A MySuper member outcomes test is already being considered by federal Parliament.
If the legislation passes, super funds will need to assess whether their MySuper offering is performing well compared with others in the market, based on fees, returns and risk.
APRA will be given more power to revoke the MySuper authorisation of funds that do not comply and to require underperforming funds to transfer their MySuper members to another fund.
But the commission recommends the process be made even tougher by requiring independent audit of each fund’s self-assessment. It also wants the test extended to choice products, which are the more complex options typically offered by for-profit retail funds.
To deliver on the recommendation, APRA will need “an exponential uptick in dedicated expertise and resources”, the report says. “An independent and expert capability review of APRA is now overdue.”
The chief executive of the Australian Institute of Superannuation Trustees, Eva Scheerlinck, welcomed greater scrutiny.
“The PC found egregious problems in the choice sector in terms of poor performance, high administration fees, high exit fees, high advice fees, trail commissions and legacy products, and the outcomes test is a first step to addressing these problems,” she said.
But simply urging regulators wouldn’t achieve anything, Ms Scheerlinck said.
“APRA’s mandate needs to change to force a change of culture to collect data, deploy data analytics to interrogate the data,” she said.
“They need to undertake strategic surveillance and take steadfast and confident enforcement action to get people out of poor-quality choice products and remove these products from the system.”
If the commission’s proposed time frame was adopted, the outcomes test could be legislated by the end of 2019 and MySuper products audited by the end of 2020.
Products failing the test would have 12 months to fix problems. Failure to do so would mean cancellation of their MySuper authorisation by the end of 2021. The first substandard choice products could be forced to withdraw from the market in June 2022.
A key challenge to identifying poor products has been a lack of comparable data, especially on investment performance. To help overcome this, the commission developed benchmarks against which to compare products.
“MySuper products and choice options that persistently underperform the benchmark would fail the ‘right to remain’ test,” the report says. “This should be assessed over a rolling eight-year period, with a margin of 0.5 percentage points.
“The fund would then have 12 months to remediate, such as by cutting fees, or to withdraw the investment option and move the affected members somewhere more suitable.”