When cash ain’t really cash

Are all “cash options” offered by superannuation funds the same?

The Australian Prudential Regulation Authority (APRA) has revealed that its recent scrutiny suggests that one fund’s “cash” might be another fund’s non-cash investment option.

Facing questioning during Senate Estimates, APRA deputy chair, Helen Rowell acknowledged concern about the seemingly low returns generated by some funds but pointed to the wide variation in approach and descriptions pursued by superannuation funds.

She said the regulator was undertaking some work on the “various cash options and the composition of various cash options across the sector”.

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“The work we have done so far highlights a couple of different issues. One is that some cash options seem to be returning much higher than we would expect from what you might call a pure cash option and there are others that are returning much less,” Rowell said.

“Our initial work seems to suggest that part of it goes to the types of instruments, if you like, which are in those. They are not just term deposits; they may be enhanced cash, RMBSs or other types of securities that are cash-like but not cash. And in other cases, it does come down to the level of expenses that are being charged for the management of those cash options.”

Rowell said these were all issues which had been identified by APRA and which were being pursued with the relevant funds where particular products had been identified as “outliers”.

Asked whether APRA’s current regulatory toolkit was appropriate and sufficient to deal with this issue, Rowell said the superannuation framework relied on trustees to set the investment strategy and set the fees and charges that applied.

“The focus of our member outcomes work and the proposals that the government has considered around enhancing member outcomes is really about pushing trustees to think a lot harder about some of those decisions,” she said.

“In that sense, I would say that there is room to strengthen the regulatory framework both in terms of putting tougher requirements on funds in terms of how they look at and assess member outcomes and what they are delivering at a fund, product and investment option level but also in terms of the reporting and disclosure and the information that is available that enables us and other stakeholders to get more visibility of these types of issues more quickly.”