According to the Australian Bureau of Statistics, more than three million members will become eligible to draw from their superannuation in the next 10 years. As these individuals approach retirement, they will face complex choices about how best to fund their future financial and lifestyle needs – some of which, such as health, cannot necessarily be predicted.
Protecting these consumers through that decision-making process is a strategic priority for ASIC, and we are actively focusing on conduct that affects retirement outcomes.
The retirement income covenant, which came into effect in July 2022, places a positive obligation on trustees to assist members in or approaching retirement to improve outcomes. It is an important step in broadening industry focus beyond the accumulation phase to the decumulation (or retirement) phase. A year after its introduction, ASIC and APRA reviewed the progress made by industry in implementing the retirement income covenant.
Speaking of the findings at the ASIC Annual Forum today, Jane Eccleston, Senior Executive Leader, Superannuation and Life Insurance at ASIC said: “We saw that a lot of trustees had taken great steps in terms of implementing retirement solutions for their members. But we also found that there was a variability in the quality of approach taken and a lack of urgency in embracing the intent of the covenant from some funds”.
Tim Jenkins, Partner, Superannuation Consulting Leader at Mercer Consulting said: “We’re very good at helping people get up balances as they lead into their retirement. But we’re very poor at what happens next”.
But, he said, there was cause to be positive. “In the last ten years, the superannuation funds have put in the infrastructure which allows what’s been happening in the last 12-18 months and what will happen in the next 18 months.”
Dr Geoff Warren, Associate Professor at the Australian National University and Research Director at the Conexus Institute spoke about the divergence in “members’ need and wants” between the accumulation and decumulation phases.
“When you’re in accumulation, every member would be happy with a higher return and a higher balance. When you go into decumulation, members differ quite significantly along a whole range of different dimensions. That means that rather than just try to maximise returns, you now have to tailor to those member differences.”
Dr Warren said that for a best-in-class system, two things were required – “an advanced ability to tailor to people with different needs” and “guidance to the masses at scale and reasonable cost”. Neither he said were there are the moment.
Jacki Ellis, Head of Retirement for Aware Super added, “We need to make sure that the retirement solutions and products that we develop actually are what members want and we can get members into them. If we don’t see that take-up then all of that work, we’re not actually moving the dial on member outcomes”.
She said to do that, super funds needed to “deeply understand” their members. She said: “retirement is a lifestyle change, it’s all about how you’re going to spend your time and that is uniquely personal”.