Australia’s superannuation system is “woefully unprepared” to meet its Retirement Income Covenant obligations, says a former financial regulator.
For three decades now, the superannuation system has provided a solid foundation for Aussies to base their retirement on – for some at least. But a federal government inquiry in 2016-17 found the super system was inefficient and still left too many people inadequately prepared for retirement.
Which is where the Retirement Income Covenant (RIC) comes in. At its core, the RIC set out a binding requirement for funds to work with each of their members to formulate a comprehensive strategy that would ensure they had a plan for their retirement years.
Each plan is meant to be regularly reviewed and adjusted to ensure the member is on track to achieve their retirement goals.
But a joint report compiled by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) shows that most super fund trustees are not really on track to meet their RIC goals and need to “make more progress to enhance retirement outcomes”.
The report found that many super funds are falling short of their legal obligations under the covenant.
This news comes as no surprise to former ASIC commissioner Danielle Press. In an interview with Investment Magazine, she says the super industry did not adequately prepare for the introduction of the new rules, despite having a long time to do so.
“One of the things that is very obvious is that the industry is not prepared for this [the RIC] coming down the pipeline, despite the fact that we have known for decades that this is going to happen,” she said.
“I don’t think we’re prepared for it as an industry. I think the joint report from ASIC and APRA showed that.”
Why are funds falling short?
Ms Press notes that for super fund executives, managing competing pieces of super legislation can be tricky, yet the funds have the resources to develop quality retirement plans.
“There’s this this horrible pressure,” she said.
“And fund CEOs are under a huge amount of pressure to balance out the various different legislation and the various different implications of that.”
On top of legal requirements, competitive pressures mean these funds need to regularly produce solid returns as well.
“You need to keep performance high, you need to service your clients, but you need to keep your fees low,” Ms Press added.
“This is all very difficult stuff to navigate. But these are big businesses. And if they’re not big businesses, they need to probably become them, or they need to look back and say, ‘Well, hang on, no, we’re a small business, and we can deliver this because this is how we’re going to do it.’”
Has your super fund provided a personalised retirement plan for you? When was the last time you heard from your fund? Let us know in the comments section below.
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