The Australian Securities and Investments Commission (ASIC) will narrow in on communication from all superannuation funds, paying close attention to member disclosures, not just those that failed the government’s inaugural YFYS test.
Speaking at the Australian Institute of Superannuation Trustees (AIST) Virtual 2021 Conference, ASIC senior executive leader for superannuation Jane Eccleston confirmed that the regulator will be keeping a close eye on the underperformance notifications addressed to members of funds that failed APRA’s inaugural performance test.
But funds that passed will also be under the regulator’s close watch, with Ms Eccleston announcing ASIC will also be looking for “false, misleading or deceptive conduct” in performance disclosures made by funds that received APRA’s tick of approval.
“Claims about performance that confuse or mislead may give rise to legal consequence or reputation risk and don’t promote confidence in superannuation,” Ms Eccleston said.
Noting that while trustees have a lot to grapple with given new significant obligations and increased scrutiny at a more granular level, Ms Eccleston said that their focus needs to be on the future.
“Focus on enhancing their product value chain, to ensure that the fund’s products and services meet members’ needs. Ultimately, we want to see superannuation funds operate in a way that is transparent, fair for members and promotes confidence in superannuation,” she added.
APRA, too, has confirmed that as well as scrutinising the plans of the 13 funds that failed the test, they will be engaging with trustees at risk of failing the performance test next year, to ensure they take the steps necessary to improve performance and to understand their contingency plans.
“APRA has intensified its supervision of trustees with products that failed the test and has requested they provide a report identifying the causes of their underperformance and how they plan to address them,” APRA executive board member Margaret Cole said earlier this week.
The results of APRA’s first annual super performance test revealed Australia’s worst 13 funds hold $56.2 billion in investments and almost 1.1 million accounts.
While the Governments moves are well-meaning, there are a few glaring issues. Here are a few of my Monday morning observations
Super funds will hold much less cash/bonds. They will take the lead of Hostplus, AustralianSuper, et al and count 50% of the property gains as alternative income. They will lend more to hedge funds, startups and other riskier investments and call these alternative income. Bad luck to members if there is a prolonged recession – will APRA be taking the fall for encouraging this move to higher risk assets?
Also what happened to the adage of past performance doesn’t dictate future performance? By having the underperforming super funds write to their members suggesting they switch funds, APRA are now saying the complete opposite. Are APRA going to compensate people if the highest ranking funds for the last five years underperform for the next five years.
Examination of revaluation of unlisted assets in the good times that are not marked down in the bad times thus skewing performance results would be a good place to start. Associated with that is how the reserves are used to pay for expenses that are excluded from what is deemed member fees is also misleading.
The APRA process is byzantine. It certainly unnecessarily punishes Lifestage Default funds, that’s for sure.
Lifestage funds are an abuse of process for older people. Putting 55 year olds mostly into cash is not a crime but should be. Clearly super funds have found out that they lose customers over 50 when they have a down year, hence they put them into so much cash that they never have a down year and therefore never leave. That they lose all their up years is an ‘unfortunate’ side effect.
This is speculation but it fits the facts very well.
Not convinced it does. It punishes the underperforming ones, but ones like Local Government Super are OK. If anything it punishes the conservative one size fits all funds.