The Australian superannuation system stands at a pivotal juncture. After decades of focusing primarily on accumulation, the introduction of the Retirement Income Covenant in July 2022 marked a fundamental shift towards ensuring that superannuation delivers on its ultimate promise: providing secure, sustainable income throughout retirement. Now, as trustees prepare for their first mandatory triennial reviews starting in July 2025, they face a moment of truth that will determine whether their strategies truly serve members in retirement. 

Retirement: The Ultimate Purpose of Superannuation

The Retirement Income Covenant recognised what should have always been obvious—retirement is what superannuation should be all about. The system’s success shouldn’t be measured solely by how effectively it accumulates wealth during working years, but by how well it transforms those savings into sustainable lifetime income. 

Yet many trustees have struggled to embrace the covenant’s intent with the urgency it demands. 

Regulatory Reality Check: Progress Has Been Insufficient

The regulators have been less than impressed with the industry’s progress. In their July 2023 joint thematic review, APRA and ASIC delivered a sobering assessment. The review found that trustees were not giving sufficient urgency to developing and implementing effective Retirement Income Strategies. 

Even more concerning, the July 2024 pulse check revealed that many trustees still did not adequately measure the success of their RIS-related initiatives. This represents a fundamental flaw—how can trustees demonstrate their strategies are working if they cannot measure their effectiveness? 

The message from regulators is clear: good intentions are not enough. Trustees must demonstrate tangible outcomes and measurable improvements in how they assist members to achieve secure retirement income. 

The Mother of All Retirement Risks

At the heart of effective retirement income strategy lies longevity risk—what we at Optimum Pensions call “the mother of all retirement risks.” Longevity risk amplifies every other retirement challenge. The longer you live, the more exposed you are to investment volatility, inflation, health costs, spending shocks and so on. 

Longevity literacy is the foundation of retirement planning, yet longevity risk remains profoundly underestimated and underappreciated. In our article on the importance of longevity awareness, we reference a survey showing that Australians expect a 65-year-old male to have a life expectancy of just 82 years and a 65-year-old female 85 years. There is a 50% chance of that man living to 88 and the woman to 91! 

Understanding how long to plan for is a critical component often missing in retirement planning.  

As noted in the Retirement Income Review Final Report, retirees driven by fear of running out of money appear to be self-insuring against longevity risk by consuming only the minimum necessary to avoid depleting their savings. The result? Australians are living more frugally in retirement than necessary, undermining the very purpose of their superannuation savings. 

The Triennial Review: A Critical Assessment

The upcoming triennial reviews represent the first comprehensive test of how effectively trustees are addressing longevity risk within their retirement income strategies. Under APRA’s prudential standard SPS 515, trustees must assess whether their strategies are “appropriate, effective, and adequate”—a standard that demands evidence, not just good intentions. 

For longevity risk specifically, trustees must demonstrate: 

Strategic Alignment: How does their approach to longevity risk reflect their membership demographics and retirement preferences? 

Member Understanding: Are members “longevity literate“—do they understand how long they might live and the implications for their retirement planning? 

Risk Management: What specific tools, products, or strategies help members manage the uncertainty of not knowing how long they’ll need income? 

Outcome Measurement: What evidence exists that their approach is effectively helping members balance the competing objectives of maximising income, managing risks, and maintaining flexibility? 

The Lifetime Income Product Imperative

While trustees have flexibility in how they address longevity risk, the evidence increasingly points to lifetime income products as an essential component of comprehensive retirement income strategies. These products directly address the core longevity challenge by providing the guarantee of income for life, regardless of how long members live. They enable members to confidently draw down assets to fund their retirement by providing longevity risk protection. 

For trustees who don’t currently offer lifetime income products, the triennial review must honestly assess whether their alternative approaches adequately address longevity risk. This isn’t about regulatory box-ticking—it’s about whether they’re genuinely serving members who face the very real possibility of living into their 90s or beyond. 

For smaller funds or those with fewer older members, partnership arrangements with life insurance companies offer a practical pathway to provide access to these products without requiring internal development capabilities. 

A Triennial Review Checklist for Longevity Risk

As trustees prepare for their triennial reviews, they should examine their approach to longevity risk across these key dimensions: 

Member Understanding and Literacy

• Do our members understand their realistic life expectancy and the range of possible outcomes? 

• How do we help members move beyond “average” life expectancy to understand personal longevity risk? 

• What tools do we provide to help members assess their individual planning horizon? 

• Are we addressing the documented tendency for Australians to underestimate longevity? 

Strategic Response

• How specifically does our investment strategy address longevity risk throughout retirement? 

• What products or approaches do we offer to help members manage the uncertainty of not knowing how long they’ll live? 

• If we don’t offer lifetime income products, what evidence supports our position that alternative approaches are adequate? 

• How do we help members balance competing needs for income, flexibility, and longevity protection? 

Measurement and Outcomes

• What metrics do we use to assess whether our longevity risk management is effective? 

• How do we measure member confidence and comfort with their retirement income sustainability? 

• What evidence do we have about member spending patterns and whether they’re living more frugally than necessary due to longevity fears? 

• How do member outcomes compare between different approaches to longevity risk management? 

Communication and Engagement

• How effectively do we communicate longevity risk concepts to members? 

• What feedback mechanisms help us understand member needs and preferences regarding income security? 

• How do we support members in making informed decisions about longevity risk trade-offs? 

• Are our communications grounded in realistic life expectancy data rather than outdated assumptions? 

The Path Forward

The triennial review presents both a challenge and an opportunity. Trustees who approach it merely as a compliance exercise will likely find themselves facing continued regulatory scrutiny. Those who seize it as a chance to genuinely enhance member outcomes will be building stronger, more sustainable retirement income strategies. 

At Optimum Pensions, our vision is for all Australians to have access to lifetime income products because we believe they represent an essential tool for addressing longevity risk. But regardless of product approach, every trustee must grapple with the fundamental question: How are we helping our members achieve secure, sustainable retirement income for however long they live? 

The stakes couldn’t be higher. With millions of Australians approaching retirement, and longevity continuing to increase, the decisions trustees make during these triennial reviews will echo through decades of retirement outcomes. 

Call to Action

As you prepare for your triennial review, we urge you to: 

1. Explicitly address longevity risk in your retirement income strategy—don’t treat it as a secondary consideration 
2. Honestly assess whether your current approach adequately helps members manage the uncertainty of not knowing how long they’ll live 
3. Measure what matters—develop robust metrics for assessing your longevity risk management effectiveness 
4. Consider lifetime income products as a proven solution for providing longevity protection and member peace of mind 
5. Prioritise longevity literacy—help your members understand their realistic planning horizons and the implications for their retirement decisions 

The first triennial review is more than a regulatory requirement—it’s a defining moment for retirement income strategies. Make it count for your members, because ultimately, their retirement security depends on the choices you make today.