The Australian Prudential Regulation Authority (APRA) test is an evaluation process through which APRA assesses the financial soundness, risk management practices, and compliance of regulated institutions.
APRA is the regulatory body responsible for supervising banks, insurance companies and superannuation funds in Australia. The test aims to ensure that these institutions have robust systems in place to manage risks, maintain financial stability and protect the interests of depositors, policy holders and superannuation for members.
This test was introduced in 2021 as part of The Government's Your Future Your Super reform.
This test is run annually and the results are released yearly on 31 August.
The main aim of the test is to increase transparency and hold the superannuation funds accountable for any underperformance of any superannuation monies. If a fund fails the performance test two years in a row, then that super fund will be required to notify their membership of the failure and will no longer be able to receive new membership to the fund. Notifications are due out by the end of September each year.
As an active participant in superannuation and financial wellbeing in Australian workplaces, Gallagher is very supportive of the underlying principles of the Government's Your Future Your Super reforms, including the APRA test. However, we do flag that there can be misconceptions and common misunderstandings with the results of the test.
Critical considerations
The following are some critical considerations:
- On average, a superannuation fund may have up to 40 investment options. It is important to note, that if one particular investment option fails the test, it does not mean that the entire investment menu has failed.
- Insurances within super are not part of the testing. Therefore, before you choose to take any action, it is important that you look at what insurances you have and whether you will be negatively impacted by losing any cover. Particular focus should be on insurance definitions as this may vary significantly between super funds.
- Your employer super arrangement may have tailored pricing and will not be taken into account. As the APRA test is based on standard pricing, you may find that the discounted fees applicable to your superannuation plan changes the outcome of the test, so it is important to understand the fee schedule that applies to you.
The next APRA test is due to be released shortly. With the markets performing relatively positively towards the back end of last financial year, we hope to see less of a negative impact on the Australian Superannuation market.
How Gallagher can help
If you are seeking a better understanding of APRA and its implications for your situation, we encourage you to contact our team of Gallagher consultants.
