APRA to improve strategic planning, member results rules
APRA is redesigning its rules governing strategic planning and member pension results, including strengthening how results are assessed, closer tracking of financial resources, and new rules to follow when ‘a MySuper authorization is revoked.
Prudential Standard SPS 515 Strategic Planning and Member Results (SPS 515) came into effect in January 2020, requiring trustees to regularly assess the results provided to fund members and improve them where necessary. Given the pace of change in the industry and regulatory parameters since then, APRA proposes that changes be made to keep pace. He also said recent benchmarking of administrators’ implementation of the requirements showed there was work to be done.
By issuing a discussion paper, APRA proposes to “move beyond the ‘documentation focus’ of the implementation period – where oversight engagement focused on the business plan, member performance evaluation and business performance review, toward one where member performance considerations are integrated and integrated into a CSR Licensee’s business operations.”
APRA said the outcomes licensees seek are not always clearly defined in an objectively measurable way and some demonstrate limited consideration of how outcomes differ between cohorts which are also often constructed at the using “simplistic” characteristics, such as age and investment option.
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The regulator proposes that the boards of directors of super funds only approve the results when they are defined in a quantifiable and objective way. Licensees should also demonstrate why a cohort is reasonable in the context of the relevant CSR.
In terms of monitoring member results, APRA will also seek to clarify the role that the annual performance test and heatmaps should play.
Meanwhile, on the management of financial resources, APRA said last year’s consultation process on building the financial resilience of funds revealed that “members would benefit from an industry that adopts a more sophisticated and rigorous approach to the management of financial resources”. The submissions highlighted the problems encountered when funds hold too little and when they hold too much financial resources.
APRA proposes that licensees adopt and clearly articulate performance measures related to financial management, action plans, objectives and targeted results for members. They should also monitor the adequacy of financial resources against business goals and triggers.
APRA is also considering creating greater flexibility to respond to operational risk events that result in negative outcomes. Although the consultation will not take place before the end of this year, APRA said the proposals would likely include increasing the scope of permitted use.
Finally, on expenditure management, APRA will review findings from the planned YFYS review and last year’s thematic expenditure review to inform any changes, which will then be consulted in 2023.
With respect to financial projections, APRA proposes that boards of directors be permitted to approve projections only when they provide, among other things, sufficient detail to understand the expected impacts of member contributions and cash flows. rollover/payment and planned strategic initiatives, and were prepared using a range of stress testing scenarios.
Finally, when a fund decides to merge or exit, APRA said it is currently reviewing submissions to a consultation that ended in April on responding to stressors that threaten a fund’s viability. . Next steps will be communicated later this year, while a new consultation on contingency planning will soon be announced.
The regulator said it also plans to issue a new standard relating to the transfer of assets when a MySuper authorization is cancelled. The provisions will include a requirement for CSR licensees to transfer assets from a canceled MySuper product to another MySuper product. This will also be open for consultation later in the year.
“SPS 515 has sought to instill in pension plan administrators a culture of continuous improvement, where even top performers are always looking for ways to further improve outcomes for members,” said APRA Fellow Margaret Cole. .
“While we have seen clear evidence that SPS 515 has contributed to greater industry efficiencies, increased consolidation and better results for members, there is still more to be done.
“In particular, as the industry’s approach to SPS 515 matures, we are less interested in seeing their plan on paper, and more interested in seeing evidence that it is working in the best interest. financial of the members.”
Submissions to the discussion paper released today close November 11. APRA then intends to publish draft improvements early next year for further consultation.