This week, regulators took an assertive and wide-ranging stance, with the Australian Prudential Regulation Authority (APRA) launching a direct crackdown on the expenditure practices of 14 superannuation funds. This forceful intervention signals a new phase of intense scrutiny on trustee accountability and the "best financial interests" duty. The move came as Treasurer Jim Chalmers continued his staunch defence of the controversial Division 296 tax on high-balance super accounts, framing it as a crucial test for meaningful economic reform. Amid the regulatory and political heat, funds continued to pursue growth, with strong annual returns forecast and significant product overhauls announced.
Regulators Put Super Spending and Governance Under the Microscope
The standout development was APRA’s public admonishment of a significant portion of the superannuation industry over questionable spending. In a detailed review, the regulator flagged serious weaknesses in expenditure oversight at 14 funds, calling out poor practices related to marketing, sponsorships, and other costs not linked to member benefits. The regulator put trustees on notice, demanding they rigmembers' best financial interests spent in members' best financial interests, with APRA identifying significant shortcomings in how funds monitor and justify these expenses.
This regulatory crackdown on spending unfolded alongside a heated debate on superannuation governance. Industry bodies have united to push back against APRA’s proposed 10-year tenure limit for trustee directors, arguing it could result in a loss of valuable corporate memory. The Super Members Council (SMC) has instead advocated for a principles-based approach to corporate governance, giving boards the flexibility to determine their own composition. Adding another voice to the debate, AustralianSuper argued that competitive market forces are effective for improving governance and that rigid rules may not be the optimal solution.
Division 296 Tax Debate Hardens into Key Political Battleground
The government’s proposed Division 296 tax on super balances over $3 million remained a central point of conflict. Treasurer Jim Chalmers has given the policy “election mandate status”, repeatedly framing it as a critical test of the nation’s appetite for broader economic reform. He argued that resistance to the “modest” change from vested interests is a bad sign for the country’s ability to tackle more significant structural challenges.
However, the policy continues to face widespread criticism for its complexity and perceived fairness issues, with experts noting it changes the rules of the superannuation game mid-way through. For SMSF professionals, the tax on unrealised gains presents significant technical challenges, with warnings that auditors will need sophisticated new technology to manage valuations and compliance. The Australian Financial Complaints Authority (AFCA) also weighed in on a related issue, confirming it would seek to clarify the retail vs. wholesale classification for SMSF clients, an area of growing complaints and complexity.
Product Innovation and Investment Strategy Persist
Despite the regulatory and political headwinds, the superannuation sector is on track for a third consecutive year of strong returns, demonstrating resilience amid market volatility. On the product front, Australian Retirement Trust (ART) announced sweeping changes to its corporate superannuation plans, overhauling its investment menu and fee structures to enhance member outcomes. The changes, however, have seen several senior portfolio managers exit the fund.
Sustainability continues to be a key driver of product design and investment decisions, with REST’s investment option the highest possible sustainable rating from RIAA. This comes as funds face external pressure from activists, including Hollywood heavyweights calling on a major US pension fund to divest from fossil fuels, a trend also mirrored in Australia. However, the industry is grappling with internal contradictions, with one report highlighting how funds invest in nuclear weapons producers despite policies condemning such weapons, a situation dubbed super's "nuclear contradiction". In a blow to the burgeoning fintech advice sector, Super Fierce, a platform focused on helping women with super, has gone into liquidation.
Context, Looking Ahead & Takeaways
This week marks a tangible escalation in regulatory action. While previous months saw a steady build-up of warnings from ASIC and APRA on governance and member outcomes, this is the first time APRA has publicly named and shamed a specific cohort of funds over a thematic review of their expenditure. This “show, don’t tell” is a significant step-change guidance from earlier DDO and cyber resilience guidance. It suggests regulators are losing patience and are now prepared to use public accountability as a primary supervisory tool. The simultaneous hardening of the political rhetoric on the Division 296 tax cements this issue as a key battleground for the foreseeable future, creating prolonged uncertainty for retirement planning.
Looking ahead, the industry must prepare for follow-up actions based on APRA’s expenditure review. The debate over board governance will continue as regulators finalise new standards, and the passage of the Division 296 legislation through parliament will be closely watched by advisers and trustees alike.
Actionable Takeaways:
- For Superannuation Trustees (0–3 Months): Conduct an urgent and thorough review of all fund expenditures, particularly those related to marketing, travel, and entertainment. Ensure robust documentation is in place to defend every expense as being in the members' best financial interests, directly addressing APRA’s public crackdown.
- For Financial Advisers (0–3 Months): Review and confirm the classification of all SMSF clients, paying close attention to wholesale investor certificates. Ensure clients understand the ramifications of this status, which is in line with the forthcoming clarification from AFCA.
- For Product Providers (3–12 Months): Re-evaluate product offerings and fee structures in the corporate superannuation market, following the significant overhaul announced by Australian Retirement Trust to remain competitive.
- For All Stakeholders (3–12 Months): Begin embedding the implications of the Division 296 tax into long-term strategic advice and product design. Given the Treasurer's firm commitment to the policy, stakeholders should plan for its implementation rather than its repeal.
