The prudential regulator has made clear to the nation’s 14 largest super funds attending the Conexus Institute Retirement Conference in Canberra that relying on external financial advisers will not fulfill their Retirement Income Covenant obligations.
APRA deputy chair Margaret Cole told the conference, a joint initiative of Professional Planner publisher Conexus Financial and The Conexus Institute*, at Old Parliament House in Canberra that the covenant requires funds to support all members who are in or approaching retirement, regardless of the size of balance, level of engagement or access to advice.
“All members, from high-net-worth individuals with independent financial advisers to low-balance members who are fully disengaged with their super need to be supported by your strategy,” Cole said.
“Even where members are receiving independent financial advice, the obligation to meet the Retirement Income Covenant sits with you as the trustee, not with the adviser.”
While the fewer than 16,000 advisers on the ASIC Financial Adviser Register are insufficient to fill the unmet advice needs of Australians, the regulator made it clear that outsourcing advice will not be a way for funds to avoid their obligations.
The covenant – which requires funds to have a retirement income strategy for members – came into place in 2022, and two years later both regulators and the government have been underwhelmed by the progress made, although the latest review of funds has shown some progress.
The regulators and government told a Conexus event last year funds had acted with “insufficient urgency” on making progress on the covenant, and in a pulse check released a year later expressed the same concerns that not enough work was being done.
“To support these members, you need to have a firm understanding of the number of members using advisers and the types of retirement-related advice they are seeking,” Cole said on Wednesday.
“Many of your middle-income members may be actively engaged with their super but unaware of the range of retirement tools, products and assistance that you offer. Does your strategy reflect how you will support these members to take control of their own retirement outcomes?”
The regulators’ pulse check, released in July, cited feedback from funds claiming they couldn’t deliver an effective strategy while the advice framework was under regulatory review, a view that Cole dismissed.
“This shouldn’t hold you back from putting metrics in place now, to set a baseline from which to assess the success of your strategy and to address any weaknesses in a timely way,” Cole said.
‘Our patience is wearing thin’
But while the regulators have recently acknowledged some improvement from funds on the covenant, ASIC Commissioner Simone Constant said there still hasn’t been enough progress.
“Quite frankly, our patience is wearing thin, we want to see tangible action,” Constant said.
“We need funds to be transparent, accountable and member focused in how they consistently deliver in for Australians in retirement and the years leading into it. We do hear you want more clarity from us as regulators as how you might meet the challenge.”
Constant said delivering strong returns and larger balances is only part of the job for APRA-regulated super funds.
“Just as important, is meeting your members’ – your customers’ needs – from early accumulation right through to retirement,” Constant said.
“Yet two years on from the introduction of the Retirement Income Covenant, my understanding is that in this room we are still having the same conversation today.”
Constant said the regulator expects funds to communicate proactively and transparently with members, be accountable and deal responsibly with member money, and deliver value and services to consistently meet their expectations.
“It’s pretty simple,” she said.
* The Conexus Institute is a not-for-profit think-tank philanthropically funded by Conexus Financial the publisher of Professional Planner.
I have a sense that the regulator isn’t fully aware of how complicated it is to turn a portfolio into a paycheck. Nobel Prize winning economist William Sharpe famously described retirement income planning as “the nastiest, hardest problem in finance.” I suspect this requirement will ultimately go down two roads; a) Super funds will impose a simplified Sustainable Withdrawals rate approach as it proves too difficult to do anything else, or b) The requirement will be deemed to be beyond their capabilities and further regulatory reform will be required to expand the supply of qualified financial advisors.