Australia: Second set of draft prudential practice guides released for superannuation


On 9 May 2013, APRA released for consultation a second set of draft prudential practice guides (PPGs) for superannuation.


As part of the Stronger Super reforms, APRA's powers in relation to the prudential supervision of superannuation funds were extended to setting prudential standards which have the force of law.

In November 2012, APRA issued twelve finalised prudential standards for superannuation which will commence on 1 July 2013. They relate to prudential matters that a registrable superannuation entity (RSE) licensee must comply with, as set out in the table below:

Prudential standards extended to superannuation from current banking and insurance prudential standards
SPS 220 Risk Management
SPS 231 Outsourcing
SPS 232 Business Continuity Management
SPS 310 Audit and Related Matters
SPS 510 Governance
SPS 520 Fit and Proper

Prudential standards specifically for superannuation
SPS 114 Operational Risk Financial Requirement
SPS 160 Defined Benefit Matters
SPS 250 Insurance in Superannuation
SPS 410 MySuper Transition
SPS 521 Conflicts of Interest
SPS 530 Investment Governance

PPGs are intended to provide practical guidance and APRA's views on meeting the requirements of the prudential standards. PPGs are designed to be guidance materials and do not have the force of law.

On 11 December 2012, APRA released ten draft PPGs for consultation on the following matters:

SPG 114 Operational Risk
Financial Requirement
SPG 510 Governance
SPG 220 Risk Management SPG 520 Fit and Proper
SPG 231 Outsourcing SPG 521 Conflicts of Interest
SPG 232 Business
Continuity Management
SPG 530 Investment
Strategy – Formulation
SPG 250 Insurance in Superannuation SPG 531 Investment
Strategy – Implementation

Consultations for those draft PPGs closed on 5 March 2013 and final versions are expected to be released in July 2013.

APRA has now released a further eight draft PPGs for consultation (three of which are updates to existing superannuation PPGs).


Proposed new superannuation PPGs

A summary of the areas covered by the five new PPGs is set out below:

Defined Benefit Matters

Prudential Practice Guide SPG 160 Defined Benefit Matters
Actual Investigations

Timing and frequency of actuarial review when defined benefit pensions are being paid.

Evidencing the strength of the financial position of the fund.

Reporting by the actuary.

Shortfall limit Factors that can be considered when setting a shortfall limit, including, but not limited to, the extent to which vested benefits exceed minimum benefits, asset mix and impact of fluctuations in market value of fund assets.
Restoration plans

Actions that can be taken to address an unsatisfactory financial position.

Factors that can be considered in developing a restoration plan and when setting the duration of the restoration plan.


Arrangements that APRA might approve to fund current and future self-insurance liabilities.

APRA's actuarial oversight expectations.

Management of Reserves

Prudential Practice Guide SPG 222 Management of Reserves
Management of reserves

APRA's views on the different purposes for which a reserve may be established and maintained, including administrative and operational risk purposes.

Measures that APRA regards as sound practice in a strategy for the management of a reserve including, among other measures, a clear definition of the purpose of the reserve, a determination of an appropriate target amount of each reserve, and how an RSE licensee will respond to insufficient reserves.


Prudential Practice Guide SPG 511 Remuneration
Governance of remuneration arrangements APRA's view on the Board's ultimate responsibility for remuneration.
Board Remuneration Committee

APRA's expectations of a Board Remuneration Committee including to review the Remuneration Policy and make recommendations to the Board on the individual remuneration.

Engagement of independent external advisers.

Prudential Practice Guide SPG 511 Remuneration
Remuneration Policy

To explain the scope of the policy and matters to be addressed in the policy including:

  • objectives and the structure of the remuneration arrangements;
  • payments to non-employees;
  • incentive-based remuneration; and
  • termination payments.

Investment Risk Management

Prudential Practice Guide SPG 532 Investment Risk Management
Investment risk management Factors that may be considered in evaluating potential investment risks, approaches for measuring risk and matters to consider for regular investment risk reporting to relevant stakeholders.
Stress testing Matters that can be considered when establishing a stress testing program including methodology, frequency of testing, matters to include in stress testing reporting and how stress testing results will be used to review investment strategies.
Liquidity management

Matters than can be considered when establishing a liquidity management plan and APRA's views on the processes a prudent RSE licensee would have in place including in relation to:

  • determining a liquidity risk tolerance and identifying liquidity events;
  • actions that may be taken to respond to a liquidity event; and
  • liquidity stress testing.


Prudential Practice Guide SPG 533 Valuation
Valuation governance APRA's views on the types of possible valuation risks that could arise which RSE licensees are expected to consider.
Valuation policy and procedures

Relevant matters which a valuation policy should address.

Sources of valuation and valuation approaches including factors to consider when using quoted market prices.

Factors to consider when determining the use of a valuation model.

Use of external investment managers and valuers.

Frequency of undertaking a valuation Forming a basis for determining the frequency and a policy for when an immediate and interim valuation is required.

Draft updates to existing superannuation PPGs

APRA also released 3 draft updates to existing superannuation PPGs. The draft PPGS cover the following areas:

Adequacy of Resources

Prudential Practice Guide SPG 221 Adequacy of Resources
Financial resources

Factors that APRA would expect an RSE licensee would consider when determining the adequacy of financial resources.

Information and documents that would assist an RSE licensee in demonstrating it is maintaining an adequate level of financial resources.

Human Resources

Information and documents that would assist an RSE licensee in demonstrating it is maintaining an adequate level of human resources.

An expectation that the RSE licensee will conduct due diligence when outsourcing material business activities.

Technical Resources Information and documents that would assist an RSE licensee in demonstrating it is maintaining an adequate level of technical resources

Contribution and Benefit Accrual Standards

Prudential Practice Guide SPG 270 Contribution and Benefit Accrual Standards

Systems established by an RSE licensee should address:

  • processing and validation of contributions from employers and members;
  • policies and data collection processes in relation to accepting, classifying and allocating contributions; and
  • processes to recognise and deal with fund-capped contributions, non-member contributions and contributions made in error (and determining whether the error is administrative or non-administrative).
Other contribution matters

Guidance on timing of contributions (including those made through a clearing house).

APRA's expectations as to RSE licensees applying discretion in relation to accepting contributions outside the age or gainful employment test.

Matters relevant to a defined benefit fund receiving contributions.

Payment Standards

Prudential Practice Guide SPG 280 Payment Standards
Risk management framework APRA's expectation that risks associated with processing and paying benefits would be addressed in the risk management framework with emphasis on liquidity and cash flow risk, operational risk, outsourcing risk and fraud risk.

Prudential Practice Guide SPG 280 Payment Standards
Policies and procedures

Policies and procedures in relation to acceptance, identification, processing of applications to pay, transfer or rollover benefits associated with:

  • timeframes for payments on receipt of an application;
  • data storage and processing to keep records of benefits and tax components;
  • retirement or early release of benefits;
  • illegal early release and identity crime situations;
  • three business day processing requirements, circumstances when a RSE licensee would not be in breach and the process for applying for portability relief;
  • pension payments including dealing with commutation restrictions and cash flow planning; and
  • processing death benefit payments
Rectification of errors The process for rectifying errors that have resulted in former members being paid less than their full entitlement.


The closing date for submissions on the eight draft PPGs is 4 July 2013.

We are available to provide you with further information or guidance about any of the proposed PPGs or APRA's prudential standards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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