Super funds failing our retirement – regulators’ review finding
Retirees face big decisions about how to manage their money, but our super funds aren’t helping us get there. Can we fix the mess?
A review of superannuation funds has found them to lack progress and insufficient urgency in supporting members preparing for retirement.
The review is the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority’s (APRA) first check-up on how funds are implementing the retirement income covenant.
Established last year, the covenant obliges super funds to assist members who were close to or had already stopped working to improve their retirements.
National Seniors Australia made two submissions to the 2021 consultation on the draft covenant. In the first submission we argued the covenant should encourage “superannuation trustees to offer products which address the needs of individual members and for superannuation members to choose options which meet their needs and are in their best interests”.
We argued there is wide variation in the financial know-how and economic wealth of older people, and as such, it is vital that super funds give people the tools and information to make decisions that suit their specific circumstances without pushing products that are inadequate, or worse, detrimental to their needs.
In a subsequent submission, National Seniors argued it did not support superannuants being compelled to adopt specific products, preferring an emphasis on education and choice.
The recent review of progress urged funds to step up and deliver both well-considered strategies and action to support members in retirement.
APRA and ASIC examined the progress made by 15 trustees, responsible for 16 industry, retail, corporate, and public sector superannuation funds in implementing the covenant over the past year. The review considered how trustees understood member needs, how they offered assistance to members, and how they executed and oversaw their strategy.
It found most funds had not done any in-depth analysis of their members’ income needs in retirement, nor had they modelled how those may change over time.
Despite 12 out of the 15 super fund trustees reviewed by the watchdogs explicitly acknowledging they had these gaps, just four had concrete plans to improve.
The APRA and ASIC review recommended that super fund trustees prioritise addressing “fundamental data gaps” so they could better understand members’ needs and goals – especially in preparing for the impending retirement of Baby Boomers, with three million members becoming eligible to draw down from their accounts in the next decade.
APRA Deputy Chair Margaret Cole said that fund members were entitled to rely upon their super fund for assistance as they plan for a sound financial future but found funds, overall, had demonstrated a “lack of progress and insufficient urgency. As more members approach retirement, trustees must step up and deliver both well-considered strategies and action to support members in retirement.”
Ms Cole warned that, where appropriate, APRA’s prudential framework would be enhanced to reflect key findings of the review. APRA will consult on proposed enhancements later in 2023.
The review also found too many retirees were not spending their superannuation savings, suggesting they were living at lower standards than they could afford.
This finding should be taken with a grain of salt, given that 80% of over 60s who died from 2014 to 2018 had no super.
What funds should prioritise:
Better understand member needs. All funds reviewed had gaps in the critical information they need about their members to inform the development of an effective retirement income strategy. Very few had plans to address these gaps.
Designing fit-for-purpose assistance. Trustees have taken positive steps … however, some are not using metrics to track how their members are using the assistance measures and their effectiveness to determine whether any changes are needed.
Overseeing strategy implementation. Many trustees have not embedded their retirement income initiatives as concrete actions in their overall business plan. Additionally, a majority of trustees lack quantitative metrics to assess the retirement outcomes resulting from their initiatives.
ASIC Commissioner Danielle Press said: “Trustees must get the fundamentals right – their retirement income strategies must be designed with consumer needs in mind and be evidence-based. They need to be mindful that their members’ needs evolve over time and commit to continuously monitoring and improving their approach.”
The review findings drew a scathing assessment of the funds by Financial Services Minister Stephen Jones, who reportedly said “bluntly, service standards in the superannuation system need to improve” and pledged that no government he was part of would stand for funds “letting members down”.
“Funds have to do better, and now. Five million Australians are either retired or approaching retirement [and] the average Australian is now retiring with over $200,000 in super,” he said.
“When the time comes to retire, there are huge decisions to be made about how to manage that money and get the most out of it. Australians expect that their super fund will be ready to help them navigate it.”
