Super funds lack urgency on Retirement Income Covenant

Mike Taylor

Managing Editor/Publisher, Financial Newswire

18 July 2023

There is a lack of urgency among superannuation funds in embracing the intent of the Retirement Income Covenant, according to a joint review by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).

The review, covering 16 industry, retail, corporate and public sector funds, found that while the funds were improving the offerings of assistance in retirement, there was variability in the quality of their approach and a lack of urgency in embracing the intent of the covenant.

According to the two regulators, the key findings from the review show the need for more focus on:

Understanding member needs. While trustees draw data from a range of internal and external sources to understand their members’ retirement needs, all have gaps in the critical information they need about their members to inform the development of an effective retirement income strategy. Very few had plans to address these gaps.

Designing fit-for-purpose assistance. Trustees have taken positive steps to improve assistance through a range of measures. However, some trustees are not using metrics to track how their members are using the assistance measures and their effectiveness to determine whether any changes are needed.

Overseeing strategy implementation. Many trustees have not embedded their retirement income initiatives as concrete actions in their overall business plan. Additionally, a majority of trustees lack quantitative metrics to assess the retirement outcomes resulting from their initiatives.

Commenting on the review findings, APRA Deputy Chair Margaret Cole said: “A further three million members will become eligible to draw from their super in the next 10 years They are entitled to rely upon their super fund for assistance as they plan for a sound financial future.

“Some trustees have made a good start, but overall there has been a lack of progress and insufficient urgency. As more members approach retirement, trustees must step up and deliver both well-considered strategies and action to support members in retirement.”

She said that, where appropriate, APRA’s prudential framework would be enhanced to reflect key findings of the review. APRA will consult on proposed enhancements later in 2023.

ASIC Commissioner Danielle Press said: “Australians contribute to their superannuation for many years in anticipation of financial well-being in retirement. Helping fund members achieve good retirement outcomes is the core business for a super trustee and the retirement income covenant offers a lot of flexibility for trustees to effectively support their members’ needs.

“Trustees must get the fundamentals right – their retirement income strategies must be designed with consumer needs in mind and be evidence-based. They need to be mindful that their members’ needs evolve over time and commit to continuously monitoring and improving their approach,” Press said.