Super funds are increasingly offering or referring members to comprehensive advice, but too many are failing to work collaboratively with their members’ pre-existing professional advisers.
A joint review by APRA and ASIC has found trustees need to “make more progress to enhance retirement outcomes”. It concluded that many are falling short of their legal obligation to help members prepare for retirement, which took effect in July last year under the covenant legislated by the previous Coalition government.
The review, which examined the progress of 15 trustees collectively managing $862 billion worth of assets on behalf of five million Australians in or approaching retirement (that is, over the age of 45), found many trustees had a retirement income strategy in place, but had not integrated it into their business plans, as required under Prudential Standard 515.
All of the reviewed trustees now offered comprehensive advice, either by professionals they employ or licence themselves, or via referrals with independent advice providers. The popularity of the model was greater even than intra-fund personal advice, which was offered by 86 per cent of the cohort.
However, the report found funds were doing a poor job of assessing what professional advice their members may already be receiving.
“Many RSE [register of superannuation entities] licensees did not have a robust way of identifying which members were receiving financial advice relating to retirement planning or using their superannuation for their retirement income,” the report concluded.
“Most generally relied on data about which members joined through an adviser, or which have an active adviser fee arrangement in place on their superannuation account, to identify advised members. This approach may not be accurate if a member is no longer receiving advice or is not receiving advice about retirement.”
The report urged trustees to test the appropriateness of certain retirement income products for their members by consulting external advisers.
Some trustees who had large cohorts of professionally advised members reported “grappling with what their role is in delivering assistance to members… especially as advisers held more data about members’ needs.”
“Trustees must get the fundamentals right – their retirement income strategies must be designed with consumer needs in mind and be evidence-based,” said ASIC Commissioner Danielle Press, who will discuss the findings at the Dialogue.
APRA deputy chair Margaret Cole added: “A further three million members will become eligible to draw from their super in the next 10 years. They are entitled to rely upon their super fund for assistance as they plan for a sound financial future.
Data problem
More broadly, the report found trustees had significant data gaps.
While some trustees had distributed superannuation calculators to members, or directed them to ASIC’s MoneySmart website, most had not conducted in-depth analysis of their members’ income needs in retirement. Where this analysis did take place, often trustees relied on generic third-party sources such as Australian Bureau of Statistics or HILDA data.
“Referencing a fixed income target based on external data and research was the most common practice,” the report concluded. “Only a small number of RSE licensees analysed drawdown patterns of their retired members, or considered how their members’ retirement income needs may correlate to their pre-retirement income.”
The majority of reviewed trustees (12 of the 15) recognised they had these data gaps, but only four had “concrete plans” to fix the problem, it found.
Minister for Financial Services Stephen Jones told the Investment Magazine Group Insurance Dialogue, hosted by Professional Planner publisher Conexus Financial, on Tuesday that the government is unimpressed with the poor progress made on the covenant, which requires trustees to develop, and implement, a retirement income strategy for their members.
“The verdict after 12 months isn’t brilliant,” Jones told the event. “There has been a lack of progress and a lack of urgency. Funds should know their members. That’s a basic expectation.”
The report urged caution that trustees may trigger the complex financial advice laws when communicating with members about retirement income products.
It comes as Jones has indicated the government may be open to a radical overhaul of the intra-fund advice model to expand the topics able to be advised on by funds beyond a member’s interests in the fund.
Any adviser who has attempted to obtain information from an industry fund can tell you a lot has to change if we are to effectively advise their members.