Australia's A$3.9 trillion superannuation industry has been put on notice to address questionable spending by trustees.
The warning came from one of the retirement savings sector’s main regulators, the Australian Prudential Regulation Authority (APRA), which is worried about expenditure by trustees, whose responsibility is to act in the best interests of all super fund members.
APRA Deputy Chair Margaret Cole said fund members who were actively engaged with their super would have a good idea of their fund’s investments, administration fees and other costs, but few would know how their money was spent by trustees.
Cole said APRA had growing concerns about trustee spending behaviour after noticing “deficient practices and questionable expenditure” in some areas.
The super industry had been put on notice that expenditure had become a for supervision “priority frontier” and would be reviewed and scrutinised with intensity.
She noted that the members’ best financial interests duty (BFID) was introduced in 2021 amid criticism of the scale and extent of discretionary spending by funds on advertising, sponsorships and corporate entertainment.
An APRA review of spending on TV and sports sponsorship, advertising and external payments found some trustees failed to measure and assess member benefits rigorously or demonstrate how the additional benefits for directors, executives and staff resulted in any improved outcomes for members.
“I was optimistic that trustees would accept and honour the unequivocal obligations that BFID placed universally upon them. But I did encounter some cynicism,” Cole said in a speech prepared for the AFR Super & Wealth Summit.
“I recall meeting with a senior person in a large super fund soon after I joined APRA, and wasting no time in challenging them on the fund’s plans to comply with the new duty. The reply was that it was widely recognised across super that they would need to have a better paper trail.
“But this issue isn’t about the paper trail or all about the process. It’s a substantive issue for all trustees who need to address the question – what is this discretionary expenditure really all about? ”
Cole said APRA would approach this issue by collecting data such as payments to industrial bodies and related parties for promotion, marketing or sponsorship and political donations.
“Trustees must exercise rigour, caution and care when undertaking what American politician John Randolph of Roanoake, who served under Thomas Jefferson, once called: That most delicious of all privileges – spending other people’s money,” she said.