AIST precipitates APRA’s separation of superannuation

19 July 2019

The Australian Institute of Superannuation Trustees (AIST) flagged that superannuation needed different treatment to other institutions by the Australian Prudential Regulation Authority (APRA) in its submission to the Capability Review, precipitating the regulator’s move this week that it would develop a separate approach to super.

The AIST submitted to the Capability Review that APRA’s current mandate didn’t address the promise made by superannuation or recognise how it differed to that of other financial institutions. In fact, it argued that the mandate was written for banking and insurance.

“With banking, the ‘promise’ is clear – that the money in a depositors account will be there when they want it. With insurance, the ‘promise’ is clear – if an insurable event occurs, the insurance company will pay,” AIST senior policy adviser, Karen Volpato, wrote in the submission.

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“With superannuation, there has been little discussion of what is the ‘promise’. Given the strong focus of both the Productivity Commission and the Financial Services Royal Commission on members’ best interests (and in the case of the FSRC community expectations), this must be addressed by the Capability Review.”

Further, the industry super fund body submitted that APRA’s key performance indicators should be changed in relation to superannuation, calling for the best interests of members to be included in a revised measure of APRA’s success.

In its current state, ‘loss’ as a performance indicator related to immediate failure or financial loss to regulated entities, which didn’t include loss to member value arising from entities not acting in members’ best interests.

In determining good value, the AIST recommended that APRA take on the role of ensuring that good value was delivered to members, rather than only considering financial loss, and implement a data framework to identify what data is needed to benchmark performance.

The Capability Review recommended this latter factor, in a move largely welcomed by industry super funds but warned against by the Association of Superannuation Funds of Australia (ASFA).

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