ASIC and APRA’s findings of RIC’s first year

A joint ASIC/APRA thematic review has found trustees need to make more progress on enhancing retirement outcomes for members under the Retirement Income Covenant (RIC). 

The review examined 15 trustees responsible for 16 funds and their progress in implementing the RIC over the past year, how they understood member needs, offered assistance to members, and executed their strategy.

The funds had $862 billion and over 5 million members.

“Overall, the review found that while trustees are improving their offerings of assistance to members in retirement, there is variability in the quality of approach taken and a lack of urgency in embracing the intent of the covenant,” it said.

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The review broke it down into three categories and described the issues it had noted and where trustees should be prioritising.

Understanding member needs

The review found all trustees have gaps in the critical information they need to inform the development of an effective retirement income strategy and few trustees had plans to address these gaps. 

Trustees should address these data gaps to support effective strategy formulation and enhance modelling and analytics to better understand members’ financial position and retirement spending and how these could change over time.

Designing fit-for-purpose assistance

Trustees have taken positive steps to improve assistance, but some are not using metrics to track how members are using this or their effectiveness to determine if changes are needed.

Trustees should tailor member communication to cater to diverse member preferences and needs and implement regular testing and appropriate metrics to track the effectiveness of the assistance.

Overseeing strategy implementation

Many trustees have not embedded their retirement income initiatives as concrete actions in their business plan. A majority of trustees lack quantitative metrics to assess retirement incomes. 

The review recommends the retirement income strategy should be integrated into the broader business planning cycle and metrics should be developed to focus directly on member outcomes to measure success such as as drawdown rate changes or member confidence.

APRA deputy chair, Margaret Cole, said: “A further 3 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. 

“Some trustees have made a good start, but overall there has been 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.” 

ASIC commissioner, Danielle Press, said: “Australians contribute to their superannuation for many years in anticipation of financial wellbeing in retirement. Helping fund members achieve good retirement outcomes is the core business for a super trustee and the retirement income covenant offers a lot of flexibility for trustees to effectively support their members’ needs.

“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.”

Where appropriate, APRA will enhance its prudential framework to reflect key findings and will consult on this later this year.