AUSTRALIA - The Superannuation industry is set to standardise the way it discloses investment risk under new guidelines announced yesterday.
Under the guidelines, set out by the Association of Superannuation Funds of Australia (ASFA) and the Financial Services Council, superannuation funds will provide a ‘Standard Risk Measure' ranging across seven risk bands, from ‘very low' to ‘very high', for each of the investment options they offer.
From June next year, the Australian Prudential Regulation Authority (APRA) will require superannuation funds to identify and disclose, on a standardised basis, the risk of negative returns over a 20-year period for each of their investment options.
At APRA's request, the Financial Services Council and ASFA - representing the funds management and retirement incomes industry respectively - formed a working group to develop guidance for super fund trustees on complying with this requirement.
ASFA chief executive Pauline Vamos said the Standard Risk Measure Guidance Paper would help super trustees approach risk disclosure on a consistent basis and assist fund managers to better understand trustees' requirements.
"The release of this Guidance Paper is a key part of the increased transparency in ‘true to label' reporting that consumers will see from the current superannuation reform process," Vamos said.
"Trustees of APRA regulated funds already have strong governance processes around the risk levels of their portfolios but as the Standard Risk Measure will be monitored by regulators, even greater assurance can be provided to fund members."
Financial Services Council chief executive John Brogden said the Standard Risk Measure would help consumers to make better informed, confident decisions about their superannuation.
"Having a clear understanding of risk is just as important as being aware of fees or returns. With a wide variety of investment options available across a large number of funds, it is essential that investment risk is fully disclosed and comparable," he added.
"The Standard Risk Measure will ensure consumers are more aware of the investment risk in the option they have chosen and will enable them to compare ‘apples with apples' when looking at different investment options."
The methodology for determining an investment option's rating according to the Standard Risk Measure will be supported by a structured review process and both APRA and the Australian Securities and Investments Commission (ASIC) will review its operation as part of their normal activities.
The start date for disclosing risk on a standardised basis is consistent with the Government's shorter Product Disclosure Statement regime, which commences on 22 June 2012.
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