Super industry set for shake-up

Under a swathe of proposed rules released yesterday by the Australian Prudential Regulation Authority, super funds will have to lift governance and investment standards.

The move is aimed at improving confidence in the superannuation industry when volatile global markets have seen returns shrink and follow from recommendations coming out of the Gillard Government's Stronger Super reforms.

Among key changes, superannuation funds will have to disclose the executives' remuneration and build up cash reserves to protect members from operational problems.

While APRA currently has oversight of superannuation funds, it was lacking the legal framework - known as prudential standards - to keep rules up to date with changes to the industry or to force some poorer performing funds to overhaul their business.

This is in contrast to the banking and insurance industry where the regulator has a much wider range of legal powers to investigate problems or overhaul businesses.

APRA Deputy Chairman, Ross Jones, said yesterday the proposed prudential standards will strengthen the superannuation system.

"APRA has successfully established prudential standards in banking and insurance for many years, and the establishment of such standards in superannuation will provide clear benefits to the superannuation industry as a whole and to its members," Mr Jones said.

However, he stressed the new prudential standards in superannuation will not diminish the fact that the primary responsibility for management of superannuation funds rests with the trustees.

Other key changes will see a shift in the way super funds deal with risk management. This will see funds move from documenting risk strategies and planning to actively outlining risk appetite of a fund and having dedicated risk management staff. Funds will also be required to provide members with return targets and benchmark for funds.

Despite the changes, the Australian Institute of Superannuation Trustees said the regulator appeared to be taking a flexile approach to the new rules.

Many trustees had feared APRA would take a "one-size fits all" approach when it came to putting aside a minimum level of assets to protect against operational risks. Under the proposals the pool will be calculated as 0.25 per cent of a fund's investment assets. APRA's proposal "not only reduces compliance costs but it recognises that super funds come in all shapes and sizes" said Australian Institute of Superannuation Trustees chief executive, Fiona Reynolds.

"Where funds do have to make changes to meet these standards, we believe these changes will be in best interests of their members," she said.

APRA will consult the industry over the next three months and finalise prudential rules mid next year.