Skip to main content

Executive Director, Superannuation Division, Suzanne Smith - remarks to the 29th Annual Colloquium of Pensions and Retirement Research

The Retirement Income Covenant – Opportunities for Policymakers, Trustees and Members


Thank you for the opportunity to speak to you today in this Colloquium on behalf of APRA.  We are very supportive of, and draw great insight from, the work of CEPAR in this and other related topics.

In considering the retirement income covenant from the perspective of the prudential regulator and, indeed, other regulatory perspectives, I was asked to talk about regulatory issues and challenges.

Depending on your mindset, issues and challenges can connote problems and hurdles to be overcome. However, when APRA considers the retirement income covenant, we see beyond this to the opportunities. Opportunities for:

  • policymakers and regulators to make meaningful headway into a wicked industry and societal challenge in terms of efficient consumption of retirement savings by Australians;
  • trustees to best serve the needs of their members as they reach retirement and to innovate and add value through their offerings; and
  • members to improve quality of life in the various phases of their retirement, to understand and better manage their income needs and risks in old age.

In the hurly burly of implementation of proposed new legislation, these opportunities can be easy to miss. But forums such as this provide the chance to step back and reflect upon what a unique opportunity we have now to improve the lives of millions of Australians in retirement.

So on that note, let me run through how APRA views the opportunities, and how we’re working with peer agencies to assist the superannuation industry in harnessing these.

What is APRA doing?


Public submissions by industry participants and stakeholders to Treasury as part of its consultation around the proposed covenant emphasised an appetite for guidance from APRA in a range of areas, from matters that could reasonably be interpreted as clarification of points of law, through to insights into supervisory expectations.

Firstly, let me make clear that APRA will not issue guidance that would seek to clarify the intent of the law. The Explanatory Memoranda accompanying legislation is the appropriate place to seek this information.

APRA does, however, see beneficial opportunity to outline its expectations of trustees at commencement of the proposed new covenant, which will assist trustees in meeting their obligations.  

APRA therefore intends to communicate with trustees once legislation has passed, outlining our views on pathways to implementation. We will wait for the legislative process to run its course, so we can focus on potential changes to APRA’s prudential framework that target the issues that matter. 

APRA also sees an opportunity for trustees to show leadership in driving the direction of strategic and product innovation. We see an opportunity for industry participants to observe, learn from and compete with each other in this space. And we see great opportunity in regulators taking a measured approach to evolving regulatory expectations in the initial stage of industry implementation and iteration.

In time, trustees can expect APRA to consult upon adjustments to existing and the introduction of new prudential standards and guidance in support of the proposed covenant, having observed evolving practices and evaluated necessary standards.

Trustees can expect APRA’s laser focus on robust governance, clear measurement of outcomes and the core tenet of members’ best financial interests to be themes that run through our policy-setting and supervisory approach.

To be able to measure outcomes in the post retirement space, APRA will first need meaningful data on retirement offerings. An area of focus, therefore, will be on ensuring that we have appropriate data on retirement offerings, which will be targeted in phase 2 of our super data transformation project. 

What does APRA expect of trustees?


The proposed addition of a new retirement income covenant, to be added to the existing covenants in the Superannuation Industry (Supervision) Act 1993 (SIS Act) is a significant milestone for the industry. This change will require trustees to innovate in support of improving retirement outcomes for individuals, and to provide superannuation members with more financial confidence in retirement.

Stepping back and looking at the opportunities for trustees, the proposed covenant seeks to address concerns that members struggle to develop effective retirement strategies on their own and, in the absence of a strategy, take benefits as a lump sum or, where income streams are selected, favour account-based pensions drawn down at minimum levels.  

Set in this relief, the introduction of the proposed covenant provides trustees with an opportunity to take a quantum leap in making a difference to the quality of life of their members in retirement.  

As a trustee director, if this type of change doesn’t inspire and excite you, you are likely to be in the wrong game.

From a commercial standpoint, as my colleague Helen Rowell outlined to attendees at the Australian Financial Review Super and Wealth Summit earlier this month, this is a space that is ripe for good innovation by those organisations with the acumen – and possibly courage – to grasp the opportunity.

As with any opportunity, I agree with Helen that this one is not risk-free. In seeking to meet rising demand for retirement income products, it is critical that the challenge to innovate is undertaken in a thoughtful and considered way, without creating the legacy issues we have seen in the past. We also do not want to see a proliferation of high cost, poorly performing new retirement products, as seen in the choice sector of the superannuation industry, where consumers are bamboozled by having too many (often not very different) products to choose between.

Over the coming months, in support of the implementation of the proposed covenant, it is likely that trustees will start to formulate a retirement income strategy in anticipation of the covenant becoming law. We think this will have trustees asking themselves questions about what membership data they have and need, how their product governance could be invigorated and whether the Business Performance Review conducted as part of SPS 515 has revealed opportunities for improved retirement outcomes.  

Trustees have all of the tools needed to make this work. The challenge is to take the first step and then iterate from there.

Before taking that step, however, APRA does expect that it will be necessary for trustees to give careful consideration to whether they have in place the resources (be those human, technical and financial) needed to implement and then continue to evolve a retirement income strategy and take necessary steps to access those resources.

Taking up the theme of APRA’s Margaret Cole’s challenge to the Fund Executives Association at its Members’ Discussion Forum last week, this evolution will also require trustees to consider whether their boards have the right mix of skills and capabilities, to ensure their entities are at the forefront of good practice – not waiting to be cajoled by regulators.

Consistent with the theme of many of APRA’s public messages in recent times and, frankly, our private conversations with certain trustees, the outcome of that careful consideration – for some trustees – will be that this milestone is a jumping-off point for their fund and its members, acting in their best financial interests. If your board, or a board that you are advising, is gulping at the work involved in meeting the proposed new covenant, APRA expects you to do the right thing by members now, rather than waiting.

How is APRA working with other agencies?


I mentioned earlier linkages between the proposed covenant, the business performance review and the design and distribution obligations. You can infer that there is a close linkage between APRA and the Australian Securities and Investments Commission (ASIC) in terms of the implementation of the proposed covenant, which also runs to matters such as our agencies’ interactions with the provision of quality financial advice and member-centric tools such as retirement calculators.

APRA and ASIC are also closely collaborating with Treasury and the Australian Tax Office on both the regulatory framework aspect of this set of reforms, and – importantly – in terms of new product innovation, sandboxes and regulatory approvals. The clear message from us is that we expect to see innovation and we are open for business in considering well thought-through, risk-aware products and concepts that will better serve members in retirement.

With that invitation to innovate, I will pass back to the moderator and I welcome your questions.

Media enquiries

Contact APRA Media Unit, on +61 2 9210 3636

All other enquiries

For more information contact APRA on 1300 558 849.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, mutuals, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding around $9 trillion in assets for Australian depositors, policyholders and superannuation fund members.