The Australian Prudential Regulation Authority (APRA) has urged superannuation fund trustees to consider ensuring that their funds are appropriately reserved to handle any contingency.
APRA executive general manager, supervisory support division, Keith Chapman told a meeting of Government superannuation funds that not only was it a good idea for funds to establish a reserve but that the size and purpose of the reserve should be reviewed at least once a year.
Chapman acknowledged some of the arguments about the inherent equity in establishing a reserve when those members who contributed to it might not be the ultimate beneficiaries, but his presentation argued that it might be more equitable to penalise those who are in the fund when a loss event occurs, even if the reserve has been built up over many years.
“There is nothing inherently wrong in spreading costs over time or different generations of members,” Chapman’s presentation said. “Think of reserving as an internal smoothing arrangement — merely because there has been no claim, insurance does not become unwarranted.”
