The ability of superannuation funds to continuing investing in and developing new products and services for members should remain a key determinant of scale, according to major consulting group, KPMG.
In a column to be published in the upcoming edition of Super Review, KPMG Superannuation Advisory partner, Adam Gee has pointed to the significant new powers being handed to the Australian Prudential Regulation Authority (APRA) and the changes to the ‘scale test’ to an ‘outcomes test’.
He said the changes would mean that some funds which were relatively ‘creative’ in justifying scale would “find the specificity of the new outcomes test a challenge, to say the least, with the regulator looking on”.
“Whilst more detail is still required in terms of measurement periods and benchmarking approaches, the new guidance should serve as a wake-up call for some potentially sub-scale funds to consider their ongoing sustainability, particularly in light of clarified obligations to act in the best interests of their members,” Gee said.
He said KPMG would have liked to see a greater focus on operating cost metrics for superannuation funds as a key tenet of the new outcomes test.
“We continue to believe that a fund’s capacity to continue to invest in, and develop, new products and services for their members remains a key determinant of a fund’s scale and the outcomes a fund can deliver to its members,” Gee said.
“We also note that the proposed legislation provides material additional powers to APRA to intervene at any earlier stage where it has prudential concerns surrounding the actions of a trustee,” he said. “This is substantially different to the powers APRA has in relation to the superannuation industry and in line with their powers in relation to the banking and insurance industry.”
“Either way, this should once again put trustees on notice and suggests that APRA will be far more intrusive in overseeing superannuation fund operations going forward.”