Retirement Income Covenant still weak: APRA, ASIC

Superannuation funds continue to grapple with their retirement income strategy obligations, citing financial advice regulation uncertainty, costs, and the lack of member engagement as major barriers.

This is according to joint oversight by ASIC and APRA, which surveyed 48 trustees who conceded that they have only made "incremental progress" to track their retirement income strategies.

Three quarters of trustees are treating it as a priority. Yet only eight trustees said tracking the effectiveness of retirement-focused assistance to members was a priority.

Many were struggling with privacy and security issues, and the cost of the endeavour when it comes to collecting more member data. Trustees also cite members' lack of engagement with retirement income.

"Many trustees were taking steps to better understand the retirement needs of their members and had endeavoured to promote the availability and access to retirement-focused information for members," APRA and ASIC said.

"However, only one in five planned improvements identified by trustees were expected to be completed by mid-2024."

The findings follow one year from their joint regulatory review that found trustees shrugged off the urgency to offer robust retirement income strategies and failed to integrate this mandate into their business plans.

The Retirement Income Covenant, which was mandated on 1 July 2022, requires trustees to design a strategy for retirees that maximise expected retirement income, manage risks related to sustainability and stability, and provide flexible access to funds in retirement.

The follow-up survey released today again shows very little to no progress among super funds.

ASIC commissioner Simone Constant said: "Trustees have a pivotal role to play in improving retirement outcomes for their members, with approximately three million Australians expected to join the six million already eligible to access their superannuation savings over the coming decade."

"Pleasingly, trustee responses to the survey indicate they are pushing ahead with work to refine their strategy implementation. However, we expect trustees to assess gaps and identify opportunities to accelerate progress in closing these gaps, including by leveraging examples of progress outlined in this industry update."

APRA deputy chair Margaret Cole was most concerned about trustees failing to track the success of their strategies, especially as this was highlighted as one of the key areas in need of improvement in the thematic review report.

"Without effective success metrics, how can trustees know that their strategies are working? Members deserve better," she said.

The Association of Superannuation Funds of Australia (ASFA) said it "acknowledges funds' prioritisation of the covenant's implementation, especially in the current environment of macroeconomic uncertainty, financial market volatility, and increased demands on the superannuation industry to protect members' financial security in retirement amidst cost-of-living pressures."