Proposed changes to superannuation: The PFS POV
Changes are coming for superannuation funds. In December, the Australian Prudential Regulation Authority (APRA) proposed adjustments to the way funds implement business objectives, measure their outcomes and make significant expenditure.
Designed to produce better outcomes for members, the new standards will represent significant departures from current practice. Although only proposed, it's highly likely that these measures will be introduced, and if they are they will most likely become operative from January 1 2019. As such, it's important that trustees start preparing now.
APRA has released proposed measures to strengthen superannuation member outcomes – https://t.co/x8D0LjlFEi
— APRA (@APRAinfo) December 12, 2017
What are the proposed superannuation changes?
APRA plans to change SPS220 Risk Management and introduce a new SPS225 Outcomes Assessment. If introduced, funds will have to:
- Identify specific, measurable, time-bound strategic objectives and create a written business plan to show how they will reach these objectives.
- Create an expenditure policy that shows how spending is in line with objectives.
- Develop a business case for significant expenditures.
- Annually assess beneficiary outcomes and identify areas for improvement.
APRA has also produced SPG 221 and SPG 225 to help funds meet these new requirements.
Why has APRA introduced the changes?
"In essence, these changes are a good thing," says Jane Byrne, Director at PFS Consulting. "APRA wants to make sure members are getting sound outcomes from their superannuation accounts, and at the same time improve practices and processes across the industry."
This will ensure licensees are able to respond to the increasingly complex nature of the superannuation industry. "I agree with APRA that super businesses are large and complex, and face significant strategic challenges," explains Jane. "On top of this, trustees need to ensure they are delivering quality and value to members given the importance of superannuation for providing retirement incomes."
"However, these changes may also encourage smaller funds to merge, something that APRA wants because it sees these funds as higher risk." Whilst this is arguable, if APRA has access to an outcomes measurement, it has more scope to say that any fund, including the smaller funds, isn't up to standard.
How can superannuation funds prepare?
As with all big legislative changes, it's important businesses review their existing policies and procedures to identify any gaps.
"I've already started working with one of my clients to perform this assessment. This has involved considering what it is they should measure, creating a new policy on outcome measurement, and adding more specifics to their strategic planning," says Jane. "Of course, it's one thing to have the policy in place and another to put it into practice. The next step will be to work out how to put the structures into place and report on the data so that member outcomes are regularly monitored and assessed."
Super funds should be regularly monitoring performance, and these changes require them to do this. However, it will still take time to implement the new measures. Fortunately, PFS Consulting can help. Our experts have years of experience working with superannuation funds across a range of issues. Contact us today to find out more.