A review by regulators APRA and ASIC has found that super funds’ responses to the Retirement Covenant fall short of addressing members’ retirement needs and contain gaps in critical member data.
The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have urged superannuation funds to approach the Retirement Covenant, which came into force on 1 July last year, with some urgency and address gaps in critical member data.
While the regulators acknowledged that trustees draw data from a range of internal and external sources to understand their members’ retirement needs, they found that all funds had gaps in the critical information they needed about their members to inform the development of an effective retirement income strategy.
Very few had plans to address these gaps, the regulators said.
“Some trustees have made a good start, but overall there has been a lack of progress and insufficient urgency,” Margaret Cole, Deputy Chair of APRA, said earlier this week.
“As more members approach retirement, trustees must step up and deliver both well-considered strategies and action to support members in retirement,” she said.
Cole said 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.
Key Findings of Retirement Covenant Review
The Retirement Covenant 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 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.
The review considered how trustees understood member needs, how they offered assistance to members and how they executed and oversaw their strategy.
Among the key findings of the review, the regulators wanted to see more focus on understanding member needs. Besides critical member data gaps, the they also highlighted the need for designing fit-for-purpose assistance.
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, the regulators said.
Many trustees also did not embed their retirement income initiatives as concrete actions in their overall business plan, while a majority of trustees lack quantitative metrics to assess the retirement outcomes resulting from their initiatives.
“Trustees must get the fundamentals right – their retirement income strategies must be designed with consumer needs in mind and be evidence-based,” Danielle Press, Commissioner for ASIC, said.
“They need to be mindful that their members’ needs evolve over time and commit to continuously monitoring and improving their approach,” Press said.
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