• of APRA's expectations: 'APRA's view is that it is not sufficient for an RSE licensee to simply comply with their legislative and prudential obligations without giving due consideration to how their RSEs will deliver quality outcomes for members now and into the future';

• that APRA has identified some RSEs who appear not to be delivering quality member outcomes;

• inviting all RSEs to review and consider whether there is a need to enhance their approaches to 'delivering quality member outcomes' (including consideration of whether insurance offerings may be 'inappropriately eroding member retirement benefits); and

• advising that APRA will soon write to each of the RSE's identified by APRA to request a meeting with their boards to discuss APRA's assessment.  

  The letter states that the 'RSE licensees will be required to develop a robust and implementable strategy to address identified weaknesses within a reasonably short period and to engage more regularly with APRA to monitor the implementation of that strategy. Where it is clear that a particular product or RSE is unlikely to be able to continue to operate in the best interests of its members, APRA expects the relevant RSE licensee to act to ensure a timely and well-managed transfer of members to another suitable product or RSE, either within the RSE licensee’s own operations or those of another RSE licensee'.
  

APRA's assessment process

The letter states that the key metrics used by APRA in identifying performance outliers include:

• net returns, on an absolute basis and relative to risk/return targets;

• costs per member for MySuper products;

• cost of insurance cover;

• administration and operating expenses as a percentage of average net assets (operating cost ratio);

• net cash flows as a percentage of average net assets (net cash flow ratio);

• net member benefit outflow ratio;

• net rollovers as a percentage of average net assets (net rollover ratio);

• trends in membership base; and

• active member ratio.

In addition, the letter states that APRA’s approach to assessing fund performance and sustainability 'serves as a starting point only, in a more holistic assessment process that includes qualitative assessments by APRA supervisors. The qualitative aspect of the assessment captures APRA supervisors’ judgment as to the robustness of an RSE licensee’s strategic and business planning practices and the quality of the RSE licensee’s governance and risk management frameworks'.

[Sources: APRA Letter to all RSE licensees: Assessing member outcomes in the superannuation industry 31/08/2017 [registration required] The AFR 31/08/2017]