Superannuation Funds – Delivering Better Member Outcomes

Every super fund member deserves confidence their fund is delivering quality, value-for-money outcomes.

APRA deputy chairman Helen Rowell

From the productivity commission, we have seen recommendations to avoid superannuation members having multiple accounts, fees and insurance deductions. From the royal commission, we have seen unavoidable questions about operations, performance and fees.

APRA has proposed measures to strengthen superannuation member outcomes. The proposed measures were a principles based framework designed to support superannuation fund trustees to meet their obligations to continuously strive to have better outcomes for their members.

In an age of society’s increasing expectations from financial services organisations, an explicit strong focus on member outcomes is to be welcomed.

Framework

The framework proposes the following:

  • strengthening the obligation to improve strategic business planning explicitly addressing better member outcomes
  • have a strengthened cost-benefit analysis before spending members’ money on expenditure, and
  • to assess whether it’s in members’ best interests for the fund to continue to exist.
Strengthening Member Outcomes
Strategy Requirements

Member outcomes assessment

When conducting the proposed member outcomes assessment, the assessment is expected to:

  • articulate the outcomes sought for members and the metrics used to measure progress;
  • undertake an assessment of these outcomes, in absolute and relative terms;
  • determine the impact that features of product offering and business operations have had on performance; and
  • identify and pursue opportunities for improving outcomes, where cost benefit analysis justifies doing so.
Member Outcome Requirements

Continuous improvement

It is recognised that implementing the assessment will be an evolutionary process, and that ongoing refinement of the member outcomes assessment, and strategic and business plans, will be necessary.
Importantly, a set and forget, or compliance-focused, approach is not considered sufficient for members.

Consequences

These proposed changes would lead to a greater criticism of:

  • overly optimistic business planning based on unlikely assumptions;
  • expensive investment and benefit options that do not provide demonstrable and measurable value to members;
    any deals involving a related party that should be assessed at arm’s length;
  • Expenditure on marketing, travel and employee remuneration that is not properly evaluated to provide sufficient benefit to member outcomes;
  • Lack of contingency plans and following through if strategy fails.

Responding to Criticism of APRA’s approach

There were a number of views that APRA’s measures that focused on the following:

  • Create additional reporting requirements
  • Add cost and reporting that is an additional burden to superannuation funds
  • Focus on inputs (i.e. following an appropriate decision making process) rather than the outputs that may be delivered.

APRA has responded to criticism with the following:

Our current member outcomes proposals do not seek to change the obligations of trustees under trust law or the SIS Act. Rather, we see them as supporting trustees in meeting these obligations through clearly setting out practical actions that trustees can take to embed a member focus in all the decisions they make and the subsequent actions that follow. Surely it is reasonable to assess the outcomes of your decisions in order to determine whether or not your decision-making processes are suitably robust? We would find it hard to conclude that a trustee was meeting their obligation to act in the best interests of their members if they are consistently delivering relatively poor member outcomes.

Our view is that Trustees should view APRA’s proposed framework as a valuable opportunity to implement a continuously assessed and monitored business planning framework that is focused on the member.

Implementation

We recommend funds:

  • Review their business strategy and objectives at a high level that considers the most important member outcomes
  • Review the 3 year business plan to incorporate a member outcomes focus
  • Prepare a template for assessing the member outcomes desired at a more granular level and use this to constructively to review actual member outcomes annually.
  • Use the findings of a detailed member outcomes assessment to review the 3 year business plan.

The table below shows an approach to build the member outcomes assessment:

Determine required outcomeEach outcome by segment
Determine criteria for assessmentQuality, reliability, flexibility, cost, value, benefit, risk, reward, opportunity, etc.
Consider best practice elements
Carry out assessmentCurrent practice against criteria
Future implications
Assessment findingsAcceptable?
Justifiable?
Recommendation and actionsHow to improve member outcomes
What actions are required
Cost benefit analysis
Size of work and level of importance
By who and by when

We partner with Funds and Trustees to drive and support such initiatives