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January 10, 2019

APRA welcomed the Productivity Commission’s final report on superannuation as an important step toward delivering better outcomes for members. The report assesses the efficiency and competitiveness of superannuation system in Australia and whether better ways to allocate defaults are needed. The report highlights that the assessment of the superannuation system reveals mixed performance and that the system needs to adapt to better meet the needs of a modern workforce and a growing pool of retirees. The assessment shows that inadequate competition, governance, and regulation have led to these outcomes.

The assessment finds that regulations and regulators focus too much on the interests of funds and not members. Sub-par data and disclosure inhibit accountability to members and government. Regulators need clearer roles, accountability and powers to confidently monitor trustee conduct and enforce the law when it is transgressed. APRA should focus more on matters related to licensing and authorization, ensuring high standards of system and fund performance. It should supervise and enforce the obligations of the licences and authorizations it grants, in addition to requiring all APRA-regulated superannuation funds to conduct formal due diligence of their outsourcing arrangements, at least every three years, to ensure the arrangements provide value for money. Each fund should provide a copy of the assessment to APRA and require all APRA-regulated superannuation funds to include a clause in material service contracts with outsourced providers that obliges the provider not to do or take any action that adversely affects members’ interests. In addition, APRA should:

  • Report annually to the Council of Financial Regulators on funds’ progress with implementing the elevated outcomes tests and on fund merger activity.
  • Undertake a systematic assessment of the costs to funds of the thousands of legacy products in the superannuation system. If the evidence demonstrates that they represent a significant cost in accumulation, APRA should further refine trustees’ obligations for member transfers so these products can be rationalized.
  • Embed product-level reporting within its reporting framework as soon as practicable (no later than 18 months) to enhance visibility of actual member outcomes across all APRA-regulated funds and to bring reporting for the choice segment into line with the MySuper segment. APRA should also expedite efforts to address inconsistencies in reporting practices.

The Australian Government should set an explicit "member outcomes" mandate for APRA in its regulation of superannuation. The report also recommends that the Australian Government should  initiate review too examine how efficiently and effectively APRA operates to achieve its strategic objectives in relation to superannuation and the review should be completed and published during 2019. Deputy Chair Helen Rowell said many of the findings and recommendations in the report aligned closely with APRA’s ongoing focus on ensuring superannuation funds delivered quality, value-for-money outcomes for their members. She said that APRA is already addressing many of the areas where the report indicated the organization could make changes or improvements. APRA would consider the Productivity Commission’s comprehensive report, together with the financial services Royal Commission’s final report and the Government’s subsequent response, as part of its review of priorities for supervision of the superannuation industry for the next few years.

 

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Keywords: Asia Pacific, Australia, Insurance, Superannuation, Productivity Commission, Prudential Framework, APRA

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