2022 The year of the Retirement Income Covenant

The year of the Retirement Income Covenant

Superannuation funds are getting larger, the operating environment is more complex, and there is heightened scrutiny from government, regulators, competitors and customers on fund performance and member outcomes.” APRA Deputy Chair Margaret Cole – Opening remarks to the AIST Chairs Forum

This year we celebrated 30 years of the Super Guarantee (SG) regime that introduced compulsory superannuation contributions in Australia. Over this time, Australia’s retirement savings have increased from around $146 billion in 1992, to $3.3 trillion by the end of September 2022 (APRA Quarterly superannuation performance statistics, September 2022).

The retirement savings segment of the superannuation system is in good health, and was further improved during 2022 by:

  • increasing the SG rate from 10% to 10.5%; and
  • removing the $450 per month eligibility threshold for paying SG.

Despite these positive steps there is still work to be done on extending or improving coverage for several disadvantaged groups, including women, indigenous Australians, and self-employed or casual workers.

From saving for retirement to funding retirement

When Optimum Pensions asked industry experts, “What is the biggest challenge that still lies ahead for superannuation“. There was a common theme stressing the need to help Australians with their retirement funding.

This theme has finally been recognised on all levels of the industry this year. Acknowledging that the superannuation system has not adequately addressed the needs of retired members and members approaching retirement, the Government introduced the Retirement Income Covenant that commenced on 1 July 2022. The central requirement is for trustees to develop a retirement income strategy for this segment of members.

The importance of developing strategies to help this segment is evident when you consider that on 30 June 2022, over a quarter of all accounts belong to members 55 years and over. Further, these accounts make up 54% of all assets. (from the APRA Annual fund-level superannuation statistics for 2022 that cover APRA-regulated superannuation funds with more than four members released in mid-December.) See the chart below.


New retirement income products

The choice of a retirement income product is no longer a binary choice between an account-based drawdown product and a guaranteed lifetime annuity. In 2022, Generation Life and AMP launched investment-linked annuities: Generation Life Lifeincome and MyNorth Lifetime, respectively. These products allow the retiree to purchase a lifetime income with the amount each year based on the financial performance of the underlying assets.

Generation Life’s product was developed in partnership with Optimum Pensions based on our Real Lifetime Pension blueprint.

Retirement_Income_ProductsBoth these products are available through financial advisors. We regularly hear that a barrier to superannuation funds offering a broader range of retirement income products is the challenge of guiding members to an appropriate product mix.

The number of financial advisors is still falling dramatically. It is now below 16,000, down from around 25,000 only a few years ago (Source: Adviser Ratings). The industry is waiting for the report from the Quality of Advice review that the previous Government established to consider how to improve access to high-quality, affordable and accessible financial advice. It is due to be provided to the Government by 16 December 2022.

These products join QSuper’s Lifetime Pension and Challenger’s Liquid Lifetime as products that allow the retiree to purchase a lifetime income with the amount each year based on exposure to investment markets.

Looking ahead to 2023

There are a few items on the legislative agenda, including the Government’s response to the Quality of Advice review, the outcome of the Treasury’s review of the operation of the Your Future, Your Super laws and the renewed attempt to legislate an objective of superannuation – over six years since a bill was first, unsuccessfully introduced into Federal parliament.

On the retirement front, we look forward to funds continuing to implement their retirement income strategies and meeting the expectation of APRA and ASIC of embedding these strategies within existing business practices and frameworks.

On the product front, we continually hear that life insurance companies and superannuation funds are working on new lifetime income products. Given that only Generation Life and AMP have successfully done so, we assume organisations are finding product development and implementation somewhat challenging. We welcome calls from superannuation funds to discuss to share our experience and expertise. We have several options for superannuation funds looking to accelerate their product development.

And for us, the Optimum Pensions team will continue to work towards redesigning retirement and fulfilling David Orford’s goal of lifetime income streams available to all Australians. We are closer than ever before.

Happy New Year.


Optimum Pensions was launched in 2017 with a single mission – to help Australians lead a comfortable retirement. The Optimum Pensions innovative retirement income solutions are specifically developed to address longevity risk and provide greater peace of mind for all retirees; no matter how long they live.

The Optimum Pensions, award-winning LifeSpan Calculator builds confidence around personal life expectancy and retirees’ possible retirement planning horizon.

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