With the Retirement Income Covenant (RIC) now in effect, super fund trustees are required to set out how they are going to help members with their retirement outcomes. But are their priorities matching up with these responsibilities?
A review of the retirement income strategy summaries from 102 super funds makes for a fascinating read. The strategies are splitting the market and it is clear some funds still have accumulation tunnel vision, whereas others have a well thought out plan to really support their retiree members spend their super savings.
With retirees accounting for around $900 billion (projected to rise to $2.5 trillion in 2038) of the $3.4 trillion in super assets, having the right products, tools, guidance and strategies in place to support retirees is critical to the long-term sustainability of a fund. Getting it right early will set a strong foundation for further refinement and continued compliance.
What the strategies revealed
With great variation in size, detail, target audience and messaging, it can be seen that some trustees have adopted a compliance-based approach to their retirement income strategies. For many funds, strategy summaries were brief with a placeholder feel or a ‘plan to have a strategy’. While it is hard to draw conclusions in isolation, given these are only summaries of strategies, patterns emerge when combined together.
For example, less than 60 per cent of funds indicated they will review their offering, only half mentioned financial advice being available and a third did not provide tools and calculators to assist members. Holistically, this showed a sizeable proportion of funds may not be actively engaged in delivering leading edge retirement offerings, now and into the future.
Risk of being left behind
It is clear some funds are ahead of the game − they have made significant progress with their retirement framework and have a well thought out plan to support their retiree members spend their super savings. Others, however, still seem focused on the accumulation phase only. One such area of differentiation is the member cohort analysis, which has revealed that there are gaps in product offerings for certain cohorts of members.
The RIC requires trustees to consider their fund members by cohorts when setting their retirement income strategy, given members’ different retirement income needs. Around one-third of funds indicated they had divided their membership into cohorts, but only eight per cent applied different strategies for their cohorts. This is an opportune area for funds to explore further, and assess whether they can enhance retirement product offerings to better meet their members’ needs.
Where to next?
The introduction of the covenant is expected to be a starting point, rather than the destination. The regulators – APRA and ASIC – will be watching and intend to carry out a joint review of trustees’ retirement income strategies and summaries later this year. APRA has also already made it clear that trustees need to continue to refine and update their strategies to ensure this is more than a compliance exercise.
Trustees will need to deliver enhanced member retirement outcomes using a data-informed cohort approach to support members at different retirement stages. We expect trustees will focus on various components of their retirement income strategy as they step back and consider what they need uplifted to be a leading provider of retirement income solutions to their membership.
Areas of consideration may include retirement product innovation, enhanced member guidance and advice, a focus on member engagement, improved member data management, and integration with the trustee’s other strategies, as well as effective monitoring of the strategy.
Ultimately, funds will have to decide if they are in the retirement game or not. Once the numbers are crunched, will they develop retirement offerings or choose to focus on accumulation and partner with others? Time will tell.