Superannuation
No pat on the back for high performers: APRA

APRA's superannuation heat map will not feature any means for demonstrating high performance across any of the system's metrics, the regulator has revealed.

APRA outlined its superannuation heat map at the 2019 ASFA Conference in Melbourne this morning, which focuses on underperforming funds but does not highlight strong performers.

Speaking at the conference, APRA deputy chair Helen Rowell revealed how the regulator's long-mooted heat map system for demonstrating the performance of MySuper products will work.

Set to be widely uncovered later today, APRA's heat map focuses on underperforming funds and not high performers, with Rowell explaining the system is "not a traditional" heat map.

Rowell said the system would not feature any means for demonstrating high performance across any of the system's metrics. If a fund performs above the relevant benchmark in a specific area, the colour of its performance will be white, with yellow indicating underperformance and red indicating substantial underperformance.

Rowell said the heat map doesn't provide a complete picture of trustee performance, but instead was focused on giving members insights into the outcomes provided by some fund options. She said it was not intended to be a single means for members to determine the appropriateness of their super fund.

"The first thing you might notice is there is no green," Rowell said.

"This is not a traditional "traffic light" system with three distinct and simple categories. This is intentional. The heat map is designed to emphasise underperformance, it's not meant to give a pat on the back to better performing MySuper products, or be seen as a peer ranking mechanism.

"There is no overall assessment. Each MySuper product is assessed against each metric. So it is entirely possible for a product to be white for some investment performance metrics, yellow for others and red for fees and costs."

Rowell said that unlike a sea of numbers on a spreadsheet, "a row of red across the heat map sends a message so clear and strong it nearly jumps off the screen".

"That message is hard to ignore, and exactly what we're counting on," she said.

"As much as transparency is important, the ultimate purpose of the heat map is - to be blunt - to galvanise the trustees of underperforming products into action."

Rowell said the regulator expected trustees to analyse why the outcomes in identified areas are relatively poor and whether the problems can be fixed in a reasonable period of time.

"If trustees don't fix these issues within a timeframe that is acceptable to APRA, we will be requiring them to consider other options, including a merger or exit for the industry in some cases," Rowell said.

"Over the net year you can expect to see APRA increasingly prepare to judiciously apply all of its powers, including its new directions power and imposition of additional licence conditions, to achieve change where needed."

Rowell added that trustees should not become complacent because they see white boxes on their heat map.

"The colour white indicates a MySuper product is performing around or above benchmarks for investment performance and fees and costs," she said.

Addressing the media after her speech, Rowell said the industry should expect the heat map to be released in the second week of December, with the regulator planning to release an update once a year.

She also reinforced that it is not the regulator's job to highlight positive performance.

"There are other surveys and publications out there that do their job of highlighting who's top of the pops," Rowell said.

"We're not convinced that's necessarily a good way of thinking about outcomes. Our role is very much to lift the bottom up rather than have a view necessarily on those that are already performing okay."

Commenting on the heat map, Rainmaker head of superannuation research Jason Ross said, as a benchmarking tool, the heat map simply highlights those funds that are below average.

"At this stage, APRA is only focusing on investment performance, fees and member growth. With investment and admin fees collected by super funds going up from $16 billion in 2011 to $32 billion in 2019, this is the one factor that super funds have the most direct control over. Investment performance is more a factor of the talent of the investment team and in some cases the risk tolerance of the member base," Ross said

"The decision to focus on five-year returns highlights the long term nature of superannuation.

"With insurance being default opt-out for most members, this benchmarking aspect is also very important."

Read more: APRAMySuperASFAHelen Rowell
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