Topic Paper 2 - Performance

About this Topic Paper    

This paper provides detail on draft "Reporting Standard SRS 705.0 Components of Net Return" (SRS 705.0) and draft "Reporting Standard SRS 705.1 Investment Performance and Objectives" (SRS 705.1).

Data required by draft SRS 705.0 and draft SRS 705.1 will expand the reporting of performance data to choice products, investment menus and investment options. Data required by the draft reporting standards will also enhance performance reporting for MySuper products. Industry and other stakeholders will be supported in assessing member outcomes and performance of choice and MySuper products as a result of the reporting standards.  The reporting standards will also support APRA’s prudential supervision, including enabling APRA to target its supervisory intensity on areas of the industry that are underperforming or where improvements in practices are needed.

As described in the "Superannuation Data Transformation Phase 1 Discussion Paper" released on 7 November 2019, to facilitate stakeholder engagement on each of the topics included in Phase 1, consultation will be separately undertaken for each topic in targeted ‘Topic Papers’ with a series of questions on specific areas APRA seeks feedback.  

This Topic Paper provides details of the proposed changes to reporting requirements regarding performance including:

• objectives of the proposed changes;
• the current state;
• drivers for change;
• the proposed state; and
• specific areas of the proposals that APRA is requesting feedback on.

This Topic Paper should be read in conjunction with the Discussion Paper "Superannuation Data Transformation" and draft reporting standards SRS 705.0 and SRS 705.1.

Formal written submissions for Topic Paper 2 close on 26 March 2020. APRA will also be engaging with industry participants via round-table discussions and undertaking a pilot collection of the data set out in draft reporting standards SRS 705.0 and SRS 705.1. These processes will assist APRA to refine and finalise the draft standards, taking into account industry feedback and insights from the pilot data collection process. 

Chapter 1. Introduction

1.1 Background

Over the last decade, the superannuation industry has grown in size and importance in the Australian economy, with total assets of superannuation entities increasing from $1.1 trillion to $2.9 trillion. The evolution of the superannuation system has been accompanied by continued consolidation of RSE licensees and RSEs, with large and more complex entities managing the retirement benefits of most Australians. In this context it is critical that regulators and other stakeholders have access to data that appropriately reflects the size, nature and complexity of the industry.

A significant volume of data on the superannuation industry is already available, but there are important gaps in coverage and quality that need to be addressed. Addressing these gaps will enable deeper insights into the effectiveness of RSE licensee operations and enable a better understanding of outcomes delivered to their members.  

A key focus for Phase 1 of the Superannuation Data Transformation program is to address coverage issues with the scope of data collected under current reporting standards. Addressing these issues will support the industry to implement the requirements in "SPS 515 Strategic Planning and Member Outcomes" (SPS 515) and support APRA’s work to improve transparency on RSE licensees and RSE performance.  In particular, Phase 1 of the Superannuation Data Transformation will facilitate performance assessments for choice products and more granular comparisons of performance across superannuation products and investment options.

1.2 Drivers for change

The key drivers of change for the Superannuation Data Transformation program are outlined in the Discussion Paper "Superannuation Data Transformation" released on 7 November 2019. 

For this topic "Performance", the drivers for change stem from the current reporting standards only requiring data on performance of MySuper products and not extending to choice products.  To enable assessment of performance across both choice and MySuper products, APRA needs to expand its data collection to superannuation choice products, investment menus and investment options, and refine its data collection to cater for differences in the types of fees and the ways fees can be charged in choice products.  

As superannuation is by nature a long-term product, it is appropriate to assess investment performance over longer-term periods. To enable assessments of superannuation fund performance, it is proposed that the data required to be reported in SRS 705.0 and SRS 705.1 will include historical net investment returns, and information on investment objectives and risk measures over 1, 3, 5, 7 and 10 year periods.
 
The proposals in SRS 705.0 and SRS 705.1 build on the foundation set out in "Topic Paper 1: RSE Structure and Profile", draft "Reporting Standard SRS 602.0 RSE Structure and draft Reporting Standard SRS 603.0 RSE Profile", which seeks to identify all superannuation products, investment menus and investment options and the relationships between them.

ASIC released updated "ASIC Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements" (RG 97) on 29 November 2019.  The changes in the updated RG 97 impact how fees and costs for superannuation products will be disclosed in Product Disclosure Statements (PDS) and Periodic Statements (PS). Reporting of fees and costs to APRA is currently¹ aligned to the requirements under the previous RG 97 (released in March 2017), and needs to be updated to remain aligned with member disclosure requirements.

