Outcomes assessment under s. 52(9) of the Superannuation Industry (Supervision) Act 1993 - frequently asked questions
APRA has released FAQs to support Trustees to undertake the outcomes assessment by end February 2021. These FAQs address common areas of weakness identified from APRA’s targeted review of trial outcomes assessments.
1. Should RSE licensees place on hold work underway to comply with the outcomes assessment, given that there may be changes to s. 52(9) of the SIS Act to reflect the proposed budget measures?
No. APRA’s view is that the current obligations formalise what prudent trustees should be doing in the normal course of business to determine whether they are satisfying their duty to promote the financial interests of beneficiaries pursuant to s. 52(12).
2. When should the outcomes assessment under s. 52(9) of the SIS Act be completed by?
APRA expects the annual outcomes assessment to be undertaken by the end of February 2021, with a summary of this assessment to be published within 28 days of making the determination (as is required under s. 52(9)(b)-(c) of the SIS Act).
APRA considers that the legislation provides an RSE licensee with discretion as to which 12 month period they utilise for the purposes of meeting the annual outcomes assessment requirements under s. 52 of the SIS Act. The 12 month period could be the calendar year, financial year, income year for the RSE licensee or any other 12 month period.
The 2019-2020 financial year is likely to be the appropriate first period for the majority of RSE licensees, as this aligns with their income year. However, noting that paragraph 22 of SPS 515 Strategic Planning and Member Outcomes requires the RSE licensee to use data calculated in accordance with Reporting Standard SRS 702.0 Investment Performance and Reporting Standard SRS 700.0 Product Dashboard for the purposes of the comparison under s. 52(9)(a)(i), APRA expects that an RSE licensee would be in a position to make the outcomes assessment determination within two months of the publication of the relevant APRA statistics in December. Whilst the statistics relate to MySuper products, APRA expects the RSE licensee would undertake a determination for each choice product offered at the same time.
3. Do RSE licensees need to complete outcomes assessments for choice products?
Yes, an RSE licensee is required to make a determination for each of their choice products under s. 52(9)(a) of the SIS Act, having regard to the factors in s. 52(11).
While the SIS Regulations do not define ‘a comparable choice product’, for the purpose of undertaking the required comparison component of the outcomes assessment under ss. 52(9)(a)(ii) and 52(10A) of the SIS Act, APRA expects that the RSE licensee would undertake relevant benchmarking and comparison, including the use of appropriate peer groups, to assist it in assessing the relative performance of its choice products.
4. How should RSE licensees approach the assessment of choice products, given such products are comprised of multiple investment options from which a member selects?
APRA appreciates the possible complexities in undertaking the outcomes assessment in respect of choice products. In the absence of prescribed ‘comparable choice products’ in the SIS Regulations, the approach taken for choice products is largely at the discretion of the RSE licensee. For this reason, APRA’s focus will be on understanding the methodology underpinning the assessment and, where appropriate, providing challenge.
4.1. Should assessments of choice products be undertaken at the product or option level?
Under s. 52(9) of the SIS Act, the RSE licensee must make the determination at the product level. However, APRA considers that in making this determination, the RSE licensee would undertake the assessment for each investment option offered under the product which are then brought together in order to make the determination at the product level. The methodology relied on to do this is at the discretion of the RSE licensee.
4.2. Can an RSE licensee use work undertaken to comply with Prudential Standard SPS 530 Investment Governance (SPS 530) in order to satisfy s. 52(11)(b) of the SIS Act?
Section 52(6) of the SIS Act and SPS 530 together require an RSE licensee to formulate an investment strategy for each option offered to beneficiaries, document how it has given regard to each of the factors in s. 52(6) when formulating the strategy for each option and, on an annual basis, review each investment strategy against its investment objectives.
APRA considers that an RSE licensee may draw upon analysis undertaken in complying with the above-mentioned requirements when assessing, for the purpose of s. 52(11)(b), whether the investment strategies for the investment options available through the product, including the level of investment risk and the return target, are appropriate to those beneficiaries.
