APRA is consulting with industry on the superannuation industry’s approaches and plans to maintain the financial strength needed to operate their businesses effectively and protect their members’ best financial interests.
SuperRatings was pleased to deliver a submission in response to the consultation on “Financial resources for risk events in superannuation: Operational risk financial requirement”, which seeks feedback and comments on APRA’s proposed amendments to SPS 114.
Current guidance for APRA regulated superannuation is that funds maintain an operational risk reserve equivalent to 0.25% of net assets. This is likely to still be the case following the current SPS 114 consultation.
New proposed changes are expected to better position super funds to use the ORFR to manage the impact of disruption and smooth operational risk related losses fairly across different cohorts of beneficiaries.
ORFR reserves have grown from an estimated $2.1 billion at the time of introduction of ORFR requirements, to over $6.4 billion, held outside of members accounts, and of which the majority has been member funded (we estimate $5 billion). During this period, only a small portion of this amount has been released from ORFR reserves to meet operational losses.
With the increase of Superannuation Guarantee to 12%, and the increase to the contribution cap, members will be levied further to maintain the ORFR reserves, either by way of member funded or indirectly through the cost of Trustee capital.
Whilst SuperRatings welcomes the proposed changes which are expected to better position super funds to use the ORFR to manage the impact of disruption and smooth operational risk related losses fairly across different cohorts of beneficiaries, we don’t believe that the current mechanism of funding ORFR is optimised when viewed through a lens of equity or members best financial interest. This is best exemplified by those members who are exercising choice and moving between funds. In this scenario, these members will have left their ORFR contribution behind for others to potentially benefit from – perhaps even having to contribute again on arrival into their new fund.
Recognising the need for the superannuation industry to constantly innovate, SuperRatings has worked to develop a solution, ORTC Protect, to address these key limitations of the current framework. This means there is a clear and present opportunity to unlock this benefit for members and facilitate the sustainability of the superannuation industry by reducing friction points in the merger process.
Read our full submission to APRA here.
For more information contact:
Scott Abercrombie
Executive Manager, Innovation
Tel: 1300 826 395
Mob: +61 400 500 267
scott.abercrombie@superratings.com.au
