Deputy Chair Margaret Cole - Remarks to the FSC Innovation in Retirement conference

It’s a pleasure to be here and to have this opportunity to discuss APRA’s priorities for superannuation as the industry transitions to the retirement phase.

This is one of my first public speaking engagements since the announcement of my decision to leave APRA by the end of my term in June next year. It has been, and continues to be, a privilege to oversee the industry at such a critical stage of its history.

The superannuation industry is in a state of change driven by three powerful forces.

The first, and the basis of many discussions at this forum today, is the ageing of the population and the implications that has for trustees and their members.

Treasury has previously estimated that around 2.5 million Australians will transition from the accumulation phase to the retirement phase in this decade.

How trustees respond to the challenge of supporting a sharply higher number of members in retirement will be a true test of the system.

The second is the continued strong growth in superannuation assets. The system now has $4.3 trillion in assets, of which $3 trillion are held in APRA-regulated funds.

That makes it the fourth largest pension system in the world behind that of the US, Canada and the UK, and, by some estimates, is on track to become the second largest by 2040. The expanding asset pool adds complexity for trustees in how they manage, invest, spend and safeguard their members’ monies.

The third force is superannuation’s increasing significance to the broader financial system. The potential risks to financial stability arising from the increased interconnectedness of banking and superannuation are important to understand. We expect to publish the early findings from APRA’s inaugural system stress test, which evaluated those risks, later this year.

When you factor in geopolitical instability, the rise in cyberattacks and fraud, as well as the growth in artificial intelligence, trustees have an extremely complex and fast-evolving operating environment to navigate.

Before I delve into the detail of APRA’s priorities for super, it’s worth reflecting: where did this large complex system, which has become so important to the financial wellbeing of Australians in retirement, first begin?

The introduction of the superannuation guarantee in 1992 was critical to the creation and rapid expansion of the universal compulsory superannuation system that we have today. However, the first employer-funded pension scheme came into being a full century and a half earlier.

In 1842 the local directors of the fledging Australasian Bank wanted to find a way to retain their bank officers. So, they came up with the idea – and their UK-based proprietors agreed – to launch a bank-funded pension scheme.

The scheme was formally approved at an annual meeting held in London in June of that year, with the first report of the meeting hitting the headlines of the Sydney Morning Herald¹  some four months later, such being the pace of international news at the time.

To quote from the Herald article dated 8th of October 1842:

“It appeared to the directors that the most effectual way of retaining the services of their officers would be to create a fund out of which pensions should be granted to those who, from age or length of meritorious service, or physical incapacity, might establish a claim to such a provision.”

But it is what follows that I found of particular interest. The meeting report goes on to say – and, again, I quote:

“It will be some years before a claim can arise to form a charge on this fund, and when that period approaches the directors will be prepared with a digested plan for its application.”

In case of doubt let me assure you such a “we’ll worry about it later” approach would not hold much water with APRA today.

Nor would it align with the spirit of the Retirement Income Covenant, which is central to one of APRA’s core strategic objectives: improved outcomes for superannuation members.

The Retirement Income Covenant – a case for urgency

The introduction of the Retirement Income Covenant more than three years ago represented a major nudge for the super industry.  

While the accumulation phase of superannuation continued to require trustees’ strong focus, it was critical that the industry should pay greater attention to supporting the needs of members in or approaching retirement.

A core obligation under the covenant is for trustees to develop and implement retirement income strategies. But a year after the covenant came into effect, an APRA and ASIC joint thematic review identified a lack of urgency by trustees to meet their obligations.

While we have seen progress and improvements since then, there is a clear and growing gap between trustees who are meeting baseline expectations and those who have embraced retirement as a strategic and competitive imperative.

The case for having robust retirement income strategies is pressing. Our data shows that one in five funds have more than half of their members in or approaching retirement. However, over the next 20 years, this is expected to rise to around two in five funds.

The initial thematic review was followed by an APRA-ASIC pulse check survey last year, which explored the progress trustees were making to implement the recommendations arising from the review.

Yet again, we were concerned to find a lack of progress, this time in the tracking and measuring the success of retirement income strategies, despite this being a core recommendation.

Our latest joint pulse check was conducted earlier this year. How much progress has been made, and where there is still room for improvement, will be outlined in the survey findings, due for release next month.

Meeting members needs

Understanding the needs of members, and tailoring support to help them balance the objectives of maximising income, managing risks, and flexible access, lies at the heart of the covenant. This includes providing access to quality information to support member decision-making at the point of retirement.

While some funds are doing a good job at this, we believe there are still many members who could benefit from greater access to easy-to-understand information about the products, services and choices available to them.

Our data suggests that large numbers of retirement-age members remain in accumulation phase products paying tax where, depending on their personal circumstances, they are likely to be better off in the tax-free retirement phase. For example, $99 billion of assets in MySuper accounts are held in the accounts of members aged 65 or over.