4.3. How should fees be benchmarked for choice products?
Investment fees charged to members are determined by the investment choice selected by the member, and can be benchmarked against the investment fees of similar investment options.
The administration fee charged to members can also vary depending on the investment choice selected by the member (particularly with wrap platform products). Whilst this adds complexity to the benchmarking of administration fees, administration fees are considered a critical component of the outcomes assessment. APRA considers it appropriate for the RSE licensee to benchmark administration fees at the investment option level, and also at the product level. Whilst the approach taken to benchmark administration fees is largely at the discretion of the RSE licensee, APRA will seek to validate the RSE licensee’s approach.
5. For the purposes of s. 52(10) of the SIS Act, is an RSE licensee permitted to select the MySuper products against which to make the comparison?
No. An RSE licensee is required to undertake the comparison against all MySuper products (i.e. both single strategy and lifecycle products).
Where an RSE licensee offers a single strategy MySuper product, when comparing against a lifecycle product, APRA expects the RSE licensee to select the lifecycle stage that is most appropriate to its single strategy product having regard to either the age of the members holding the RSE licensee’s single strategy product or the risk profile of the single strategy product.
Where an RSE licensee offers a lifecycle MySuper product when comparing against:
- a single strategy product, APRA expects the RSE licensee to select a single stage of the lifecycle product that most closely reflects the risk profile of the single strategy product.
- other lifecycle products, the RSE licensee is expected to compare each lifecycle stage against appropriate stages of other lifecycle MySuper products having regard to either the age of the members in the lifecycle stage or the risk profile of the lifecycle stage.
6. How can an RSE licensee make the product determination under s. 52(9) for a lifecycle MySuper product with multiple lifecycle stages?
Under s. 52(9) of the SIS Act, the RSE licensee must make the determination at the product level. However, APRA considers that in making this determination, the RSE licensee would undertake the assessment for each lifecycle stage of the product which are then brought together in order to make the determination at the product level using their own methodology.
7. Do all factors under s. 52(11) need to be assessed for MySuper products and choice products?
Yes. All factors must be assessed for MySuper and choice products. However, in the case of choice products, where a factor is not relevant (e.g. no insurance is offered as part of that product), the extent of the assessment would be an explanation as to why the factor is not relevant.
8. What data should the RSE licensee use to complete the outcomes assessment?
For the purposes of the MySuper product comparison required under s. 52(10) of the SIS Act, paragraph 22 of SPS 515 Strategic Planning and Member Outcomes requires the RSE licensee to use the methodology set out in Reporting Standard SRS 700.0 Product Dashboard and Reporting Standard SRS 702.0 Investment Performance.
As noted in SPG 516 Business Performance Review, to promote comparability and consistency across the industry, the outcomes assessment is expected to be anchored to the publication of APRA’s Annual MySuper Statistics, Annual Fund-level Superannuation Statistics and Quarterly MySuper Statistics reports for the period ending 30 June. Linking the assessment to APRA’s annual publications will mean that the outcomes assessment will cover the preceding July - June financial year.
Further, in making the determination under s. 52(9), a prudent RSE licensee would consider the performance of their MySuper product in the MySuper Product Heatmap. APRA will also use the Heatmap to hold RSE licensees accountable to the determinations they make as to whether or not their MySuper product is promoting the financial interests of beneficiaries that hold the product.
Whilst the methodology is largely prescribed for MySuper products, the trustee is to determine an appropriate approach for its choice products, including the methodology and data necessary to make the determination under s. 52(9).
APRA’s superannuation data transformation project is expanding the data collection for the choice sector. In the interim, RSE licensees are expected to use data available from external providers.
APRA will seek to understand the RSE licensee’s methodology for undertaking the assessment, including the RSE licensee’s selection of peer groups for comparison purposes for choice products, and the benchmarks used in undertaking its outcomes assessment.