This article originally appeared in the print edition of Retirement Magazine Vol. 2

The message from ASIC and APRA at the Retirement Leaders Summit in Canberra on 13 August was clear: super funds are not treating their Retirement Income Covenant obligations with the urgency the regulators expect.

ASIC Commissioner Simone Constant and APRA deputy chair Margaret Cole conceded funds have made progress over the three years or so since the covenant came into effect but told the summit the emergence of leaders and laggards in the industry is a major concern.

In a media briefing in August, APRA chair John Lonsdale dismissed the idea that because some funds have a young membership base they don’t have to act as quickly as funds with older members. He told Retirement Magazine all trustees, must meet their fiduciary duties, which includes the RIC.

The retirement heads of four super funds convened by Retirement Magazine to discuss progress in delivering on the RIC dispute the characterisation of the industry as slow. They say perceptions of tardiness often mask the volume and pace of work going on behind the scenes to develop solutions, often in partnership with external suppliers.

Brenton Tickner, head of retirement strategy and propositions at Aware Super, says the “slow” narrative, though persistent, is not always fair.

“Some funds have quite different membership compositions, maybe they don’t have as many members in or near retirement phase, or maybe there are bigger strategic challenges within that fund,” he says.

“And it also comes down to the capital position and where the fund is at overall. Over the last few years Aware has been really building up its administration capability – a lot of straight-through processing, a lot of efficiency – and that really frees up resources and capacity to do the value-add.”

And Giacomo Tarantolo, manager of retirement solutions at UniSuper, says the reasons for the mixed pace of development are nuanced.

“I think it’s right for the regulators to ask these questions; that’s their job and they should be looking at the whole industry,” he says.

“But there is nuance. A lot of the things that funds are doing might not be the big-bang thing, but there’s little incremental things that funds are doing behind the scenes that actually take a whole lot of time.”

Sarah Forman, chief retirement officer at Team Super, says the regulators’ message to increase the pace of change is part of a broader push to ensure the superannuation system is fit for purpose – namely, retirement.

“We understand the sense of urgency, as we have an aging population, with the Age Pension playing a large part in the retirement outcomes of Australians, as does super,” Forman says.

“We want to ensure the system keeps delivering against its intended purpose and helping everyday Australians retire with dignity”.

Ambiguity in legislation initially left some funds unsure how to proceed says Jennifer McSpadden, head of retirement at Brighter Super.

“The legislation wasn’t particularly clear about what was expected, so funds were left to interpret and implement it on their own,” she says.

“Some funds said they need more guidance and certainty. But the reality is you can’t afford to wait. At Brighter nearly half our members are over 48 and need support. You have to take the lead and act now.”

In any case, McSpadden says measuring success means looking beyond either black-letter law or guiding principles to actual member outcomes, or face the risk that someone will ask “how is it in members’ best financial interest that you’ve spent all this money trying to improve member outcomes without delivering measurable difference over time?”.

Obstacles beyond individual funds

Not all the issues funds grapple with as they develop retirement income solutions are of their own making, nor are they necessarily linked to legacy administration systems that might have been built in the 1980s and 1990s.

For example, Tickner says, “at the moment, you can’t top-up an existing income account, you have to take the money out of retirement phase back to your accumulation phase”.

“That means your payments stop. It’s very disruptive. And then you’ve got to move it back into the income account,” he says.

“If you look at the income account-opening process, about 43 per cent of our income accounts opened last year were from members who already had an income account, and pretty much all of that was about adding more into their income account.”

He says this design flaw clashes with the realities of modern retirement, where people may downsize, inherit money, or return to work.

“We know employment patterns in retirement are different. People stop and then start again…we just make it so difficult for people to add to the retirement income stream.”

Tickner says the answer may be quite clear: “Surely we can look at the relevant legislation and regulations to just allow people to top up their income account – that is far easier for members and just a better overall outcome.”

Forman says the recycling of accounts is one of the system’s most obvious pain points, “creating paperwork, transactions and phone calls from members that funds need to resource for, but it adds to the overall complexity of a system which is already complicated to explain to members”.

