Joint ASIC and APRA research on superannuation funds’ responses to the Retirement Income Covenant has identified a chasm between the best and worst, with one in five funds still unable to track how effectively it is supporting members as they retire.
The research was conducted in part as a reaction to criticism that regulators demand “good” retirement income responses from funds without stipulating what “good” actually looks like.
ASIC Commissioner Simone Constant told the Conexus Retirement Leaders Summit in Canberra on Wednesday that “while we are seeing some green shoots, it’s clear there are leaders and laggards” three years on from when super funds became legally obliged to assist members with retirement.
“Some trustees are hitting the straights, while others are still on the starting blocks,” Constant told the summit, which is a joint initiative held by Professional Planner publisher Conexus Financial and its philanthropically funded think-tank The Conexus Institute.
“And when you look at the data, it’s clear why this gap is emerging. Three years in, and our recent [research] with APRA shows one in five trustees cannot track the success of assistance to members in balancing the objectives of the Retirement Income Covenant.”
APRA deputy chair Margaret Cole told the summit that the Retirement Income Covenant should have acted as “a clarion call for trustees” to turn their attention to improving retirement outcomes for Australians, but “some trustees may have heard it more clearly and with more responsiveness than others”.
She said funds have made progress since the covenant’s introduction three years ago, but that “a substantial gap remains between where the industry is today and where it needs to be”.
Cole said an earlier thematic review by the regulators found “a lack of urgency by trustees in embracing the intent of the covenant”, and while more recent surveys show improvements in understanding members’ needs and providing retirement-focused information, progress has been inconsistent across the industry.
“Trustees have fallen short in tracking and measuring the success of their retirement income strategies,” she said.
Preliminary results from the ASIC/APRA research found nine out 10 trustees rated their progress in implementing the covenant as either ‘good’ or ‘very good’, but not a single trustee rated their progress as ‘excellent’, which Cole said suggests “that trustees acknowledge there is still work to do”.
ASIC’s Constant said that from the perspective of a regulator with a mandate to foster confidence and participation in financial markets, “it’s a real problem”.
“We know change takes time. Retirement is easy on paper, but hard in practice,” Constant said.
“However, we can’t wait years to get this right. Each year, more than 100,000 Australians retire. You can’t wait to serve them better. They need support right now. Compulsory superannuation must also get more competitive.”
Constant said consumer research conducted by ASIC uncovered some disturbing issues, and “the numbers are pretty confronting”.
Only one in three Australians aged between 50 and 65 are confident they’ll have a financially comfortable retirement.
Fewer than one in five Australians had a clear financial plan before retiring; only one in four had high financial literacy; and only two in five felt confident managing their retirement finances.
“Our findings echo those from Conexus and CoreData’s recent Best Possible Retirement report which found that fewer than one in three pre-retirees felt fully or reasonably prepared for retirement,” Constant said.
“This was nearly identical to 2024 and slightly down from 2023, which shows the needle has hardly moved despite the Retirement Income Covenant.
“What really hit home for me in this report is the gulf emerging in member services. Trustees are highly competitive on fees. They’re relatively competitive on returns. But there’s a sizeable satisfaction gap on member services that’s ultimately impacting member confidence.”
Constant said the government’s recent discussion papers on best practice principles for superannuation retirement income solutions and the retirement reporting framework are designed to drive better outcomes and transparency, which is needed to bridge the confidence gap.
APRA’s Cole said the regulator’s work with Treasury to develop the retirement reporting framework will provide transparency on the products and services available to members in retirement.
“As set out by Treasury, the reporting framework will cover funds’ product offerings, member outcomes and cohorting practices, capturing information in areas such as drawdown options, the take up of retirement products and the provision or referral of advice,” she said.
Cole said if the need for the industry to do a better job of supporting members in retirement was urgent when the covenant was introduced, “it has become even more pressing now”.
APRA estimates retirement assets in the funds it regulates will reach $3 trillion over the next two decades, up from $550 billion currently.
“The work trustees are doing now to implement the covenant is foundational to their ability to support members transitioning to retirement on a far larger scale in the future,” she said.
Cole said the industry must do more to empower members to feel confident in making the critical financial decisions when they retire.
“The industry will need to be extremely well positioned to support retirement outcomes at scale and to manage the risks arising from a vastly increased retirement asset pool,” she said.
“Trustees should prepare now for the challenges of tomorrow.”
ASIC’s Constant said it’s clear from the divide between good and poor responses to the RIC, “the ones who are doing it better are benefiting.”
Constant said that if funds do not know where their members are on their retirement journey, do not know what tools they need, do not know what prompts members need along the way, and do not look to other industries to benchmark service levels, they clearly “still have work to do”.
“From our observations, the trustees doing better on this have a good grip on who their members are,” she said.
“They use the data already at their fingertips, or are looking further afield, to truly know who they are serving. Some call this ‘bank-like’ but we think it is just customer-centric.”
