Retirement Income Covenant a policy lame duck

ANALYSIS

One of the core findings from the Retirement Income Covenant (RIC) Pulse Check undertaken by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) is that superannuation fund members have not yet significantly altered their draw-down behaviour.

One of the core objectives of introducing the RIC was to impose obligations on superannuation funds to encourage their members to better use their super balances when approaching retirement, but the research confirmed that members were not significantly more confident about retirement, had not significantly increased their take-up of longevity products, and had mostly not altered their drawdown behaviour.

The RIC Pulse Check confirms that superannuation funds have spent a good deal of time and members’ money seeking to deliver on their RIC obligations, but many are falling short in the eyes of the regulators.

The message from superannuation funds to APRA and ASIC is that they are trying to do better, but the analysis of the two regulators is that there exists a gap between those actively pursuing improvements and those going through the motions.

“Some RSE licensees have shown leadership by investing significant effort into meeting the needs of members transitioning to and in retirement, with a smaller number innovating and pushing forward best practice,” the report said. “Still, far too many have been content with making incremental improvements.”

“In many cases, we have not observed the level of investment in robust governance, innovative retirement income solutions and tailored support for members that regulators and, more importantly, members should expect.”

“Unless action is taken, particularly by those falling behind, the quality of support provided to members approaching or in retirement, and the outcomes delivered to members in retirement will be impacted,” the report said.

The Pulse Check acknowledged the challenges confronting funds with respect to the implementation of the covenant and it is significant that high on the list was the “ongoing uncertainty with advice-related regulatory reforms (such as Delivering Better Financial Outcomes reform package)”.

It also noted “the cost of financial advice, especially for members with low balances”.

The list also included “challenges in developing and launching retirement products due to market immaturity or low demand” and “low member engagement and financial literacy, making communication and education difficult”.

The Retirement Income Covenant has now been a part of the superannuation regulatory environment for three years but had its origins in the Financial System Inquiry nearly a decade ago and before becoming the subject of Treasury policy development and discussion around Comprehensive Income Products in Retirement (CIPRs).

The notion of a Retirement Income Covenant evolved later, and while the major superannuation funds lobby groups supported such a concept, they urged that it be principles-based and not prescriptive.