Executive Director of Superannuation, APRA – Suzanne Smith and Senior Executive Leader for Superannuation, ASIC – Jane Eccleston
It’s good to be back at the Conexus Retirement Conference, 12 months on from our last chance to speak as a group.
Before I start, I’d like to acknowledge the Traditional Owners of the lands on which we meet today, the Ngunnawal people, their ongoing connection to and custodianship of the lands, and to pay my respects to elders both past and present.
On behalf of my APRA and ASIC colleagues here today, we are pleased to have the opportunity to recognise the significant recent progress made across the superannuation industry in responding to the new retirement income covenant, and to be part of important dialogue on the progress still needed to support and benefit Australians approaching, and in, retirement.
Today’s session, and the commitment of time, energy and ideas brought by this diverse group, reinforces to us the importance of deep thinking about how the various aspects of the retirement system can best support Australians to have a dignified retirement.
We don’t arrive here suggesting that we have all the answers to this challenge. Instead, we come with an open mind in terms of how our agencies, as regulators, can support, guide and, where necessary, intervene to drive progress towards members having confidence in their retirement.
And, as APRA outlined to the Australian Financial Review Super and Wealth Summit in November last year1, over the next 10 years, an estimated 3.6 million Australians will move from the accumulation phase to the retirement phase of superannuation. With somewhere in the region of $750 billion in aggregate superannuation savings, the superannuation industry, APRA and ASIC will all have a growing role to play to help Australians use the superannuation balances they have built up over their working lives to support their quality of life in retirement.
July this year saw a significant milestone in the evolution of the superannuation industry with the new retirement income covenant taking effect for all superannuation trustees. This shift in focus to the retirement phase has been gaining momentum over recent years, including through the Retirement Income Review and other government inquiries. The covenant codifies this shift, moving the focus on retirement incomes up through the gears. Indeed, trustees committing their retirement income strategies to paper is an important mark of progress in facing into the challenge I described, but documents alone won’t solve this.
In recognition of this, the regulators are working together more closely than ever before to support the implementation of the covenant by trustees. We will maintain this close connection as trustees progress the implementation of their retirement income strategies. In the discussion today, I hope we can bring a unique vantage point and perspectives – part of, but detached from – the industry solutions at play.
Over today, and as this dialogue continues to evolve in future, we are looking forward to observing how the super industry absorbs legislative reform, as well as playing a supportive role in advancing dialogue and solutions with the super industry and other stakeholders to improve the retirements of Australians.
Today, you’ll hear from a number of APRA and ASIC specialists, who will distil and reinforce key messages from our joint letter to trustees of March this year and provide insights into the approach we intend to take in setting simple and effective prudential policy in this space that reinforces the new covenant.
The retirement income covenant itself asks trustees to think deeply about the retirement outcomes of their members. Quite clearly taking a genuinely member-centric focus is critical to a successful retirement income strategy and offering. This process of deeply and thoughtfully understanding the needs of members to come up with meaningful retirement income strategies that serve the needs of their members won’t happen overnight.
This is a challenging space for many trustees and the process of responding to this challenge will take time. Think of it as a marathon where we are currently in the first leg, which is setting solid but sustainable pace. We are watching keenly but this is a race being led by trustees, who are best placed to evolve their retirement incomes strategies over time to deliver the best outcomes for members.
However, considering members’ needs in retirement isn’t something trustees are just starting now – most trustees already offer retirement income products and have done so for some time. In this context, the emphasis is really on ensuring that retirement outcomes are sufficiently prioritised and considered in existing frameworks and ways of operating. Trustees might need to shift their mindset in relation to the retirement needs of their members but this doesn’t mean they will need to make wholesale changes to the way they run their business.
Working to implement retirement incomes strategies within existing frameworks for business planning, outcomes assessment, product target market determinations, risk assessment and governance allows for the integration of the retirement focus and mindset into all parts of the trustee’s operations as well as being an efficient way to embed the new obligations. And it is here that we will focus much of our supervisory attention over the coming period.
I will now pass to my colleage Jane Eccleston from ASIC to make some opening remarks.
I would also like to acknowledge the Traditional Owners of the lands on which we meet today, the Ngunnawal people, their ongoing connection to and custodianship of the lands, and to pay my respects to elders both past and present.
As Suzanne said, the regulators are committed to an industry-led approach to the implementation of the retirement income covenant that is member-centric. We are really looking forward to hearing more from industry today on the successes and challenges identified so far and the way trustees intend to build on successes and tackle challenges in the future. This will inform our future work.
A key focus for ASIC is assisting trustees in providing information and tools to their members if they choose to do so as part of their retirement income strategies. Accordingly, ASIC has extended its relief from the financial advice laws for providers of superannuation calculators and retirement estimates if they provide these forecasting tools in line with conditions set by ASIC, which are explained in our new Regulatory Guide 276 Superannuation forecasts: calculators and retirement estimates.
We have also identified a range of things that trustees could do to assist their members, ranging from giving factual information to member-focused communications to advice solutions. These are set out in the joint letter and so I won’t repeat them here.
I’d like to share some early observations on how trustees are approaching their retirement income strategies. These observations are drawn from the summaries that trustees have been required to publish on their websites.
- It is clear that trustees are at different phases of their implementation of the covenant, and have different starting points, in terms of their existing focus and their stated plans to expand their product and guidance offerings to members in future. Some summaries provided more detail on trustees’ current offerings and plans for expansion than others.
- We observed some trustees indicating in their summaries that they are in the process of developing new retirement income products.
- It was positive to see some trustees taking the time to understand, research and engage with their members to form tailored cohorts and identify member needs in order to inform their strategies.
- Some of the summaries were more detailed than others, more readable from a member perspective, or easier to find on the fund’s website.
While I must caution that these observations are based only on a quick review of a small piece of trustees’ retirement income architecture, both ASIC and APRA were pleased to see definite signs of progress in the retirement incomes space, with many trustees appearing to be implementing the covenant in ways that reflect the circumstances of their members.
However, given that the summaries are public documents intended to be accessible by a variety of stakeholders, including members, I would encourage trustees to think about their accessibility, clarity and readability. It is important for trustees to meaningfully engage with their members by clearly explaining how the fund can assist them to plan for retirement and help them during retirement. Trustees could consider using their retirement income strategy summaries as part of this – and some appear to already be seizing this opportunity.
Both ASIC and APRA are very interested to see and learn more about what actions trustees have taken to implement the retirement income covenant, including by adopting a member-centric approach and responding to differing member needs. We also want to understand how trustees plan to evolve their strategies over time.
The next step for us is to conduct a joint thematic review of the retirement income strategies of a sample of trustees from across the industry. This joint approach reflects ASIC and APRA’s co-regulation in the superannuation space – and is very much in line with our focus on supporting the implementation of the retirement income covenant. In approaching this review, we will assess what has been done well, where there is room for improvement and where trustees need to focus their attention. Our intent is not to prescribe how trustees should be assisting their members, but to help trustees to refine and evolve their strategies over time in ways that best meet the needs of their fund’s members. We will be doing this work over the coming months and plan to publicly communicate some of our findings and observations early next year.
As Suzanne mentioned, we are looking forward to playing a supportive role in advancing dialogue and solutions with the superannuation industry and other stakeholders to improve the retirements of Australians, starting right here today. Both ASIC and APRA want to see trustees really focusing on taking a member-centric approach as they rise to the retirement income challenge and help deliver better outcomes for members in retirement over time.
1APRA Deputy Chair Helen Rowell - Speech to the Australian Financial Review Super and Wealth Summit