Since being introduced more than three years ago, the Retirement Income Covenant (RIC) has seen slower uptake among super trustees than either the corporate or prudential regulator would like.
In their joint RIC Pulse Check report, ASIC and APRA found that while some trustees have shown leadership by “investing significant effort to meet the needs of their members transitioning to and in retirement”, far too many have “been content with making only incremental improvements”.
Due to the mixed results, the regulators have called on the broader super industry to increase their focus on the RIC obligations to ensure they are improving retirement outcomes for their members.
ASIC commissioner Simone Constant said there are more than 1.5 million Australians already in retirement, while the next decade will see a further 2.5 million enter retirement, and these members deserve better.
“Super trustees have had three years to develop meaningful retirement income strategies that meet the diverse needs of their members – and meet the law,” Constant said.
“Retirees collectively entrust almost $600 billion in savings to the stewardship of super trustees, who should uphold their confidence by focusing on retirement strategies that meet their customer needs.
“This will become ever more important as the waves of retirement continue and with two in five trustees expected to have more than half their members in retirement by 2045.”
APRA deputy chair Margaret Cole added: “ASIC and APRA are committed to holding superannuation trustees to account for improving the experience of members approaching and in retirement, in line with the objective of the RIC.”
The regulators did, however, note a range of challenges that are impacting the ability of super trustees to implementing the RIC obligations, including the “ongoing uncertainty with advice-related regulatory reforms”.
Beyond the slow progress on the Delivering Better Financial Outcomes reform package, limits to accessibility and cost of financial advice, especially for members with lower balances, is also making it harder for trustees.
Other challenges that the regulators identified include:
- Data – Insufficient member data to develop a holistic representation of member circumstances, especially non-financial data such as partnership status, home ownership status etc, limiting ability to segment at a more granular level, or develop specific and personalised retirement income solutions.
- Product – Challenges in developing and launching retirement products due to market immaturity or low demand.
- Engagement – Low member engagement and financial literacy, making communication and education difficult.
- Regulatory clarity – Uncertainty relating to regulator expectations.
- Cohort – Difficulty in identifying and segmenting member cohorts for tailored strategies (such as drawdown strategies).
- Privacy – Privacy concerns and regulatory constraints in collecting and using member data.
- Metrics – Challenges in defining and tracking meaningful success metrics for the retirement income strategy.
The RIC reforms require trustees to develop a retirement income strategy for members who are retired or are approaching retirement. The strategy must address how their members will be assisted in achieving and balancing three objectives, maximising income, managing expected risks and flexible access to funds.
