Super funds 'crying wolf' on liquidity

A large Australian superannuation fund claimed to the Australian Taxation Office (ATO) it risked becoming illiquid if it paid some member entitlements, but then failed to inform the Australian Prudential Regulation Authority (APRA).

Superannuation funds should not “cry wolf” to one regulator about their ability to meet their obligations to members and then fail to disclose the same issues to the APRA, according to APRA executive general manager Keith Chapman.

Chapman revealed to a Pensions and Investment Summit on the Gold Coast this week that a large superannuation fund had gone to the Australian Taxation Office claiming it might have to close down on liquidity grounds if it was forced to meet its obligations to members.

“We still haven’t seen the fund that told the tax office that they might have to close down if the tax office made them pay people with foreign resident status,” he said. “So there is still evidence of funds crying wolf.”

“We had a fund, a large fund, telling [the ATO] that if they were made to pay money there would be a major liquidity problem in the fund and it would not be able to operate,” Chapman said.

“[The ATO] said go talk to APRA and they will work through the problem with you, but they (the fund) did not come and see us,” he said.

Chapman said the message to superannuation funds from the incident is that they should not be scared to talk to APRA, and that they should not cry wolf because the regulators actually do talk to each other.

He suggested that funds also needed to be more transparent in informing members of instances where the investment options they chose were directed at illiquid investments.