1.3 Objectives of the proposed changes

Through draft SRS 705.0 and SRS 705.1 APRA is seeking to:

• facilitate assessment of member outcomes and performance of choice products, investment menus and investment options in addition to MySuper products;
• enable APRA and other stakeholders to model outcomes for different representative choice members and representative portfolios; 
• enable APRA to expand the publication of assessments of performance to choice products; and 
• collect some (readily available) additional data to support the assessment of risk experienced by members in each investment option. Further work on measuring risk is in scope as part of the asset class topic, as well as in Phase 2 of the Superannuation Data Transformation program. 

Footnotes:

¹In the existing superannuation data collection, data items related to fee and cost disclosures are collected at the MySuper product and lifecycle option level via "SRS 700.0 Product Dashboard", "SRS 702.0 Investment Performance" and "SRS 703.0 Fees Disclosed".

Chapter 2. Components of net return 

This chapter outlines information on fees, costs, taxes and investment returns charged or credited to members that APRA proposes to collect in SRS 705.0 in respect of each superannuation product, investment menu and investment option in order to assess the net investment return and net return to members.  

Through SRS 705.0, APRA proposes the collection of the components that form the calculation of net returns and net investment returns for all superannuation products, investment menus and investment options.  This will allow the publication of comparable net return and net investment return information for each investment option and product. 

The proposals are aligned with the data currently collected under "Reporting Standard SRS 702.0 Investment Performance" (SRS 702.0) for MySuper products². The proposals incorporate changes to improve the efficiency of the data collection and allow for the expanded range of fees and costs applicable to choice products, investment menus and investment options. A comparison of the data collected under existing reporting standards and proposed to be collected under the draft reporting standards is provided in Appendix 1.  

Timing of reporting changes in line with RG 97 requirements

APRA proposed in the "Discussion Paper: Superannuation Data Transformation Phase 1", that collection of new data would be from 30 June 2020. APRA has considered the implementation implications with the timing of the updated RG 97 requirements for PDS disclosure which will come into effect from 30 September 2020.³

For the components of net return, which incorporates fees and costs charged to members over the quarter, APRA is proposing that the categories and definitions are aligned with updated RG 97 requirements. The first period for collection is proposed to be for the quarter from 1 July 2020 to 30 September 2020. This timeframe would be ahead of implementation of ASIC’s PDS disclosure requirements under RG 97, which comes into effect on 30 September 2020. However it will enable the information on fees and costs for the full financial year to be reported to APRA on a consistent basis.

APRA acknowledges that periodic statements to members are not required to align to the updated RG 97 categories and definitions until 1 July 2021 on a mandatory basis. Although SRS 705.0 collects data on fees charged to members over the period, rather than forward looking fees disclosed, APRA considers that this data will be required for calculation of fees and costs disclosed for the purpose of PDS disclosure. 

APRA seeks feedback on the proposal for RSE licensees to provide this data to APRA from 1 July 2020, rather than reporting for the June - September 2020 quarter under the current classifications. The proposed timeline would be as follows:

• Until 30 June 2020, RSE licensees report on current SRS 702.0 (with current classifications i.e. including separate reporting of advice fees and costs, and no separate reporting of transaction costs).
• From 1 July 2020, RSE licensees report on SRS 705.0 (aligned to RG 97 classifications and definitions i.e. including transaction costs reported separately, and advice fees and costs no longer reported separately).

MySuper products

Existing requirements 

Under the existing superannuation data collection, RSE licensees report data on components of net returns for MySuper products and each lifecycle stage. Under SRS 702.0, RSE licensees report:

• investment, administration and advice related fees, costs and taxes as a total dollar amount or percentage of the balance of an individual member’s account; and
• total dollar amount and percentage of balance for a representative member’s account, including the net return and representative member fees, costs and taxes.

Where an RSE licensee adopts a lifecycle investment strategy, as defined in subsection 29TC(2) of the "Superannuation Industry (Supervision) Act 1993" (SIS Act), RSE licensees are required to submit a separate SRF 702.0 for each distinct ‘stage’ of the lifecycle investment strategy.  

Proposed changes 

Under SRS 705.0, the same type of data required by SRS 702.0 will be collected under a more efficient structure. As part of this structure, RSE licensees will no longer need to report:

• the fees, costs or taxes applicable to a representative member; or
• the net return for a representative member. 

