones on Tuesday said the super sector needed to lift its game, particularly when it came with engaging members, particularly as they approach retirement.