The size of the funds under management in Australia is close to $3 trillion. This money doesn’t belong the funds. It belongs to the members and it is important that their savings are protected. This means that there needs to be prudential oversight. APRA has developed Prudential Standards and Guidelines designed to focus Trustees on issues like governance, risk, investments, insurance etc.
By now, we are all aware that APRA is proposing changes to its prudential requirements to ensure superannuation funds be better positioned to deliver sound outcomes for fund members. This is an important step forward to make sure Trustees are focussed on achieving the best retirement outcomes for members.
One of the drivers for this is the significant shift in the demographic profile of superannuation funds as more members move into the retirement phase (see Figure 1).
This means that for an increasing proportion of members, their focus is shifting from questions such as:
- How can I improve the amount that I will have when I retire?
to questions such as:
- How much income will I have when I retire and how long will this last?
The delivery of quality outcomes for superannuation fund members must include helping convert balances at retirement into suitable income streams, including providing protection against longevity and other risks. Members in retirement will have a range of needs, preferences and risks. This will require Trustees to have a range of solutions available for their members as part of their delivery of sound outcomes.
As part of APRA’s consultation process, Optimum Pensions has recommended that it is essential that retirement outcomes must be an integral part of the standard. While measures of investment and administration costs and investment returns are important, the ultimate outcome is what lifetime income can be provided for members when they retire.
Retirement is not for 10 or 15 years; it is for life and Trustees need to consider this when developing their strategies in consideration of member outcomes.