In terms of products, APRA is doing its part to support greater product innovation in meeting the specific and various needs of members.

APRA recently consulted with the life insurance industry on proposals to reduce capital requirements for insurers offering annuity products. APRA’s aim is to lower the cost to life insurers of providing annuity products, helping to attract participants and support growth in the market, so that more members can consider this type of product where suitable for their individual circumstances. APRA will commence a second consultation on these reforms shortly and aims to finalise the proposed changes in the first half of next year.

The bigger picture

The oncoming wave of members entering retirement will bring a substantial increase in assets in the retirement phase of super. Our latest estimates are that assets in retirement products will swell from $575 billion to around $3 trillion in 20 years’ time.

Trustees will need to be prepared to manage the significant risk that this represents: Cyber risk, operational risk, investment risk, liquidity risk immediately spring to mind.

The credential stuffing cyberattacks that targeted individual superannuation members at several different funds earlier year were contained. But their occurrence exposed persistent weaknesses in authentication practices across the industry. They also indicated that the super system was in the sights of threat actors.

Unlike members in the accumulation phase, those in retirement can access their super savings which increases their vulnerability to cyberattacks, scams and fraud. A continuing priority for APRA is to ensure that regulated entities have robust information controls in place, including – but not limited to - multi factor authentication for member accounts.

For me, the urgency for planning and action on cyber protections was further emphasised this week by the Australian Signals Directorate. As reported in the media, the directorate has warned that developments in quantum computing could break the encryption used to protect passwords within five years. It’s a sobering thought.

Given the growing reliance on third parties, rapid technological advancements and geopolitical uncertainty, effective implementation of APRA’s operational risk management standard CPS 230 – particularly those requirements relating to oversight of material service providers – is critical to maintaining financial safety and stability. We will continue to engage with trustees to ensure they are meeting their new obligations.

With more assets to invest, trustees are increasingly looking to overseas investment options as well as private unlisted assets to drive returns for members. Increased overseas deployment heightens, among other things, currency risk and increased investment in unlisted assets raises questions about the management of liquidity risk and fair valuation.

Transparency

Greater industry transparency will further improve outcomes for members. APRA is committed to increasing transparency of retirement product performance and the industry’s progress in implementing the Retirement Income Covenant.

We now publish fund-level data on retirement product investment returns and investment strategies. APRA will integrate this data into our Comprehensive Product Performance Package from the second half of 2025-26. This will provide a more comprehensive view of product performance across the superannuation sector.

APRA is also working with Treasury to design a new reporting framework on retirement outcomes, which will commence in 2027. This initiative will enable monitoring of the outcomes delivered to members in retirement in a consistent and transparent way. The next step with the Retirement Reporting Framework is for Government to confirm the scope of the framework, following the consultation undertaken by Treasury earlier this year.

Getting the balance right

Avid readers of APRA’s Corporate Plan² will be aware that we added a new strategic objective this year – Getting the Balance Right.  

This is about our need to balance our financial safety and stability objectives with competition and efficiency considerations.

Under that objective we are progressing nine actions to minimise regulatory burden.  

In addition to the reduction of capital requirements for annuity products which I mentioned earlier, the initiatives include introducing further proportionality, removing unnecessary or duplicative rules, and strengthening data sharing with other agencies.  

The world is watching

The push to improve financial outcomes for fund members in retirement is not unique to Australia.

Many jurisdictions around the world are focused on retirement funding for their own ageing populations.

But what does set our system apart from many others is the maturity of our compulsory defined contribution system which supports a constant flow of new capital into the superannuation system.  

The UK, which has previously relied to a greater extent in recent years on a defined benefit system, is transitioning towards a defined contributions model. The development of the UK’s Value for Money framework for defined contribution pension funds, has taken into account Australia’s approach and experience.

The strong interest in our system was also evident in my recent meetings with UK pension authorities and regulators and at last month’s International Organisation of Pension Regulators sessions.

Conclusion

In closing, Australia’s superannuation system is, in many respects, the envy of the world.

But we know it’s not perfect.

It introduces complexity at a time in members’ lives when they don’t want complexity.

To keep superannuation a world class system, trustees need to respond to the challenges arising from the three powerful drivers of change that are shaping the industry.

That means doing more to improve outcomes for members in retirement.

Doing more to build operational resilience as the system continues to expand.

And doing more to understand the systemic significance of superannuation, not just at a fund level, but in the context of the broader financial system.

Trustees must be equipped and capable to meet the challenges – both risks and opportunities lie ahead.

Thank you

Footnotes

^1. The Sydney Morning Herald Sat 8 October 1842 08 Oct 1842 - Trove

^2.APRA Corporate Plan 2025-26 | APRA