The above items can be calculated from data otherwise required by SRS 705.0. 

Under the improved and more efficient data structure proposed in SRS 705.0, the RSE licensee would report the components of net return for all superannuation products, investment menus and investment options/lifecycle stages within the RSE through a single submission.  Currently RSE licensees submit separate forms for each MySuper product or lifecycle stage.      

APRA is proposing that data is reported for the discrete quarter, instead of on a year-to-date basis.  Any material changes to data for previous quarters will therefore need to be made via a resubmission. 

The fees and costs categories in SRS 705.0 are updated to align with the updated RG 97 requirements (released by ASIC on 29 November 2019) while retaining the additional detail needed to support the objectives outlined above. Reporting under the current categories (which are aligned to the March 2017 RG 97 requirements)  is required until 30 June 2020. The key changes are:

• Administration fees and costs:  Intrafund advice fees and costs which were previously reported under ‘advice fees’ are proposed to be included as administration fees and costs under SRS 705.0.
• Investment fees and costs/transaction costs: Transaction costs which were previously reported under investment costs are proposed to be split out into a new ‘Transaction costs’ category.
• Net investment return:  Definition is proposed to be the investment return net of both investment fees and costs and transaction costs.
• Fees and ‘indirect cost ratio’ costs: The categories for fees and costs are proposed to be:
  o    indirect costs;
  o    fees deducted from member accounts; and
  o    other fees and costs.

Non-MySuper products

Under existing reporting standards, RSE licensees are not required to report data on the components of net returns for non-MySuper products, investment menus and investment options.

In 2015, APRA consulted on proposals in draft "Reporting Standard SRS 702.1 Investment Performance" (SRS 702.1) to align with the proposed introduction of dashboards for choice products. SRS 702.1 had required data on Select Investment Options (SIOs), which were defined as investment options that were at least $200 million in assets or five per cent of total fund assets. This reporting was not implemented as implementation of choice product dashboards has continued to be deferred. 

In developing draft SRS 705.0, feedback from the previous SRS 702.1 consultation has been taken into account, including the need for fees to be captured at both the superannuation product and investment option level.

Differences with MySuper reporting:  There are strict limitations on the types and ways fees can be charged for MySuper products. Many of these limitations do not apply to non-MySuper products and options. Because of these differences, APRA proposes that under SRS 705.0 RSE licensees will report:

• data at each level (product, investment menu or investment option) that fees, costs and taxes are incurred or applied;
• data about any fee tiers which apply based on account balance; and
• data on fees charged as a proportion of member contributions where applicable.

Consistent with updated RG 97 requirements, data on administration fees, costs and taxes will include all fees, costs and taxes charged to members in that superannuation product, investment menu or investment option which are not related to investments or transactions.

Defined Benefit products and options: APRA is proposing not to require RSE licensees to report data under SRS 705.0 and SRS 705.1 for any products and investment options which solely underlie defined benefit interests.  As part of Phase Two of the Superannuation Data Transformation program, APRA will review and determine any additional data needed to analyse performance of defined benefit products for prudential supervision.⁴   

Direct investment options:  Requirements for the reporting of direct investment options is outlined in "Superannuation Data Transformation Topic Paper 1: RSE Structure and Profile". For some direct investments, APRA has proposed that they may be reported at a collective level, based on those direct investments which have a common fee structure, investment option category and description in related disclosure⁵. 

For these collective options, APRA considers that reporting investment returns on each option is not practical or necessary for the objectives of the data collection. APRA is therefore proposing that for these collective direct investment options, only fees and costs are to be reported. Look-through requirements for reporting fees and costs in all cases will align to RG97. 

Annuities: Under SRS 705.0 APRA considers that reporting investment returns for annuities is not practical or necessary for the objectives of the data collection, therefore, RSE licensees will only be required to report fee information for Annuities. 

Footnotes:

²SRS 702.0 was introduced as part of a suite of reporting standards to support requirements under section 348A of the SIS Act for APRA to publish information regarding the fees, costs and net returns of MySuper products on a quarterly basis. 
  
³The timing impact for fees and costs disclosed and which is reported to APRA will be considered in the relevant Topic Paper to be released in early 2020.

