A recently released report from the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA) reveals a massive gap in the support that retirees should now be receiving from their super fund – and what is actually being delivered. At one level this could be seen as one more bureaucratic report, but we believe this one matters a lot.
Today we explain what these two authorities found, why this is so important and what it means for Australian retirees. Even more importantly, we share what you can do if you, too, are experiencing this gap in your own retirement planning or management needs.
Why was it written?
On 1 July last year the Retirement Income Covenant became law. We covered this new legislation at the time, explaining that the purpose of the covenant was to require trustees of super funds to become more active in the explanation of decumulation to their members. They were also expected to take responsibility in guiding members during their retirement transition.
This need has become increasingly urgent. That’s because, since mandatory super was introduced in 1992, there has been an over-emphasis on the saving part (accumulation) and little thought about how to help people withdraw that money when they retire. We’ve now reached a ‘High Noon’ moment when, according to APRA Deputy Chair, Margaret Cole, an estimated three million baby boomers are projected to retire over the next 10 years. That’s 824 people every day! To say there is little support for these pre-retirees is an understatement. This is why the Retirement Income Covenant requires super funds to step up.
What did the report say?
The report (covering Financial Year 2022-23) examined the progress of 15 funds to check how they were implementing the requirements of the covenant. These funds collectively hold about half the accounts and benefits of members aged over 45. The top level findings noted a lack of progress and insufficient urgency from these funds in embracing the Retirement Income Covenant to improve their member’s retirement outcomes. That’s a fail. The report also offered examples of better practices which ASIC and APRA believe could be implemented. As well, it found gaps in different fund’s approaches and knowledge of member needs.
Where does this leave you?
1. Already retired?
If you are a pre-retiree or retiree you will most likely have money in superannuation. If you have commenced a retirement income stream from your super account, you are already in ‘decumulation’ mode. You may be happy with your current retirement income (which could be derived from your own savings, a full or part Age Pension, or a mix of both). You may have received advice from your fund and found it helpful. But you may also be ready to learn more about the rules of retirement income, particularly super, and if there are ways you can maximise your entitlements and income.
2. Retired but still in accumulation mode?
Maybe you have retired, but not yet moved your money to an Account-Based Pension or another type of income stream. This means that you are technically still in accumulation mode. You also have many super strategies at your disposal. And there are certain tax advantages you can unlock by careful management of your savings.
3. Not yet retired
Alternatively, you may still be in accumulation mode. Perhaps you are yet to reach Preservation Age, or maybe you are happy just to keep saving and working for the time being. Again, it is important to know what might be in store for you as there are financial decisions you are making now, that can and will have an effect on your future income.
Regardless of the status of your superannuation, there are two important things to remember.
Firstly, that super is never a set and forget process. At any stage, be it pre-retirement, at Preservation Age, Age Pension age, or beyond, there are many decisions you can make actively, based upon the correct information, for your own benefit. Or passively (often by default) to the detriment of your eventual income. Being on the front foot with your super is the greatest gift you can give yourself when it comes to your retirement income.
Let’s leave the summary of this report to APRA deputy chair Margaret Cole, who is stressing the need for more action:
‘Some trustees have made a good start, but overall there has been a lack of progress and insufficient urgency. As more members approach retirement, trustees must step up and deliver both well-considered strategies and action to support members in retirement.’
Are you up to date on your super balance and your fund’s performance over the past financial year? It’s a great first step to find this out and next to talk to your fund about your current investment settings or any other issues that may be causing concern.
If you feel you need to know more about superannuation, Retirement Essentials offers a tailored consultation with an experienced adviser so you can talk through the areas that you don’t fully understand. Or share any concerns or questions specific to your own situation.
And do you have any questions of a general nature, or comments on this report on how successfully super funds are currently supporting for retirees? We’d love to hear your thoughts.