APRA looks to share the blame

Margaret Cole, APRA’s new executive for superannuation, has brought the super war to its most unlikely, and probably reluctant, combatants: members.

Faced with the disappointing reality that few have moved out of their underperforming fund in the aftermath of the performance test, Cole has resorted to browbeating them into it.

“It has been just over a month since these letters first hit letterboxes and, based on the data received to date, we have not seen as much movement of people switching to new funds as we would like,” Cole wrote in a comment piece for the weekly ‘Money’ section of the ‘Sydney Morning Herald’ and ‘The Age’ last week (November 9).

“The most important thing you can do now, especially if your fund has failed the performance test, is to visit the ATO’s YourSuper comparison tool and make a decision,” she said.

While one of the great tragedies here is that the newspapers have opted to swap insightful commentary for the bland missives of the prudential regulator, the fact that APRA has sought to shove their failure onto the shoulders of members is arguably greater.

If members have not switched from their underperforming fund (and only 7 per cent of accounts across the 13 underperformers have) it’s for one of two reasons: one, they’ve made a decision about the prospects of their fund, or two, APRA has not educated disengaged members on what Your Future Your Super (YFYS) actually means for them.

Leaving aside the many, many failures of the YFYS performance test – well-chronicled in this publication – APRA has apparently failed to achieve its communications objective.

The harshness of the test was in the spirit of creating a “bright line” measure that could give members a simple answer to the question of whether they should stay or go. Many have apparently decided to stay (or put off an important decision, as we all often do). Likely, many will still be in an underperforming fund if, or when, APRA forces it to close – as the industry warned would happen, repeatedly.

Nobody wants to be in a ‘dud fund’, though what constitutes one is often a matter of perspective when it comes to YFYS. The Commonwealth Treasury is responsible for the design of YFYS and APRA for its implementation.

In what has been a first for superannuation dating back to the dawn of the modern era in the 1980s, every single industry body has been critical of aspects of either or both design and implementation of YFYS.

If APRA hasn’t seen the response from members it wants (and remember, it’s APRA that wrote the extensive wording for the letter to members, with funds unable to amend or add better explanation, and APRA that shaped the parameters that triggered its release) then that’s the fault of APRA – not the member.

If APRA did not heed the advice of bodies such as the Actuaries Institute on the matter of the performance test, it cannot expect an informed member to take notice of a letter it wrote about it.

Before returning to Australia last year, after 30 years in the UK, and starting with APRA in July, Cole, a lawyer, spent seven years with PwC in London, most recently as regulatory policy and engagement leader and before that as chief risk officer and general counsel.

Prior to PwC, she spent seven years with the Financial Services Authority of the UK, including as head of enforcement. According to a report in the ‘Australian Financial Review’ earlier this year (March 18), she initiated use of the regulator’s criminal prosecution powers and had earned the reputation as an “enforcer”.

Super funds may not be perfect in their endeavours to communicate with and educate members but they are a lot better than APRA. We’d suggest Cole sticks to enforcement.

Lachlan Maddock and Greg Bright

Investor Strategy News