APRA has no plans to issue detailed regulatory guidance on the retirement covenant, but expects funds to monitor their income strategies over time and improve where necessary.
The Australian Prudential Regulation Authority (APRA and the Australian Securities and Investments Commission (ASIC) have no plans to provide detailed regulatory guidance on how superannuation funds should implement the retirement covenant.
Instead, the regulators will look to funds to drive the strategic direction of their retirement income strategies and will give them space for innovation.
“The covenant does not specifically require RSE licensees to develop or offer retirement income products,” the regulators said in a joint letter to funds.
“However, APRA and ASIC expect [that] RSE licensees will consider whether to make changes to any existing retirement income product offerings, including whether to offer products external to the RSE licensee’s own products, in the context of their specific circumstances.
“A retirement income strategy may also include providing a range of assistance to members, such as developing specific drawdown patterns, providing budgeting tools or expenditure calculators, providing factual information about key retirement topics, and providing forecasts to beneficiaries during the accumulation phase about potential income in retirement,” they said.
Of particular importance is how RSE licensees will adjust their retirement income strategy over time, as they gather new and more detailed information about their memberships and draw on the insights gleaned from reviewing their strategy
The regulators do expect funds to show continuous improvement of the strategy in annual and potentially triennial reviews, as well as incorporation of the strategy in existing business planning, governance frameworks, risk management practices and controls.
“Of particular importance is how RSE licensees will adjust their retirement income strategy over time, as they gather new and more detailed information about their memberships and draw on the insights gleaned from reviewing their strategy,” they said.
Funds are also required to assess the adequacy of their resources to support the retirement phase.
The regulators’ letter confirms the departure from the government’s initial proposals to require funds to develop a comprehensive income product for retirement (CIPR), the retirement equivalent of the MySuper default product.
Many funds saw the development of a default impractical considering the large differences in circumstances of individual members.
Instead, the retirement covenant will allow funds more space to develop a series of retirement solutions or building blocks that can be combined as needed.
The covenant is due to come into force on 1 July 2022.
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