How can funds fix their Retirement Income Covenant efforts?

Strong returns and low fees are no longer enough to ensure super funds are delivering for members. Funds must also guide members through one of the most complex retirement systems in the world so they can generate the income they need in retirement.

The provision of advice to members has emerged as a pivotal factor in ensuring financial security and wellbeing during retirement years.

In a joint thematic review, APRA and ASIC examined the implementation of the Retirement Income Covenant (RIC) by select registrable superannuation entity (RSE) licensees. The covenant, introduced in 2022, mandates strategies for assisting members in or nearing retirement. 

While it’s been just over a year since the RIC began, the challenge remains enormous – and one that ASIC and APRA say many funds are not yet meeting.

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The review assessed 15 RSE licensees overseeing 16 funds, covering about half of older members' accounts in APRA-regulated superannuation funds. Results indicate RSE licensees prioritised expanding retirement support, yet with variable quality. 

The report underscores a lack of urgency and progress in embracing the covenant's potential to enhance retirement outcomes.

The review’s recommendations stress addressing gaps promptly, with future enhancements to APRA's prudential framework based on findings.

The largest funds have millions of members, yet they must make greater strides to understand member needs, design fit-for-purpose assistance, and successfully implement these strategies, all while keeping costs down.

More data beyond super and better member segmentation

To help members reliably generate the retirement income they need requires a deep understanding of their financial position beyond their super savings. It’s the only way to generate the insights needed to develop member-centric retirement strategies.

A digital-first fund with an administration platform that integrates advice is best placed to prompt members for further information. This can include a holistic view of a member’s financial situation such as partner status and their partner’s super balance, whether they own a home and hold investments outside of super, as well as goal-oriented information such as retirement income expectations.

While technology can support funds to gather this data, some funds have been concerned they might be breaching intra-fund or personal advice regulations. 

More data is crucial because it leads to more accurate and relevant retirement advice to the member by considering the whole household, while still only providing advice on the member’s account. The average fund currently places its members in just three cohorts, raising the risk of inappropriate retirement strategies being offered to members.

Will general advice be enough?

There is a limit on how much heavy lifting general advice can do to help members maximise their retirement lifestyle. Yet full traditional personal advice delivered face-to-face can cost several thousand dollars – well out of the range of most members. 

The ASIC-APRA report outlined two case studies of funds using digital advice as a scalable way to help more members under the RIC. One was targeting members of a certain age with lower balances (who typically don’t seek advice) while the other was developing a product solution that prompts members to consider their retirement goals.

Another fund was exploring digital advice but was concerned about achieving consistency with the advice issued by in-person advisers. However, the technology exists to address such concerns by integrating member-directed digital advice journeys with adviser financial planning software and into the super fund registry, creating one view of the member and a seamless data flow through every member touchpoint.

This underpins consistent advice across multiple advice channels, as well as powering the fund’s straight through processing capabilities. This allows a member to easily implement the advice, allaying concerns that their personal circumstances may change before they have acted on it.

Digital advice set to close the gap

The rise of low-cost digital advice has yet to garner widespread media attention, yet more than 3.4 million Australians now have access to digital advice through their super funds, powered by Bravura’s Midwinter advice solution.

This advice covers classic intra-fund territory such as digital investment choice, super contributions, and information about when a member can afford to retire or whether they are on track to achieve their goals.

However, the scope of digital advice is set to grow further.

The RIC is pushing funds to offer more advice and guidance through omnichannel means while the Quality of Advice Review is set to clear a roadblock that can hold them back. While most funds offer some form of personal advice, new legislation is likely to allow members to also pay for more holistic retirement advice (rather than just intra-fund) from their super savings.

Funds who are setting themselves up now will be better placed to help guide, as well as retain, members around retirement. 

Advice shouldn’t just be for people who can afford to engage a professional adviser given Australia’s mandated super system.

As the review rightly points out, the challenge of meeting the requirements of the RIC remains substantial, with many funds falling short of the mark. 

Nevertheless, this challenge presents a unique opportunity for the superannuation industry to redefine its value proposition. By embracing the responsibility of offering comprehensive advice, super funds can not only enhance members' financial outcomes but also solidify their own role as trusted partners in securing a prosperous retirement. 

Super funds have done a great job helping Australians build a sizeable retirement nest egg, but now with the right tech, they are poised to help them turn that into sustainable retirement income that suits their unique needs.

Andrew Zietara is product manager for advice at Midwinter- a Bravura Solutions company.