A by-product of the recent results of the first APRA Your Future, Your Super (YFYS) performance assessment (more on that in our previous article here) is APRA activity to stimulate super “super” mergers. Many super funds, and not just those underperforming, will no doubt be focussed on a range of APRA powers, including the different powers and their characteristics.

Is bigger better?

APRA has been working with the 13 funds identified as underperforming and has been “encouraging” (read: pushing) trustees of these funds to merge with larger, better performing funds by way of a successor fund transfer (SFT). Already, more than half of these 13 funds[1] have merged or are in talks to do so, with recent examples including Australian Catholic Super merging with UniSuper,[2] as well as industry fund LUCRF Super in talks with AustralianSuper.[3]

Both APRA’s executive Margaret Cole and Deputy Chair Helen Rowell have explicitly stated that funds with less than $30 billion in assets are regarded as sub-scale by APRA and should consider merging with larger funds.[4] They argue this increased scale enables trustees to spread fees and costs over a larger membership base and in turn, to access higher earning investments. Put simply, it is said to better protect members’ best financial interests.

To put that into perspective, almost 90%, or 124 of the 142 funds under APRA’s watch have less than $30 billion in assets.[5] This means it is not just the 13 underperforming funds that may be targets for mergers, but also other industry and retail funds of such “smaller” scale. This is especially so when considering the average total assets of industry funds is less than $30 billion.

It is also not immediately apparent how easily this regulatory imperative can be addressed by super funds with particular niche target markets or objectives, such as ethical or ‘green’ funds, or funds aligned with a religious purpose (such as Christian or Shariah-compliant funds).

APRA’s regulatory arsenal

As previously recognised by the team at HSF,[7] as part of the YFYS changes, the associated reversal of the onus of proof on trustees to demonstrate that they’re acting in the best financial interests of members comes with increased scrutiny and greater expectations.

Put simply by Margaret Cole, by having a new test, new powers and a new burden of proof, trustees can expect APRA to be more muscular and bold in how they push into these issues:

You can expect us, I think, to be more muscular in those conversations and to try to get these mergers done, because it’s inevitably in the best financial interests of members.”[8]

So how exactly can APRA flex its “muscles”?

APRA does not possess any direct power under the SIS Act to regulate mergers. It does, however, have a power to facilitate fund mergers (referred to as amalgamations) pursuant to Part 18 of the SIS Act by way of approving an amalgamation. This is done so only in limited circumstances, the most relevant being that reasonable attempts have already been made to bring about the transfer under another provision of the SIS Act or the SIS Regulations. Even here however, APRA’s power is conditional upon an application for approval of an amalgamation being made to it by the trustee(s).

So, in order to understand APRA’s powers in this regard, it is necessary to look at two other sources of power: notably, APRA’s power to impose licence conditions and secondly, APRA’s directions power.

Licence conditions

Under section 29EA of the SIS Act, APRA can impose additional licence conditions on a RSE licence. The trustee may be provided with the opportunity to respond to the concerns raised within a certain period prior to APRA effecting the conditions. A licensee can request APRA to reconsider any decision[9] and any further decision made by APRA upon request can be reviewed externally by the AAT.[10]

A number of underperforming funds, including Energy Industries Super[11] and Christian Super[12] have recently had new licence conditions imposed on them to merge with a “larger, better performing” funds by mid-2022 and to report to APRA if this doesn’t happen prior to the due date.


Where APRA sees members remaining in funds as not being in their best financial interests, they may be able to issue directions under Part 16A of the SIS Act.[13] Previously, APRA could only direct a trustee after a contravention of the law had taken place, or where APRA believed there was an urgent, material threat to members’ interests. APRA can now intervene at an earlier stage, providing there is a “likely” contravention.

The directions under Part 16A are broad in nature and include directions to make changes to the licensee’s “systems, business practices or operations.”[14] Whether this extends beyond the remit of more systemic concerns such as conflicts, governance and risk management practices or remediation processes, and would extend to essentially directing a fund to shut down its operations, is unclear. Perhaps in the realm of possibilities is directing a trustee to undertake a “market scan” to generate a list of potential merger partners, which in turn, demonstrates that members would be “better off” by being moved to another fund, rather than explicitly directing them to merge. There is also the catch-all power allowing APRA to direct a trustee “to do, or refrain from doing, anything else” they like,[15] but ultimately any power APRA seeks to rely on, they must have a reasonable basis for doing so. A fund having less than $30 billion in assets may not cut it.

With great(er) powers comes great(er) responsibility

It is likely that APRA will continue to flex its “muscles” in the context of super mergers. To date, it has relied on its power to impose licence conditions, but it will be interesting to see whether this approach evolves, particularly with respect to directions. APRA has been reluctant to use this power, having only used its broader directions power twice since April 2019.[16] Most recently, when APRA has used its directions power, it was used in conjunction with the stronger “muscle” of licence conditions.[17]

Further, a more practical issue with APRA seeking to use these powers is the assumption that there are other funds willing and able to merge within the stated timeframes. Our understanding is that this may not be the case given the resources required to undertake an SFT and the number of SFTs currently in the pipeline at popular destination funds. The team at HSF has extensive experience supporting trustees through SFTs and would be happy to discuss any of the YFYS reforms and how they may impact you. Get in touch with one of our experts below.


[1] Michael Read, ‘Super fund ordered to merge after ‘persistent’ underperformance’ (7 Dec 2021): https://www.afr.com/policy/tax-and-super/super-fund-ordered-to-merge-after-persistent-underperformance-20211207-p59fkp.

[2] Michael Read, ‘Failing funds pushed out of the super system’ (1 Dec 2021): https://www.afr.com/policy/tax-and-super/failing-funds-pushed-out-of-the-super-system-20211201-p59dqe.

[3] LUCRF Super signed an early agreement last month to continue its merger discussions with AustralianSuper (and are aiming to complete the merger before June 30 2022): https://www.afr.com/policy/tax-and-super/super-fund-ordered-to-merge-after-persistent-underperformance-20211207-p59fkp.

[4] https://www.apra.gov.au/news-and-publications/apra-executive-board-member-margaret-cole-speech-to-financial-services.

[5] https://www.apra.gov.au/annual-fund-level-superannuation-statistics.

[6] https://www.apra.gov.au/quarterly-superannuation-statistics.

[7] https://hsfnotes.com/fsraustralia/2021/10/13/best-financial-interests-duty-what-does-the-new-duty-actually-require/.


[9] SIS Act s344(1).

[10] SIS Act s344(8). A ‘reviewable decision’ is defined (at subsection (df)) as including a decision of APRA under subsection 29EA(1) to impose additional conditions on an RSE licence.

[11] https://www.apra.gov.au/news-and-publications/apra-imposes-additional-licence-conditions-on-trustee-of-energy-industries.

[12] https://www.apra.gov.au/news-and-publications/apra-imposes-additional-licence-conditions-on-christian-super.

[13] SIS Act s131D.

[14] SIS Act s131D(2)(m).

[15] SIS Act s131D(2)(n).

[16] https://www.apra.gov.au/news-and-publications/apra-imposes-directions-and-conditions-on-amp-super-rse-licensees.

[17] APRA only recently used the directions power for a second time and it was used in conjunction with imposing additional licence conditions: https://www.apra.gov.au/news-and-publications/apra-imposes-directions-and-conditions-on-amp-super-rse-licensees.


Michael Vrisakis
Michael Vrisakis
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Ruth Stringer
Ruth Stringer
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Scott Donald
Scott Donald
External Consultant
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Tamanna Islam
Tamanna Islam
Senior Associate
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Abby Sutherland
Abby Sutherland
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