The Australian Prudential Regulation Authority (APRA) has sent a clear message to superannuation trustees that it expects them to maintain a comprehensive management strategy with respect to reserving.
In a guidance note issued this week, the regulator said that where reserves were maintained, it expected “that a comprehensive management strategy would exist and would contain appropriate objectives for which the reserves are established as well as measures to manage the reserves”.
The APRA guidance said that before establishing a reserve, it was important for a trustee to be clear on why the reserve was to be established and its ongoing purpose.
It said the measures APRA would regard as sound practice in a reserving strategy included clear definition by the trustee of the purpose or purposes of each reserve, balancing of the number of reserve accounts against risks identified by the trustee, and establishing whether and under what conditions amounts might be transferred from one reserve account to another.
The regulator said it also expected trustees to determine the appropriate levels or range of each reserve, including how and over what period the reserves were to be funded or built up, the rematching of actual levels to target levels after a drawdown from the reserve, and whether a reserve could have a negative balance and the maximum duration of any negative balance.