Forman says part of the solution lies in harmonisation to reduce waste caused by overlaps and contradictions, and standardised language to help members make decisions – especially comparisons between fund offerings – with more confidence.

McSpadden says legislative barriers can get in the way of optimising retirement income solutions. She says an “ideal” solution would be provide members “a seamless view of their retirement income, whether it’s an account-based pension, lifetime income or the age pension, so they can really understand their financial position”.

“In an ideal world you would want, if you like, an account for life that transitions seamlessly from accumulation into pension,” she says.

“We’ve tested that concept, but it really is impossible for us to solve without government intervention and legislative change.”

Tarantolo says consistency must extend beyond product labels to the entire regulatory framework.

“Consistency of legislation and regulations across the different arms of the government would be great,” he says.

“Consistency of legislation and regulations across the different arms of the government would be great.”
– Giacomo Tarantolo, UniSuper

“We’ve got DBFO, the Treasury best practice principles, the APRA reporting frameworks and also an ASIC review into retirement communications, what we hope for as an industry is for a clear and consistent guidance for trustees to go away and implement.”

Tarantolo says fragmentation and inconsistencies slow down implementation and leave funds second-guessing what to do next.

“Maybe just getting that plan and everybody on the same page, and [if] we know what’s coming, then we can prepare and deliver it on time,” he says.

Inconsistent terminology leaves members bewildered and reduces their confidence in making good choices. What’s needed, Tarontolo says, is “consistency of language to enable the members to know what they need to do”.

And Forman points to another issue funds are being asked to solve but which is really a societal problem: poor financial literacy among members.

“We know there are social benefits from government funded education programs which have the financial reach to really lean into an issue and support raising the awareness bar,” she says.

“There could be a role to play for the government in creating more social awareness of the importance of understanding financial basics. This could also be addressed within the education system, where we could be investing more time in the later years of high school to better prepare young people on the basics of managing their money.”

Forman says super funds have “an absolute role in lifting the educational threshold of members”.

“Our role is to continue providing members with meaningful nudges at the right time as they progress through their working life and into retirement, but perhaps if there was more general awareness outside of these nudges, there may be greater engagement and confidence,” she says.

“I think the burden is sitting with super funds at the moment to try and educate their members, and the media also leans in to try and educate Australians, with social media having success into some demographics. With social media sometimes the content is good and sometimes it’s possibly misleading or inaccurate.”

In some cases, legacy technology is an impediment, and the structure of profit-to-member super funds places constraints on the pace at which they can move.

“You can’t just drop $200 million on getting it done just like that,” Tarantolo says.

“You can’t because of the profit-to-member nature. You can’t just go, ‘Alright, we’re going to do a digital transformation’, and transformation just happens. It takes a lot of time, and you’re dealing with archaic systems. Some systems were built in the 1980s. And yes, you can make it better here and there, but it’s still 1980s [technology].”

Best practice guidance

While regulators have been vocal in their criticisms of funds, funds have felt more constrained in what they can say publicly about the regulator. But behind the scenes a common refrain is that it’s all very well for regulators to push for higher standards, but that some guidance on what a “good” retirement income strategy looks like would be helpful.

The industry got just that earlier this year when Treasury released its guidance on best practice principles for superannuation retirement income solutions. But while it might provide some useful directions for funds, Tickner reckons that leading funds are already “doing this”.

And Tarantolo notes that while industry standards are OK as guidance to funds, adherence to them must not let funds off the hook for producing poor member outcomes. The result is more important than the process.

“From an industry perspective, great, it sets some standards… [but]one size doesn’t fit all. What I think is missing is what’s best practice from a member outcome perspective.”

He warns that prescriptive elements, such as mandated cohorting, could backfire. “The best practice principles say that you need at least three cohorts,” he says.

“The number of cohorts or whether cohorting is appropriate really depends on the fund.

“Empowering, informed decision making – that is really what the aspiration for best practice should be for super funds.”

The principles are voluntary and, to that extent, aspirational rather than creating firm obligations. Team Super’s Forman says her concern is less about the intent of the principles and more about execution.

“Increasing access to the best retirement solutions has a bit more challenge to it, because there is such diversity of circumstances and preferences amongst Australians when they get to retirement,” she says.

