Is your super fund using your funds for things you might not approve of? Potential upcoming legal action suggests Australia’s regulatory body thinks they might be.

Take our picture – a Gold Coast stadium with the name of a super fund on it. Is this good advertising?  Or a waste of members’ funds?

The Australian Prudential Regulation Authority (APRA), is considering taking super funds to court on the grounds that they are potentially spending too much money on marketing and sponsorships. 

This investigation is adjudicating whether some super fund spending activities, such as expensive ad campaigns, payment to external organisations and sports team sponsorships, are failing to meet the ‘sole purpose test’. 

In more plain english, APRA is trying to work out whether super funds are wasting your money and the sole purpose test is supposed to operate as a safeguard against this happening. 

Superannuation funds should make their investment decisions based on the sole purpose test, which states that “your fund needs to be maintained for the sole purpose of providing retirement benefits to your members” with the guidance that “It’s likely your fund will not meet the sole purpose test if you or anyone else, directly or indirectly, obtains a financial benefit when making investment decisions and arrangements.”

Essentially, if super funds are operating in a way that represents a motive other than simply serving its core purpose of providing retirement funds to members, then they are not fairly spending user’s money and are violating their legal purpose.

Failing to satisfy the sole purpose test can lead to funds losing their concessional tax treatment, as well as potentially facing civil and criminal penalties.  

Helen Rowell, the deputy chairwoman of APRA, wrote a letter to Liberal senator Andrew Bragg that was read by The Australian Financial Review.

Ms Rowell wrote that APRA is aiming to determine whether enforcement action is necessary by June/July this year and that: “should we conclude that a particular trustee’s decisions in relation to fund expenditure may not be consistent with members best interests or offend the sole purpose test, APRA’s usual process for determining the appropriate supervisory and/or enforcement actions will follow.”

Data from Nielsen reveals that super funds in the superannuation sector spent $40 million on advertising in between June 2019 and 2020. 

Some of these advertising costs are ‘non-product advertising’, meaning that it aims to promote the fund’s brand, rather than advertise its actual products. Examples include that Cbus has naming rights over the Robina Stadium on the Gold Coast while Hostplus sponsors the Melbourne Storm rugby league club. 

This raises the question of whether this is the best use of people’s super funds or rather represents a misuse of people’s super contributions. 

The counter argument to this is that super funds believe that this level of advertising is necessary to their operations as it helps them attract and retain members. This can then actually benefit those that are signed up to the fund, as having more members allows the fund to reduce fees and aim to increase investment returns.

It will come down to the judgement of APRA as to whether they believe that level of spending satisfies the sole purpose test and is a fair use of your super dollars, and what action is necessary to take if they don’t believe it does.

Get More Control with an SMSF 

If you want to gain better control over your investment strategy, you may set up an SMSF or self managed super fund, which is different to retail and industry super funds. 

In running an SMSF, you are putting money into your account and choosing your investments as well as making important decisions like investment options and insurance cover. 

However, in managing an SMSF you are part of the trustee and you are responsible for complying with all super and tax laws. 

So be sure to take your time learning how to properly manage your own super fund, and be sure to seek guidance from a financial adviser who has a deep understanding of SMSF.

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