Helen Rowell (APRA) Calls for more Super Fund Mergers

We all suffer from change fatigue at times, but changes to the superannuation framework in one shape or form are almost inevitable as the environment in which the industry operates continues to change and evolve.”  [Helen Rowell, APRA.]

The number of Australian superannuation funds supervised by APRA has fallen from 1900 to 330 during the decade to December 2014.  Speaking at the Australian Financial Review Banking  & Wealth Summit in Sydney on 29 April 2015, Helen Rowell said APRA was expecting more superannuation fund mergers and had been “a little bit surprised” about mergers which had been contemplated by trustees but then had not proceeded.

Ms Rowell stated APRA expected to see a continuation of the industry consolidation trend, which has seen corporate schemes reduced to less than 100, and smaller funds capitulate in order to ensure sufficient scale.   APRA will be seeking evidence from super fund trustees as to how they are preparing a future strategy (business plan) and sufficient scale test analysis, which might even involve a ‘graceful exit from the industry‘ if deemed to be in the best interests of members.

On governance and risk, Ms Rowell declared that in APRA’s view, the Australian superannuation industry still has some way to go to really understand the difference between compliance and risk management.  She said, “ A robust compliance framework to ensure adherence with regulatory requirements is important, but just meeting minimum requirements is not enough.”

Describing governance, risk management and risk culture as inherently linked, she said APRA would be pursuing trustees to develop a risk culture and approach that is focused on identifying and effectively managing risks, and which seeks to meet “the spirit and intent, not just the letter” of  prudential requirements.  “It is very difficult to have robust governance practices if the risk culture of the organisation is poor.”  Ms Rowell referred to overseas research which has produced evidence that good governance adds as much as 1% to pension fund returns.

In concluding her remarks she said APRA would turn to thematic reviews involving liquidity management and stress testing and encourage trustees to look for more meaningful comparisons when comparing investment performance with a focus on investment performance at the product or investment option level which is more pertinent than average performance relevant to peers at the fund level.

A copy of the full speech has been made available on the APRA website and can be accessed here:

The Super System – What is on APRA’s Watch List?

 

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