We’re now one year on from the implementation of the Retirement Income Covenant, and the superannuation sector is still in the gun for its lack of action in improving member outcomes and customer service.
The covenant demands super funds develop a strategy to assist members transitioning to retirement, and is seen as a crucial move in supporting Australia’s retirees.
We still have not recovered from the mass exodus of financial advisers in the wake of the royal commission. Australian retirees want trusted advice. Super funds have a huge opportunity to bridge this gap, and yet most are dropping the ball with regard to retirees.
The recent joint review by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) also lambasted super funds for their lack of supportive strategies for members entering retirement.
Key points:
- A joint APRA and ASIC review has criticised super funds for their slow response to developing strategies for members transitioning to retirement.
- Regulators advocate for a shift in the super funds’ approach to accumulation and retirement phases.
- The landscape for super funds is evolving, with the need for enhanced customer service and better-tailored products for retirees.
The current raft of core retirement income strategies is letting down retirees say APRA and ASIC. The regulators want funds to meet the challenges head on. It may need a greater financial commitment. It may require IT and technical innovation. None of which, so far, is evident.
“Many funds have brought on board chief retirement officers and now offer rudimentary account-based pension products. However, it’s evident that only a few possess in-depth data on their members nearing retirement,” the review notes.
Super funds need to invest more in human resources and IT systems, to cater for an anticipated surge in queries from customers either nearing or already in retirement, and to drive product innovations to improve retirement income.
ASIC and APRA executives want super funds to change their collective mindset towards the transition to retirement and subsequent ‘decumulation’ phases.
Historically, funds prioritised attracting and managing contributions from members in the accumulation phase. The compulsory super system is now just over 30 years old. It was primarily designed to assist members in their retirement savings journey. Mission accomplished (so far).
Now regulators believe helping members who are transitioning to retirement should be given equal footing to retirement saving.
And they’re ready to enforce this stance through additional regulations.
The Retirement Income Covenant mandates funds to guide members from savings to retirement and to provide customer service on par with what consumers experience with banks and other enterprises.
Tailored advice
Financial services minister Stephen Jones wants super funds to offer more tailored advice to members. He has outlined proposals to make it easier for super funds to provide this advice to members.
The report mentions annuity-type products for retirees as a viable means of securing income. So far, their uptake has been minimal. There is also a trend of retirees not spending enough superannuation and, instead, provisioning for unforeseen future expenses – often unnecessarily.
Super funds have made strides towards improving retirement outcomes. But there is much to be done to help members move from accumulating retirement wealth into better management of their nest eggs once they retire.
The days of retirees simply depositing money into their super funds and letting it be are gone. The superannuation system may now officially be declared ‘mature’, but it’s time for the funds to grow up, too.
Are you happy with the way your fund has helped you move into the retirement phase? Do you think super funds could do more to improve member outcomes? If you’re not yet retired, what do you think your fund could do to help you?
Also read: Trustees need to improve retirement outcomes, review finds
I found the superannuation industry needs a good shaking up. The comparison of the super funds is a myth. How will a non-financial person understand the investment returns from 1 year to 10 years means to his/her nest eggs? The practical question is how much a retiring person needs to retire, $1m, $2m, or $3,m ? It all depends on one’s needs in retirement lifestyle. However, in my experience, the financial advisor never asks this question. Nor does he ask about your family background. One may be old but has a young family, for instant. When I first joined a superannuation fund when I was working. I was advised superannuation is the best strategy to invest in my retirement. If I chose the strategy right, my nest eggs will reach to a million dollar. Recently, I have been told my super balance will be worth at best $200k when I reach 90 years old in 13 years’ time. Did something go wrong with the super fund crystal ball?