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AIST Policy News - 12 December 2019

Policy News

APRA heatmap released

As outlined in AIST’s policy alert yesterday, APRA has published its first heatmap providing assessments of the performance of every MySuper superannuation product.

The heatmap publicly identifies which MySuper products are underperforming and uses a graduating colour scheme to provide insights across three areas: investment performance, fees and costs, and sustainability of member outcomes.

AIST’s media release also released yesterday noted that while the heatmap was an important first step in providing independent data on super fund performance more work was needed to be done to improve the regulator’s analysis and extend it to all APRA-regulated funds.

APRA insists that the heatmap is not designed for consumers and many journalists covering its release yesterday noted that the data was “unfriendly” to users.

Significantly, the heatmap shows that the overwhelming majority of members’ super in the profit-to-member MySuper space is invested in well-performing funds. Across the $654 billion profit-to-member MySuper sector – more than 9 out of every 10 dollars of members’ super* is invested in well-performing products. By contrast, at least two thirds of the $124 billion of assets under management in the MySuper retail sector is invested in underperforming products.

In its current form, it would have very limited consumer value.

It is also worth noting that the weight of retail super assets is in the Choice sector, where – according to Productivity Commission findings - there is a long tail of underperforming retail funds. Extending the heatmap to the Choice sector – which APRA has committed to doing, albeit in 18 months’ time – will put a much-needed spotlight on this issue.

Releasing the heatmap, APRA Deputy Chair Helen Rowell said the regulator was determined to “weed out the industry’s underperforming tail”.

APRA has contacted the trustees of the worst performing products and asked them to provide or update action plans outlining how they will address identified weaknesses. If these trustees are unable to make substantial improvements in good time, APRA says it will consider other options, including pressuring funds to consider a merger or exit the industry.

In addition to releasing the heatmap, APRA published an information paper outlining some of the key insights gleaned from the data, including:

  • member outcomes vary widely across the industry, and underperformance is evident across all industry sectors and investment risk profiles;
  • higher fees are generally correlated with lower net returns, although there are exceptions;
  • more single strategy products outperform the investment benchmarks than lifecycle product stages; and
  • low balance accounts are most impacted by administration fees, while high balance accounts are most impacted by percentage-based fees.

APRA intends to refresh the heatmap at least annually, but will update the heatmap in the first half of next year to assist trustees and other stakeholders assess any early improvements being made.

Welcome move on family law super splitting

Healthcare sector industry fund, HESTA has partnered with Women’s Legal Service Victoria (WLSV) to simplify the process of splitting super assets when relationships end, hoping to improve outcomes for women.

HESTA CEO Debby Blakey announced the Simpler Super Splitting initiative to create processes all superannuation funds can use to make the splitting of superannuation assets easier, faster and fairer.

“Dividing superannuation assets through the family law system is unnecessarily complex and often requires costly legal advice,” Ms Blakey said.

“This results in many women, especially those from low-income households or who are most vulnerable, simply walking away from their rightful share of super assets.”

The move follows a recent round table held by HESTA, WLSV and Women In Super that brought together superannuation industry leaders, representatives from the Federal Circuit Court, government and regulators to develop solutions.

The first step in the Simpler Super Splitting initiative aims to eliminate the need for legal advice for the straightforward division of super assets, via a simple, consistent form for court orders that can be used across the industry and by the courts.

Over the coming year, HESTA will work closely with WLSV to advocate for broader industry change to make the splitting of super assets fairer and easier.

Retirement Income Review meets with super industry

This week AIST attended a stakeholder information session with the independent three-person panel of the Retirement Income Review, Treasury officials and other industry stakeholders.

The Review is chaired by Michael Callaghan, a former Executive Director of the International Monetary Fund and a former senior Treasury official, who will work with fellow panellists Ms Carolyn Kay, and Dr Deborah Ralston.

The Panel reiterated its independence whilst noting the support provided by Treasury in its role as secretariat. The Treasury team of about 16 staff will draw on a range of key skills through secondments from other departments.

The Panel gave few details of its approach or focus areas, but outlined a consultative approach in shaping its final report. It emphasised the need for submissions to be supported by evidence. The Panel’s final report will not contain recommendations but will instead provide a fact base for the Government to review its policy settings. The final report is due to Government by June 2020.

The information session also provided an opportunity for stakeholders to raise aspects that should be covered in the review. In particular, AIST highlighted that role of insurance within super and its importance when members are forced to involuntarily retire, and the need for the system to work for all members.

AIST is currently consulting with members and will be making a written submission to the Review. Submissions close on the 3rd of February 2020.

For further information please contact AIST Policy and Regulatory Analyst Zach Tung at ztung@aist.asn.au

Stats highlight profit-to-member growth

APRA has released its annual fund-level superannuation statistics providing a detailed look into the profile and structure of APRA-reporting funds, as well as their financial performance, financial position, fees and membership information.

The fund-level statistics tell the story of 2019 by the numbers and reveal the inflows and growth of profit-to-member superannuation funds, along with statistics on retail funds.

Highlights across all APRA-reporting funds include:

  • 48% of directors on trustee boards are female
  • An average ten-year return rate of 6.9%, five-year: 5.5%, one-year: 6.0%
  • $1.9 trillion total assets
  • $63 billion total investment income for the year
  • 3.4 million new member accounts created, 4.5 million member accounts closed
  • $587 billion held by female members, $862 billion held by male members
  • $7.5 billion in total fees paid by members

Investor collective demands govt action on climate change

More than 600 institutional investors - including a number of AIST member funds - have urged governments around the world to accelerate their action on tackling the global climate crisis.

The Investor Group on Climate Change (IGCC), which manages more than $37 trillion in assets, released a statement to governments at the recent United Nations Climate Change Conference in Madrid demanding more action on addressing the causes and risks of climate change.

The group calls on global leaders to commit to achieving Paris Agreement goals and accelerating private sector investment in low carbon initiatives to assist transitioning out of fossil fuel reliant energy.

Additionally, the group has called on governments to recognise and improve their part in improving climate-related financial reporting.

Speaking in Madrid, IGCC CEO Emma Herd said: “Global investors could not be clearer, governments must step up and deliver the policy ambition needed to manage the costs of climate change. Without ambitious climate goals, supported by investable policy, climate change as a risk to financial stability will continue to ratchet.”

ATO warns consumers on misconduct in SMSF sector

The Australian Tax Office has put out a statement about SMSF promoters misleading consumers regarding early release of super.

The ATO has stated it will take action to shut down promoters who tell people they can gain access to their super before they are eligible to by setting up a SMSF.

The ATO recently took action in the Federal Court against a NSW woman who engaged with 68 individuals to set up a SMSF with the intention of accessing their retirement savings. The woman was not a registered tax agent or financial adviser.

The woman received a financial penalty of $220,000 and is banned from setting up SMSFs for seven years.

12 December 2019