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APRA Deputy Chair Helen Rowell - Speech to AIST 2020 Trustee Forum

Being change ready: Imagine the unimaginable

Good afternoon, it’s good to speak you again, even if circumstances don’t permit us to meet face-to-face – hopefully we will be able to do that again soon. I trust everyone is safe and healthy, and coping as well as possible during this unexpectedly difficult year.

It’s been seven months since I addressed an AICD breakfast, where I talked about financial services accountability. Delivering that address in person to a large audience, I had no inkling that we would all shift soon afterwards to meeting primarily through our computers or smart phone screens, and mostly from the comfort of our homes. Only a few weeks earlier, I gave a speech titled (optimistically, as it turned out) “2020 Vision: Mapping out APRA’s superannuation agenda”. It’s safe to say our vision didn’t include suspending the bulk of our policy and supervisory agenda for a period due to a deadly pandemic! 

Tellingly, in neither of those two speeches was there any mention of COVID-19. Like most of the world, APRA was aware of the emergence of a highly contagious novel coronavirus but we didn’t imagine that Australia was on the verge of a health and economic crisis that would see the domestic economy contract 7 per cent in a quarter, and entire states locked down for months. I also don’t think any of us imagined a scenario where investment losses topped $200 billion in a single quarter, or where the superannuation industry paid out more than $33 billion in early release payments to members in less than six months under expanded eligibility rules designed to support those materially impacted by the crisis. 

Despite the industry’s relative success in responding to these challenges, the future remains quite uncertain. For trustees charged with protecting and growing members’ retirement savings, typically over decades, this sense of uncertainty creates a dilemma: how do you strike a balance between investing for the long-term and also being ready to respond to future changes – whether due to economic shocks or potentially significant changes in regulatory settings?

In approaching this challenge, trustees should remember the words of the ancient Greek philosopher Heraclitus: “Nothing is permanent except change”. That seems particularly true in superannuation! 

Down to business

Undertaking robust business planning and stress testing, designed to ensure you are prepared for significant changes and shocks – including those that might be considered unlikely or even “unimaginable” – is one way to be on a stronger footing to protect members’ best interests no matter what you may encounter.

Prudential standard SPS 515 Strategic Planning and Member Outcomes, was designed with exactly that in mind. Although it only took effect from 1 January this year, it would be misleading to describe it as “new” given APRA consulted extensively on it, starting in December 2018. That consultation was supplemented by numerous supervisory engagements, speeches and presentations at various conferences, as well as my letter to RSE licensees of March last year that spelled out our expectations on this new prudential standard. In other words, trustees have no excuse for not understanding what this prudential standard requires of them or the importance of this piece of work.

SPS 515 is a core part of APRA’s over-arching strategic goal of improving outcomes for superannuation members, and speaks to APRA’s expectation that trustees should manage their operations like the significant (in many cases multi-billion dollar) financial services businesses they are. Ensuring the effective implementation of SPS 515 has only become more critical since the outbreak of COVID-19. The financial and operational challenges created by the pandemic pose additional questions that trustees need to reflect on in fulfilling their SPS 515 requirements, and their legal duty to protect members’ interests:

  • Is the board’s strategy still relevant and appropriate given the dramatic shifts since the beginning of the year? For example, will changes in the membership profile of your fund require a different response, including the consideration of whether the interests of members would be better served in an alternative fund?

  • How have your financial projections been affected, and are the assumptions underpinning your projections realistic? APRA will be particularly interested in how different business models are responding, and how this has impacted trustees’ ability to deliver sound outcomes for members.

The question of stress testing a range of scenarios is also particularly pertinent in light of recent developments in superannuation and the uncertain environment in which we expect to be operating for some time. As much as we want trustees to ensure their stress test scenarios are realistic, a prudent trustee should also consider its capacity to respond to major regulatory or other developments, including those that might be considered highly unlikely or not aligned with their view of the world.

Let me be clear here: I am not suggesting any particular changes are likely, or passing any judgement on the merits of specific changes that may be proposed; any legislated policy changes are appropriately questions for the Parliament to determine. APRA does, however, believe trustees should be considering a wide range of possible future scenarios, including possible policy changes, and ensuring they know how they will go about protecting their members’ financial interests in a range of different scenarios. 