⁴For defined benefit cohorts, the requirements under "Prudential Standard SPS 160 Defined Benefit Matters" would be central to an RSE licensee‘s analysis under the Business Performance Review requirements detailed in SPS 515. An RSE licensee should be able to demonstrate, on the basis of actuarial advice, that the future benefits of members are expected to be fully funded by the time they become due and payable. Defined benefit funding levels, investment performance, member flows, income and expenses and profit and loss information is reported to APRA under the current superannuation data collection.

⁵Further information on the proposed reporting of direct investment options can be found in the instruction guide for the "Reporting Form SRF 605.0 RSE Structure".

Chapter 3. Investment performance and objectives

Investment performance is a key determinant of members’ retirement outcomes.  Consistent long-term data on investment returns, measures of risk and investment objectives is required to assess investment performance. APRA is proposing enhancements to reporting of investment objectives and long term performance of MySuper products and expanding this reporting to choice investment options. These proposals include new data items to cater for choice options where there is no prescribed return objective measure and to capture an investment option return volatility measure. This data, together with characteristics of the investment options such as asset allocation, will enable comparable assessments of the performance of investment options across the superannuation industry.

Draft SRS 705.1 details the collection of forward looking risk and return objectives as well as long term performance of, and risk measurement for, investment options related to MySuper and choice products.

MySuper products

Existing requirements 

Currently under "Reporting Standard SRS 700.0 Product Dashboard" (SRS 700.0), RSE licensees report the return target, level of investment risk, and comparison of the 10-year return target against actual net returns for MySuper products and lifecycle stages for the ten most recent years ending 30 June. 

SRS 700.0 is a MySuper product dashboard reporting standard as it contains a clause stating that it relates to information that will be included in a product dashboard for a MySuper product⁶. This data also underpins the requirements for publication of the MySuper product dashboard as set out in section 1017BA of the "Corporations Act 2001".

Proposed changes 

There is no change to the product dashboard data required under SRS 700.0.  

APRA is proposing that RSE licensees report additional data proposed on investment performance and objectives under SRS 705.1 for MySuper products.

Non-MySuper products

Existing requirements  

Under existing superannuation reporting standards, RSE licensees are not required to report on the long term performance of non-MySuper products and investment options.

All investment options  

Proposed changes  

There is currently no requirement for RSE licensees to publish a choice product dashboard. APRA considers that it is necessary to collect investment objectives and performance for all investment options on a quarterly basis, as proposed in SRS 705.1,  to meet the objectives of the superannuation data collection as outlined above, independent of any disclosure requirements. If requirements for a choice product dashboard come into effect, the relevant reporting standards would be reviewed and updated to reflect applicable definitions and methodology.

Collecting investment objectives and performance data for all investment options on a quarterly basis will allow greater comparability of all investment options on a consistent basis.

To enable long-term performance to be assessed, APRA proposes to collect 10 years of data⁷ for the period ending 30 June 2020 as a one-off historical collection of objectives and quarterly returns. Subsequent reporting from the quarter ending 30 September 2020 will capture quarterly returns. This will enable APRA to calculate and publish returns for differing durations on a rolling basis (such as 1, 3, 5, 7 and 10 year returns). Collecting 10 years of performance data is consistent with the period of investment performance required to be disclosed on the MySuper product dashboard. 

Return objective: Under SRS 705.1 APRA proposes to collect the return objective for investment options in line with requirements under "Prudential Standard SPS 530 Investment Governance". The return objective includes a benchmark, an annual margin to exceed the benchmark by and a time horizon for the comparison to be made over. This will allow for comparisons between MySuper and non-MySuper investment options. APRA is also proposing to collect the actual performance relative to the return objective over the period.

Investment option volatility: Under SRS 705.1, APRA proposes to collect a measure of the standard deviation of weekly option returns for the five-year and ten-year periods ending each quarter to provide additional insights on the risk profile of investment options. As outlined under "Objectives" (section 1.3 of this paper), further proposals on risk measurement will be in scope as part of the asset class Topic Paper (to be released in early 2020) and in Phase 2 of the Superannuation Data Transformation program.

Comparison return: For comparison purposes, APRA is proposing that the net investment return is reported for all options. For direct investment options where tax is calculated at the member level only, the investment return net of fees, costs and tax is not required to be reported, and the net investment return (net of fees and costs) must be reported instead. 

Consistent with the proposals for SRS 705.0, RSE licensees will not be required under SRS 705.1 to report data for direct investment options which are reported collectively, annuities or investment options which solely underlie defined benefit interests.

