APRA to strengthen transfer planning in superannuation

On 10 November 2022, APRA released a discussion paper seeking consultation on strengthening superannuation trustee planning in successor fund transfers (SFTs) (Discussion Paper).

The superannuation industry has seen a recent spate of SFTs. By way of example, QSuper and Sunsuper merged in February earlier this year to create the Australian Retirement Trust. LGIAsuper and Energy Super merged in July 2021 to establish Brighter Super. Vic Super and First State Super merged to create Aware Super, with WA Super joining shortly thereafter. Here is our previous article on superfund mergers and section 249E corrupt benefits for trustees and others, if of interest.

It is evident that strong performers in the superannuation industry have been merging to further strengthen their positions in the market. However, other superfunds have been using SFTs as an exit vehicle from the industry. APRA has taken note of this recent activity, particularly following the introduction of its annual MySuper performance test, where the performances of MySuper products are reviewed, and based on these results, APRA names and shames the superfunds with failing products. If a product is listed consecutively for two years in a row, the product must be closed to new members. Australian Catholic Superannuation was one such fund, listed in both the 2021 and 2022 lists. It is not surprising therefore that Catholic Super members will be transferred across to UniSuper, effective from 1 December 2022.

With this growing popularity in SFTs, APRA’s Discussion Paper seeks to protect members and prevent poor outcomes by:

• amending Prudential Standard SPS 515 Strategic Planning and Member Outcomes to elevate its current guidance and ensure all RSE licensees are appropriately prepared to transfer or receive members. APRA intends to do so by creating minimum standards for SFTs, such as market monitoring, shortlisting potential merger partners and identifying barriers to a successful transfer;
• introducing new requirements for transfers of MySuper product assets, where a MySuper authorisation is cancelled pursuant to section 29U of the Superannuation Industry (Supervision) Act 1993 (Cth). These requirements include written determinations that receiving the cancelled MySuper product promotes the financial interests of beneficiaries, ensuring the MySuper asset transfer aligns with the superfund’s risk management framework and clear governance arrangements for the transfer of assets, including the role of the Board; and
• updating Prudential Practice Guide SPG 227 Successor Fund Transfers and Wind-ups to enhance guidance on SFT planning. APRA intends to provide further guidance that limits excessive delays in SFTs, balances the need for both a compliance-based and pragmatic approach to SFTs and manages day-to-day operations during an SFT.

Ultimately, we consider strengthened guidance on the planning process for SFTs will be beneficial for the super industry. It will allow superfunds to streamline their processes and procedures when conducting an SFT. However, APRA should heed caution that it does not make the regulations or guidance too restrictive in nature, as a strictly regulated SFT environment could potentially prevent future superannuation merger exploration and opportunity.

APRA’s Discussion Paper is available here. Submissions close 10 March 2023.

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Authored by:

Matthew Bode, Partner
Sinead Cronin, Solicitor