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From their inception, SMSFs have always attracted more than their fair share of criticism. Now it’s an ageing membership that’s being used to restrict their numbers.
ASIC, APRA slam super funds for failing to help members plan for retirement
Regulators have lambasted superannuation funds for not doing enough to accommodate the needs of retirees, highlighting “a lack of progress and insufficient urgency” from registrable superannuation entity (RSE) licensees in “embracing” their legal obligation to help fund members plan for retirement.
In a combined report, the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA) said they expect all APRA-regulated funds to consider their findings and the better practice examples outlined, then “address, with urgency, the gaps in their approach”.
Since the Superannuation Industry (Supervision) Act was amended in 2022 to include a retirement income covenant, funds have been obliged to formulate a strategy to assist members “in or approaching retirement”.
In compiling the report, ASIC and APRA reviewed how 16 APRA-regulated funds covering about half the accounts and benefits of members aged 45 and above were implementing their new obligations under the covenant.
“Australians contribute to their superannuation for many years in anticipation of financial well-being in retirement,” ASIC Commissioner Danielle Press (pictured, right) said in announcing the report. “Helping fund members achieve good retirement outcomes is the core business for a super trustee, and the retirement income covenant offers a lot of flexibility for trustees to effectively support their members’ needs.”
The regulators observed that RSE licensees were successful in expanding the assistance and support available to members in or approaching retirement, yet there was “variability” in the approach taken. “Overall, there was a lack of progress and insufficient urgency from RSE licensees in embracing the retirement income covenant to improve members’ retirement outcomes,” the report stated.
“A further 3 million members will become eligible to draw from their super in the next 10 years,” APRA Deputy Chair Margaret Cole (pictured, left) noted. “As more members approach retirement, trustees must step up and deliver both well-considered strategies and action to support members in retirement.”
No concrete plans
Funds are failing their primary duty to conduct analysis of members’ retirement income needs, the regulators found, with most just referencing a fixed income target based on external data and research by the Australian Bureau of Statistics or a Household, Income and Labour Dynamics in Australia survey.
“Only a small number of RSE licensees analysed drawdown patterns of their retired members, or considered how members’ retirement income needs may correlate to their retirement income.”
Funds freely identified the data gaps they needed to fill to better understand member needs, the report noted – including the superannuation balance of partners, and financial assets outside of the fund – yet they aren’t proactively finding ways to address those gaps.
“We found that, despite 12 out of 15 RSE licensees explicitly acknowledging that they had data gaps, only four had concrete plans to address those gaps,” the report stated.
Some licensees were worried about extracting further information from members due to concern that they would be inadvertently giving financial advice, the report noted. The government has agreed to draft legislation this year as part of the Quality of Advice Review that will provide scope for funds to provide financial advice beyond superannuation which should allay these concerns, with financial services minister Steven Jones yesterday saying he’d do more than just “fiddle around the edges” of current provisions.
The majority of funds had adequately segmented members into sub-classes according to financial position and income needs, the report found, yet fared poorly in designing fit-for-purpose assistance for members.
Super funds are generally satisfying the requirement to inform their members about retirement income strategies, it noted, but need to get better at highlighting the important elements using tables and graphs.
The regulators urged funds to “think beyond as to what is possible” to glean information about member needs, and have a “strong framework” in place to drive implementation of retirement income strategy. Establishing management and governance structures will be key to satisfying obligations, the report stated, as will be integrating the strategy into the business planning process.
“Trustees must get the fundamentals right – their retirement income strategies must be designed with consumer needs in mind and be evidence-based,” Press said. “They need to be mindful that their members’ needs evolve over time and commit to continuously monitoring and improving their approach.”
*This article was first published in Investor Strategy News.