Footnotes:

⁶SRS 700.0 also captures information on the lifecycle stages for MySuper products with a lifecycle investment strategy, and the statement of fees and other costs in relation to the product. 

⁷or the period since inception for investment options that have not been in existence for 10 years.

Chapter 4. Overlap with existing reporting standards

There is overlap between data to be collected through the proposed SRS 705.0 and SRS 705.1 with data collected under the existing reporting standard SRS 702.0.   

APRA will discontinue collection under the existing reporting standard, to the extent the new forms duplicate data that is already being collected.

Chapter 5. Proposed non-confidentiality determination

APRA’s Superannuation Data Transformation program will lead to significant changes to reporting requirements. As a result of these changes, APRA needs to consider whether the data reported under the "Financial Sector (Collection of Data) Act 2001" (FSCODA) should be determined to be non-confidential and publically accessible.

APRA is generally able to publish aggregate industry-level data without restriction. To achieve the objectives of the enhanced superannuation data collection, however, it will be necessary to publish data at an individual entity, superannuation product and investment option level.  The objectives include improved accountability of the industry and more informed analysis and assessment of the performance of the superannuation industry by stakeholders.

Under section 56 of the "Australian Prudential Regulation Authority Act 1998" (APRA Act), data reported to APRA under FSCODA is protected information and generally cannot be disclosed at an entity level, unless APRA determines the data to be non-confidential.

However, section 57 of the APRA Act permits APRA to make a determination that data provided in a particular reporting document, which has been submitted in accordance with a reporting standard made under FSCODA, is non-confidential.  APRA may make such a determination if it considers the benefit to the public from the disclosure outweighs any detriment to commercial interests that the disclosure may cause.  

FSCODA also requires that APRA must not make such a determination unless it has: 

• given interested parties (bodies or associations representing the relevant kind of financial sector entity) a reasonable opportunity to make representations as to whether information of the kind that is proposed to be released is confidential; and
• taken any such representations into account.

APRA proposes to determine under section 57 of the APRA Act that all data collected under SRS 705.0 and SRS 705.1 is non-confidential.

Data which APRA determines to be non-confidential will identify individual entity data but will not breach the privacy of individual members.  The scope of the proposed publication of data and treatment of privacy protection in public data releases will be set out in the final Topic Paper release of Phase 1.

Reasons for the proposed determination

The data to be collected under SRS 705.0 and SRS 705.1 will provide essential material to fulfil the objectives of the Superannuation Data Transformation program. It will provide the necessary information to enable more meaningful assessment of performance and outcomes for members in different products and investment options, ultimately supporting initiatives to improve outcomes for superannuation members.  

5.1 Feedback sought on confidentiality proposals

As required under subsection 57(3) of the APRA Act, APRA seeks submissions from RSE licensees and other interested parties on whether data to be collected under SRS 705.0 and 705.1 should remain confidential. The submissions should include: 

• details of the data items that should remain confidential (if any); 
• information on how the disclosure of that information would lead to detriment to member interests, and the extent to which that could occur, and/or; 
• information on how the disclosure of that information might lead to detriment to RSE licensees or other parties’ commercial interests.

6. Consultation questions: Performance

Comment is invited on the content of this Topic Paper, specifically in the below areas:

6.1 Submission of responses

Written submissions on this Topic Paper should be sent by 26 March 2020, preferably by email to superdatatransformation@apra.gov.au. Alternatively, submissions can be mailed to: 

General Manager  
Data Analytics & Insights
Risk and Data Analytics Division  
Australian Prudential Regulation Authority
GPO Box 9836 
SYDNEY NSW 2001

6.2 Submission of pilot data

Through Phase 1 of the Superannuation Data Transformation program, APRA is seeking to collect pilot data to test and inform areas for clarification prior to finalising Phase 1 reporting standards.  As the pilot data is based on draft reporting standards, this data is not collected under the auspices of FSCODA and will be on a best endeavours basis.  

Each Topic Paper will be accompanied by draft reporting standards, a reporting template to collect pilot data, specified reporting periods for RSE licensees to provide data in the template and due dates for submission.

Following the collection of the Phase 1 pilot data, an updated data template will be provided to entities for completion to further test and clarify the draft reporting standards.

This table summarises the key features of the initial pilot data collection for this Topic Paper: 

Appendix 1: Comparison of SRS 705.0 and SRS 705.1 to existing reporting standards