Beyond box-ticking

Effectively implementing APRA’s Business Performance Review (BPR) and the legislated outcomes assessment should help trustees navigate the current extraordinary health and economic crisis, while also ensuring they can deliver on their obligation to ensure their members’ interests are protected into the future.

Yet despite the intense scrutiny the industry is under at present, and APRA’s past and ongoing engagement with industry and individual entities on the need to address underperformance, not every trustee appears to have embraced these requirements with equal gusto. In particular, we are concerned that some trustees are approaching implementation of SPS 515 as a “tick-a-box” compliance exercise, and may not be planning appropriately for the future. This has become clear through the varied quality of documentation provided to us, either as part of the BPR or through the trial outcomes assessments that we have been encouraging trustees to undertake over the past year. We understand that industry practice will evolve and improve as trustees come to grips with the new requirements, but we do nevertheless expect a reasonable effort to be made even in these early iterations.

Using the trial outcomes assessment and methodology documents provided by a sub-set of trustees (across all industry segments, and both MySuper and choice products), we recently completed a benchmarking exercise to gain insights into better practices across the industry. As we expected, practices across the industry varied widely. The trial outcomes assessments for MySuper products were generally simpler and better structured than for choice products. The latter were broadly not done well. For example, some trustees did not document their methodology for determining how members financial interests are being promoted for each of their choice products, having regard to the factors set out in the legislation. This would include an approach to identify the products and the appropriate metrics to be used for assessing their choice products.


A good starting point for trustees – unsurprisingly – is to take note of Prudential Practice Guide – SPG 516 Business Performance Review. While the guidance is most definitely not mandatory, it is nonetheless designed to be helpful. Yet it was clear to APRA that some trustees had only paid cursory attention to the SPG, or no attention at all. 

Overall, better practices reflected that trustees have adopted a “show me, don’t tell me” approach and had:

  • an assessment and methodology that was explained clearly and well structured; 

  • outcomes assessment findings that could be tracked through to the other documents, such as the BPR, strategic plan, and member outcomes policy document; 

  • assessments that were supported by a range of metrics that clearly demonstrated the entity’s performance in promoting the financial interests of members; and

  • the outcomes assessment publication strategy had been considered.

One area where we observed poorer practices was in the selection of peer groups for comparison and benchmarking. Selected peer groups were frequently narrow and didn’t include all MySuper products (as required by the SIS Act for the outcomes assessment). Often it wasn’t clear to us why certain peer groups for choice products had been selected. Trustees should document how and why they have determined the peer products to be used for their choice product assessments. This will also assist the trustee to satisfy the publication requirements under the SIS Act. 

There were also some questionable benchmarks set by entities; for example having “not top quartile fees” seems to be a very unambitious goal. Another area where some trustees came up short concerned their treatment of the various factors they are required to consider as part of the outcomes assessment. Some of these factors appeared to either have not been considered, or the assessment was inadequate. In particular, we observed that:

  • when it came to the options, benefits and facilities provided, there was not always a clear link to the financial interests of members and it wasn’t evident that the trustee had determined the impact of the cost of these services on the financial interests of members;

  • some trustees appeared not to have, or there was no evidence they had, considered the appropriateness of the insurance strategy nor whether insurance fees charged in relation to the product inappropriately erode the retirement income of those beneficiaries; and 

  • in assessing the impact of fees on the members invested in the relevant product, several trustees didn’t appear to have considered the appropriateness of their fee structures, including the way they split fees between flat and variable charges. 

Trustees can expect further engagement from their APRA supervisors as they approach the 31 December deadline for undertaking their first BPR and the 28 February timeline for the first outcomes assessment. Over the next few months, APRA will also be publishing FAQs for industry to communicate some of the other key findings from our observations of how industry has implemented SPS 515 to date, so keep a look out for those.

