While acknowledging that some progress has been made by the superannuation industry in implementing the retirement income covenant (RIC), the Australian Prudential Regulation Authority (APRA) has indicated there is an “urgent need” for further improvement.
This comes after a review by APRA and the Australian Securities and Investments Commission (ASIC) last month concluded that super funds had displayed a “lack of progress and insufficient urgency” in embracing the RIC since it came into effect in July last year.
In a speech to the Conexus Retirement Conference on Tuesday, APRA deputy chair Margaret Cole noted the industry had taken significant steps to strengthen governance, improve practices within the industry, and address performance issues during the past 10 years.
“Is there more to be done? Absolutely! But trustees do recognise their obligations to promote strong member outcomes and acknowledge the need for further improvement, and most are willing and committed to deliver on this,” she said.
“The challenge for us all is to ensure that this focus translates into actual, measurable improvements through the eyes of members.
“So, despite the progress that has been made – focused on the accumulation phase of superannuation – there is an urgent need to improve the experience of members of the Australian community approaching and in retirement in terms of the quality of assistance offered, including the financial outcomes delivered, for superannuation members.”
With 6 million Australians currently at or above super preservation age and a further 3 million members due to become eligible to draw from their super in the next 10 years, Ms Cole warned that “the need for action is mission critical and urgent from a member point of view”.
Ms Cole said it was reassuring that APRA’s joint review with ASIC found that a significant proportion of trustees had extended their focus to include the retirement phase of super, and that trustees were generally developing and improving their retirement income strategies.
“But we were disappointed by the variability in quality and depth of research, data and, therefore, member-centricity underpinning the design of some retirement income strategies and the degree of urgency – or lack of it – in strategy execution by a number of trustees,” she said.
“Standing here more than a year on from the introduction of the new covenant, APRA and ASIC cannot be confident that trustees – as a whole – have made adequate progress in satisfying three elements that we consider core to effective implementation of the covenant by the industry.”
Namely, these three elements are: understanding member needs in retirement, designing fit-for-purpose retirement assistance, and overseeing retirement income strategy implementation.
In light of the review, APRA is following up directly with the trustees involved who were found to have specific areas in need of improvement. Later this year, the regulator will also seek self-assessments from all trustees against the key findings in its joint report with ASIC.
“All trustees can expect APRA to monitor closely the progress and implementation of retirement income strategies as part of APRA’s regular supervision agenda this financial year and expect APRA and ASIC to remain linked-up in terms of responses,” Ms Cole said.
According to Ms Cole, providing strong outcomes to members in both the accumulation phase and in retirement requires “a fundamental step-change in mindset and capability” by funds.
“As trustees evolve the strategies for their funds, some may recognise that they do not currently have the requisite capability to do both successfully, nor do they plan to develop ‘success in retirement’ as a core competency,” she stated.
“I encourage trustees to be clear and courageous in their overarching fund strategies and, where necessary, make strategic decisions to partner with other organisations to best serve their members. In some cases, this may even necessitate helping members to move to other funds that better meet their needs in retirement.”
Additionally, Ms Cole pledged that APRA and ASIC would continue to look for ways to work together and with the industry to help members achieve financial security in retirement.
