A confidential document circulated among super funds and industry bodies, and seen by InvestorDaily, outlines a set of voluntary best practice principles designed to ensure funds can keep pace with rising withdrawals.
The principles, building on current regulations, are divided into three key categories: deepening funds’ understanding of members’ needs, offering modern and fit-for-purpose retirement products, and providing clearer information to help members make informed decisions.
“The overall objective of the principles is to provide guidance on voluntary best practice beyond those requirements set out in the covenant and broader trustee obligations,” the document reads.
“The principles are not exhaustive, and trustees may wish to develop and offer retirement income solutions that extend on the principles to provide exemplar product and service offerings to their members. The principles do not replace or vary trustee obligations under existing law,” it continues.
The most contentious aspect of the proposed principles is the push for longevity protection under the second principle, titled Providing quality retirement income solutions.
Essentially, super funds are being encouraged to embed longevity protection into retirement income plans for members with average balances over $200,000, with tailored drawdown pathways to help maximise their account-based pension component.
“A longevity protection product provides the member with a regular income for a number of years (fixed term) or for the rest of their life (lifetime),” the document reads.
“Common features may include regular payments that increase in line with inflation or in line with financial performance from a pool of assets.”
The financial services industry views this as a reintroduction of annuity products and a move towards superannuation standardisation, which could reduce the level of choice for members.
Speaking on the proposal, Naz Randeria, managing director of Reliance Auditing, said: “The government effectively want to reintroduce an annuity product – a defined benefit at the end of the day. Feels like a Putin measure.”
Luke Howarth, the shadow assistant treasurer, also raised concerns that Labor’s proposal could strip Australians of their choice in retirement planning.
Responding to the document, he told InvestorDaily: “As far as I’m concerned, when it comes to superannuation and retirement age, it’s all about choice. The individual choice of Australians, they should be able to take their super as one lump sum if they want and spend it how they wish.
“Treasury officials, super funds and government shouldn’t legislate to lock in anything that doesn’t involve Australians having a choice in how they spend their own money.”
Neither the Super Members Council (SMC) nor the Association of Superannuation Funds of Australia (ASFA) were able to comment on the proposal on Thursday, given its confidential nature, but ASFA, which represents both retail and industry funds, confirmed it is involved in the consultations on behalf of its membership and said that consultations are ongoing.
“For many years over many governments there have been discussions on retirement income forms. ASFA believes that trustees are best placed to understand the needs of their member cohorts, but we welcome further consultation on the role that longevity products can play,” a spokesperson for the fund said.
The association pointed out that providing members with greater certainty through predictable income could result in lower income payments.
“There is a trade-off between certainty and amount – risk and reward,” the spokesperson added.
The SMC had previously spoken out against the government mandating the use of annuities for members or specific cohorts.
In a statement issued a year ago, the SMC said: “After a lifetime of building savings, people should be free to spend their money how they choose in retirement.
“The government should not mandate the use of annuities for members or cohorts of members. Trustees are best placed to create investment strategies for their members.”
The council, which represents the largest funds among its members, was unable to provide further comment on Thursday.
Remaining takeaways for funds
The government’s proposed principles, according to the confidential document, also encourage funds to create three distinct retiree cohorts – including at ages 50–55, 65, and 67 – tailoring income solutions to meet the unique needs of each group. The document emphasises that all members approaching or in retirement should be classified into cohorts, ensuring more personalised and effective retirement outcomes.
Moreover, funds are urged to boost clarity and support for members by, among other things, including retirement income estimates on member annual statements and allowing access to easy-to-use digital tools. The guidelines also push funds to link members to financial advisers where a member requires assistance beyond the scope of the fund’s intra-fund advice offering.
Ultimately, according to the document, the principles are intended to “complement trustee obligations, and articulate a voluntary higher standard beyond those obligations, to support industry progress towards a clear understanding of best practice”.