Seeing the bigger picture

As much as SPS 515 is designed to encourage deeper introspection by trustees, a degree of extrospection – looking outwards – is also essential if trustees are to understand how they stack up against their peers and appropriate benchmarks. Historically, that hasn’t always been as easy as it should be. As APRA has acknowledged, the superannuation data collection still contains too many gaps, especially in the choice space. Long-standing efforts to address this ramped up in November last year with the commencement of our Superannuation Data Transformation (SDT), a multi-year program to enhance the breadth, depth and quality of our super data collection. The program entered hibernation earlier this year in response to COVID-19, but re-awakened last month with the release of the final consultation stage of Phase 1.

Following the  new (temporary) Pandemic Data Collection (PDC), and the weekly reporting requirements for the early release scheme, we understand that the SDT consultation is also adding to what we are asking of trustees at a time when they are already stretched. However, although we are mindful of not unnecessarily making life harder for trustees, especially now, more granular, reliable and accessible superannuation data is essential for APRA, the industry and other stakeholders to deliver on our shared long-term objective of improving member outcomes. 

Increased visibility of what is happening across the sector is important, but even more so during a time of economic stress. Both the early release data and the PDC have provided valuable insights for APRA into how the industry is faring as it faces into one of the largest challenges it has had to confront since super became compulsory in 1991. The expansion and strengthening of APRA’s data collection through the SDT will further enhance our supervision, including our reviews of the work done by entities under SPS 515 and their scenario and stress testing. 

Just as importantly, APRA’s data collection is a tool trustees can use in their own analysis to improve outcomes for their members. The publication of the SDT data will better enable trustees to compare their data against others and develop assessment metrics, identify any weaknesses or gaps, and take steps to address them. Not only is the ability to make such comparisons required as part of the outcomes assessments, it is surely desirable for any business to understand how it measures up to the competition, what areas it needs to improve or more critically when to call time and plan to exit the industry.

The SDT is also critical to our plans to expand and refine our superannuation heatmaps, and to provide additional and much needed transparency for all stakeholders on how the industry is performing for its members. Work is well advanced to create a “choice” heatmap to sit alongside the existing MySuper Product Heatmap, which was released late last year and partially updated in June. The MySuper heatmap is due to be fully refreshed this December with a new, more user-friendly presentation. The choice heatmap will only be possible once we have sufficient high-quality data for the choice section of the superannuation industry, which represents about 43 per cent of APRA-regulated assets under management. Given that there are an estimated 40,000 choice options, we are still in the process of deciding how to present the choice heatmap so it is both comprehensive and comprehensible. At this stage, we hope to be able to publish our first choice product heatmap in the second half of next year, and we will be publishing a paper early next year with our thinking on how we propose to do this.

As APRA has made clear, the chief intended audience of the heatmaps is trustees, who can use them to assess their performance. The heatmaps are not primarily directed at members, although members certainly benefit from the increased transparency. For example, 40 per cent of MySuper members saw a reduction in fees after the publication of our first heatmap and other reductions in fees have been made or planned since June. 

Scanning the horizon

Unimaginable. Unprecedented. We’ve heard these words a lot this year in relation to COVID-19, but a pandemic is imaginable. There have been pandemics before, which is why APRA has prudential guidance on pandemic planning. There have also been economic and financial shocks before, which is why we have requirements for stress testing and scenario planning. 

A better descriptor for 2020’s COVID-19 scenario may be “unanticipated”. 2020 might have thrown up challenges that the superannuation industry didn’t see coming, and it’s to the industry’s credit that it has been up to the task of meeting its obligations to members at short notice. But it is the job of trustee boards to try and anticipate future challenges and ensure their organisations are prepared to deal with them. Trustees, regulators, governments and societies will always find better ways of operating, whether that be through technological advances or learnings taken from events, such as the current pandemic. In taking seriously their obligations under SPS 515, trustees can also put themselves in a stronger position to respond effectively. 

To go back to the quote I referred to earlier: “Nothing is permanent except change”. So, I’d encourage you to imagine the unimaginable, and make sure you will be ready to respond, no matter what may lie ahead.


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The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, mutuals, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding around $9 trillion in assets for Australian depositors, policyholders and superannuation fund members.