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The key regulator of Australia's A$3.3 trillion ($2.2 trillion) superannuation industry warned of "intense" scrutiny as the government began a review of recent reforms to the sector.
Australian Prudential Regulation Authority board member Margaret Cole said that rigid testing of funds' performance was likely "here to stay" in a speech in Brisbane on Wednesday. The watchdog last week named five super funds that didn't meet its benchmark criteria, including four that failed for the second time.
"We have seen the benefits that greater transparency on performance brings, so regardless of the exact form of the statutory test, the spotlight will only get more intense," Ms. Cole said. "There is clear evidence from our own research to show that funds under a certain size are more likely to face sustainability challenges unless they have some other sort of competitive advantage."
The country's so-called superannuation industry is continuing to shrink as small and under-performing funds either close or merge with large rivals. The amount of funds under APRA's oversight has declined from 200 to 141 in the space of about five years, Ms. Cole said.
APRA's annual performance test last week assessed 69 products on investment performance, fees and costs. The funds that failed for a second year are prohibited from taking on new members.
Australia's minister for financial services announced on Wednesday a review of legislation designed to improve the industry, introduced by the previous government at the end of last year. The review will assess the performance test, along with measures such as comparison tools for consumers, and allowing Australians to keep their pension fund more easily if they change jobs.
Ms. Cole said she would not predict what the future of the industry might look like, but that it "wouldn't look like it does today" if APRA was designing it. The regulator would continue to push for board renewal to make sure the funds' boards had the skills, capability and size to oversee strategy and risk, she said.