“And solving for that is not easy for funds as they can often only see a member’s super savings”

Even so, Forman says, guidance is welcome.

“I encourage sharing best practice guidance…because I think, as an industry, we need to continue learning and growing, and that’s really helpful,” she says.

McSpadden says the guidelines do “try to establish what does good look like for a fund”, and the fact that they are voluntary gives funds room to move.

“Where we had funds saying there wasn’t a lot of guidance in the initial legislation, this is something that could help,” she says.

“But at the same time, I think what has also been established is that funds also need the ability to say if they are adopting the principles, and why. Every fund has a unique membership base. If they have done their research and know who their members are and what they need, funds need the ability to customise their solutions.

“So, the principles can’t be one-size-fits all. Ultimately, they need to help funds help their members make better retirement decisions.”
– Jennifer McSpadden, Brighter Super

“So, the principles can’t be one-size-fits all. They need to support funds to focus on individual member needs. Ultimately, they need to help funds help their members make better retirement decisions.”

Innovations of note

The proof of progress in developing retirement solutions is what funds actually release that has a direct and beneficial impact on members. Tarantolo points to retirement outlook events and the roll-out of digital advice.

“In the pre retiree section, almost 60 per cent of them, when we did the survey after, said that post-event they feel more confident about their retirement,” he says.

“So it’s meeting that member need. Then more recently we’ve launched our digital advice investment journey.

“It’s available on our member online portal and through our app. It’s the first of many journeys [and] we plan on launching contributions, insurance, pension drawdowns progressively throughout the year.”

 The most striking results have come from direct member engagement.

“What we’ve seen is just the amount of engagement and lists of questions. We had over 14,000 people register [for retirement outlook events].”

Tickner points to new advice tools and fee reductions as tangible evidence of progress.

“We reduced the admin fees on retirement accounts by 25 per cent last financial year,” he says.

“Already 8000 eligible members have received a retirement bonus, and that’s $17 million in tax benefits added to those income accounts.”
– Brenton Tickner, Aware Super

“That kicked off in June last year, so that’s about $18 million in saved fees for our retirement account members. The retirement bonus was then launched in November last year, and already 8000 eligible members have received a retirement bonus, and that’s $17 million in tax benefits added to those income accounts.”

Tickner says a suite of digital tools developed by Aware is an example of innovation that directly enhances member decision-making.

“We’ve recently launched our Retirement Manager digital advice solution [to help] members at retirement to optimise their drawdown in retirement,” he says.

“It guides decisions around how much to draw, how long it’ll last, how they should be invested, and delivers a statement of advice at the end which they can go and implement.”

Complementing this is a “retirement ready” check-in service, which Tickner says has grown rapidly from about 134 sessions a month at launch to around 500 a month in the FY25, jumping to 1200 sessions in July this year.

The approach taken by Brighter Super has been “very much an iterative approach, really a journey of continuous improvement”, McSpadden says.

“The Retirement Income Report we co-sponsor with Investment Trends has delivered valuable insights into member needs and behaviours. The report has uncovered a lot of interesting findings,” McSpadden says.

“And on top of that, Brighter Super has developed a Retirement Income Strategy performance dashboard, which measures the success and effectiveness of our strategy. It also reflects several key areas that the regulator or the Treasury paper was talking about.

“It is interesting to see how we’re tracking. The dashboard not only provides a line in the sand about how we’ve gone over the last three years, but it starts to highlight what we need to focus on over the next three to five years.”

Technology features prominently in Team Super’s innovation, and Forman says the merger of TWUSUPER and Mine Super, which was completed in March this year, has created a foundation for developing better retirement solutions.

“The merger created a scale step-change for us that has meant we can contemplate more retirement solutions.”
– Sarah Forman, Team Super

“The merger created a scale step-change for us that has meant we can contemplate more retirement solutions, with the potential to distribute services at greater scale,” Forman says.

She says having the right technology stack means Team can be focus on “sustainable growth and scale without compromising our core service proposition”.

“We’re working with a tech provider on the advice software we use, initially with our financial advisers,” she says. “The goal is to increase he throughput and productivity of our own advice teams so they can see and support more of our members with the right conversations even more efficiently.”