Super Nation is a fortnightly column that examines, explains and analyses key issues in one of Australia's largest, fastest-growing and most important industries: superannuation.
A significant number of superannuation funds are not doing enough to help their members achieve better retirement outcomes.
That is an obvious inference to be drawn from a report prepared by a leading law firm that reviewed how trustees of super funds regulated by the Australian Prudential Regulation Authority (APRA) respond to the Retirement Income Covenant.
Mills Oakley found that a sizeable proportion of the 80 funds it assessed had minimal strategic alignment with the Covenant requirements, which were introduced on 1 July 2022 to enhance the retirement phase of superannuation.
At a time when a greater proportion of people rely on lifetime savings to get through retirement, this will be deeply concerning to many, most of all the funds’ millions of members.
The Covenant was introduced as part of the Your Future, Your Super reforms to ensure trustees helped their members achieve better retirement income outcomes, not just accumulate savings, which has been the main focus of super to date.
It requires funds to develop a retirement income strategy to improve long-term outcomes for members who are retired or about to leave the workforce.
Other Your Future, Your Super changes were annual performance tests, ‘stapling’ accounts for individuals and an online comparison tool for the MySuper default funds products for employees who do nominate their own funds.
Mills Oakley's firm undertook a comprehensive review of the published summaries of retirement income strategies developed by the trustees of APRA-regulated funds.
Yawning gap
Its 60-page report Measuring Up: How Super Funds are responding to the Retirement Income Covenant said it found significant variability in compliance, strategy maturity, and member focus, which highlighted encouraging progress and persistent gaps.
In fact, the firm said the shift in trustees' strategic focus on better meeting the needs of members in or approaching retirement had exposed a “stark divide” between the best and worst funds.
Naturally, the best and worst were not identified by name in the report, which simply provided a list of 80 registrable superannuation entities.
It said 30 funds demonstrated through their summaries a strong alignment with the Covenant requirements and policy objectives.
“However, a sizeable proportion of the summaries lack specificity, detail and meaningful engagement (including the failure to publish a summary at all), suggesting minimal strategic alignment with the Covenant requirements,” Mills Oakley said.
“This may indicate insufficient prioritisation in strategy implementation or there may be a disconnect between the strategy development and articulation of it to members.”
It found benefits in scale are evident with larger funds generally producing more comprehensive and strategically aligned retirement income strategy summaries. In contrast, smaller funds were more likely to adopt minimal, compliance-focused approaches.
“While the industry as a whole is showing an increasing understanding of the complexities of retirement, challenges remain for trustees in meeting the diverse and evolving needs of a growing number of members approaching or entering the retirement phase of superannuation,” the firm said.
Change fatigue
It conceded that a lack of engagement with Covenant obligations by some trustees may be a consequence of regulatory change overload that has occurred over the last few years.
In that time funds have had to respond to a broad range of new legislative requirements and strengthen prudential standards while dealing with a range of other challenges including the need for scale and sustainability.
“Even so, trustees would be well advised not to deprioritise their retirement income strategy in light of the forthcoming wave of reform and the Regulators’ expectations,” Mills Oakley warned in the Executive Summary of the report.
A greater focus on the retirement phase of super is important and urgent because of Australia’s aging and increasingly long-living population which is reflected in the surge in the number of members moving out of the accumulation phase.
The report and its findings are also bound to catch the attention of the super industry’s regulators because the Covenant is a focus for APRA and the Australian Securities and Investments Commission.
In fact it was only last year that both regulators warned in a media release that the results of a survey of trustees highlighted a “lack of urgency” in focusing on members' retirement outcomes.
The report and its findings are also timely because APRA’s enhanced Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) came into effect on 1 July.
This means expectations are even higher that funds will measure and assess the effectiveness of their retirement income strategies and outcomes for members.