A thematic review of how superannuation trustees are supporting their members under the Retirement Income Covenant has found that trustees need to make more progress to enhance retirement outcomes. The review was conducted jointly by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).

The covenant, which came into effect on 1 July 2022, requires trustees to develop a retirement income strategy to improve long-term outcomes for their members in or approaching retirement.

APRA and ASIC examined the progress made by 15 trustees, responsible for 16 industry, retail, corporate and public sector superannuation funds in implementing the covenant over the past year. The review considered how trustees understood member needs, how they offered assistance to members and how they executed and oversaw their strategy.

The funds reviewed collectively represent approximately half the total accounts and superannuation balance held by members aged 45 and above across APRA-regulated funds – over 5 million accounts with $862 billion in superannuation balance as at December 2022.

Overall, the review found that while trustees are improving their offerings of assistance to members in retirement, there is variability in the quality of approach taken and a lack of urgency in embracing the intent of the covenant.

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.

APRA Deputy Chair Margaret Cole said: “A further three million members will become eligible to draw from their super in the next 10 years[1]. 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.”

Ms Cole added 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,” Ms Press said.

A copy of the information report is available on the ASIC website. APRA and ASIC recommend that all superannuation trustees review the report and examples of better practice, and take steps to strengthen their retirement income strategies.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $8.6 trillion in assets for Australian depositors, policyholders and superannuation fund members.

The Australian Securities and Investments Commission (ASIC) is Australia's integrated corporate, markets, financial services and consumer credit regulator. We license and monitor financial services businesses to ensure that they operate efficiently, honestly and fairly. These businesses typically deal in superannuation, managed funds, shares and company securities, derivatives and insurance.

[1] National, state and territory population, December 2022 | Australian Bureau of Statistics (abs.gov.au) (Population by age and sex – national, Table 8)