APRA’s planned review of the highly vexed sole purpose test should be encapsulated within a broader review around the purpose of superannuation, a senior partner at superannuation and investment consultant, Mercer, says.
Given the emphasis the superannuation system has had on the accumulation phase, rather than on the retirement and decumulation phase, more thought could be given to the purpose of super for the next 10 years and beyond before sole purpose becomes further enshrined, William Burkitt, Mercer’s partner for post retirement and innovation leader, says.
“It’s a good first step that APRA is reviewing the sole purpose test for clarity and looking at past examples for breaches, but I think it’s a good opportunity to also look forward and consider whether the sole purpose test itself should be changed,” Burkitt says, in conversation with Professional Planner.
The sole purpose test was thrust into the spotlight for advisers and licensees when Kenneth Hayne noted in his final report that, while fees can be deducted from superannuation accounts for matters such as the consolidation of super accounts, the selection of super funds or products, or asset allocation within a fund, they may not be used to pay for broader advice.
The Australian Prudential Regulatory Authority has since announced its plan to undertake a review of the sole purpose test as one of its priorities for the year ahead. However, according to Burkitt, the planned APRA review is unlikely to consider whether the rules are fit for purpose given the changing population demographic.
“Aged care guidance, mature age workforce guidance, health and wealth in retirement – these are all important levers for people heading into and in retirement that are likely breaching the sole purpose test in its current form,” Burkitt explains.
At the recent Professional Planner Retirement Conference in Sydney, FPA CEO Dante De Gori noted that much of the advice given to members of super funds to date would have contravened Hayne’s interpretation of the sole purpose test.
“I’m not going to challenge the commissioners interpretation of the SIS [Superannuation Industry Supervision] Act, but what he has highlighted for me is that the industry has been loosely interpreting this rule,” De Gori says.
“If the sole purpose test isn’t changing, we have to do a better job at working within it,” he says.
In its letter announcing the review, APRA notes its plans to develop principles to inform updated guidance as well as identify potential breaches where appropriate action should be taken.
“APRA needs to make sure it’s not just looking backwards at examples and clarifying the existing legislation, but rather looking at whether the legislation is fit for purpose for the years ahead given so many retirees are entering the system,” Burkitt says.
Questions around whether the superannuation industry is broadly “fit for purpose” given the country’s changing demographics were raised within the Productivity Commission’s final report, which published in January.
“The significance of the retirement phase will only grow as the system continues to mature,” wrote Karen Chester, who was deputy chair of the Productivity Commission when she penned its final report, noted.
Meanwhile, more than 90 per cent of member accounts in superannuation are in the accumulation phase, with the remaining 10 per cent in retirement but the retirement category accounts for more than a third of the system’s assets, APRA statistics from 2017 show.
“Helping people achieve retirement income as best as possible so they can live within their means is important, but further, looking beyond income to retirement, aged care and other needs pretty much compulsory for people to have in their everyday lives,” Burkitt reckons.
“If you asked a super fund member and ordinary Australian these are absolutely necessary conversations to have so why wouldn’t the super system and the sole purpose test cater for that?”, he says.