Three years after legislation was introduced to make superannuation funds’ retirement income obligations to members crystal clear, it still highly uncertain just how long it will take for the industry to achieve an “acceptable if not outstanding” response. 

The Conexus Institute* executive director David Bell and institute research fellow Geoff Warren acknowledge the industry has made progress over the past three years, but say that they are concerned that it may take more than another three years to get to an acceptable standard. 

In a Review and Reflections paper published following the Retirement Leaders Summit – a joint initiative of the institute and Conexus Financial, publisher of Investment Magazine – Bell and Warren say there’s a distinct possibility that a full decade after the RIC was introduced some members still cannot access good retirement income solutions. 

The institute’s paper says three things are coming that might speed up the process: the leadership offered by some funds, which it says is “important in a peer-focused industry”; Treasury’s best practice principles for superannuation retirement income solutions, which it says could become “a de facto baseline over time”; and Tranche 2 of the Delivering better Financial Outcomes reforms, which will “provide legislative enablement and signal clearer permission for super funds to provide members with personalised retirement advice”. 

ASIC Commissioner Simone Constant told the summit – which took place in Canberra on 13 August – that there are clear leaders and laggards emerging among funds as they develop retirement income solutions. The institute says the gap appears to be growing, with clear advantages accruing to funds that started earliest on developing solutions and the problem emerging for regulators is “how to either jolt the laggards into action or remove them”. 

The institute notes that it can’t only be the regulator that drives higher standards across the industry; responsibility and actions must be taken by funds themselves.  

“The fact that some industry leaders are emerging is important,” it says. 

“These funds are demonstrating what is possible to the rest of the industry. In effect, leading funds will help to shape the system as they illustrate what can be delivered to their members under current policy settings. The onus is on the laggards to step up.”  

The path forward 

The institute’s reflections paper says the summit showed that most players in the retirement income space have “formed a vision of the way forward and have scoped out what needs to be done to develop their RIS”, in contrast to the situation in previous years when funds were still fumbling their way towards workable solutions. But some funds still face “operational and other constraints that prevent quick delivery of a fully kitted-out RIS”.  

The institute says it is easier to identify funds that are lagging than it is to identify the leaders because what “good” looks like is unclear and “many funds are somewhat unsure about what they are required to do” The impact of the Treasury best practice guidelines may help this situation if they are adopted as a de facto minimum standard; the institute recommends the guidelines should be recommended reading for all super fund trustee boards so they understand exactly what the retirement income expectations of government (and members) are. 

But helping funds grasp what “good” really does look like means it’s critical that the solutions developed by individual funds can be assessed and meaningfully compared, despite the challenges in doing so, and make it clear to trustees whether they’re hitting the mark. 

“While there are some good examples of specific measures, what seems absent are holistic frameworks bringing everything together coupled with true accountability such as trustee board oversight,” it says. 

“Creating effective assessment frameworks will be challenging and requires bringing a range of assessment approaches to bear. Evaluation of capabilities should be a key component.” 

Defaults gathering support  

The RLS heard calls for retirement “soft defaults”, including from Australian Retirement Trust, but also expressed some uncertainty as to the actual definition. The Institute’s reflections paper says the idea received support “from many in the room [and] this is somewhat surprising given responses to previous policy work in this area”.  

“We sense divergent interpretations of what a ‘soft default’ means and how it might  operate,” it says. “The Conexus Institute is doing work to explore this issue.” 

APRA deputy chair Margaret Cole told the summit that some funds had obviously heard the “clarion call” of the RIC more clearly and responded with more urgency than others. She said joint APRA and ASIC research showed that nine out of 10 trustees self-assessed their retirement income solutions as “good” or “very good”, possibly revealing shortcomings (or delusions) in self-assessment, but noted that no fund rated its progress as “excellent”. 

Cole said it is clear that members need further support to make informed financial decisions and thus get the most of their super, and the institute’s reflections paper notes that “simplification” should be a further clarion call of the RIC. 

It says there must be greater consistency in terminology – an issue the industry itself should strive to address – and frictions within the system should be reduced where possible. 

“The idea of enabling contributions to pension accounts keeps rearing its head,” it says. 

“The operational clunkiness associated with closing an account-based pension (ABP)  and opening an accumulation account when a member re-enters work is inefficient and productivity-dampening. Policymakers should give the matter some close attention.” 

One of the sector’s key policymakers, Minister for Financial Services Daniel Mulino, told the summit that “where we go to on the post-retirement phase is one of the big policy issues for the super world”. 

The institute’s paper says the minister’s commitment to the sector was “evident throughout his sizable participation at the summit” and his economics PhD from Yale University and experience as a ministerial staff member during the Future of Financial Advice reforms “provides a strong foundation to understand the challenges and complexities of the retirement phase of super”.