The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have issued a joint letter to all registrable superannuation entity (RSE) licensees on the implementation of the Retirement Income Covenant (RIC).
RSE licensees would be required to formulate a retirement income strategy by 1 July, 2022, following the Government’s introduction of the RIC through legislative amendments to the Superannuation Industry (Supervision) Act 1993.
“These legislative amendments are an important step in broadening industry focus beyond the accumulation phase to advance the decumulation, or retirement, phase of superannuation, and in encouraging RSE licensees to innovate to improve outcomes for their members in retirement,” the joint letter noted.
APRA and ASIC said they did not intend to issue detailed regulatory guidance on how RSE licensees should implement the RIC, instead time would be allowed for RSE licensees to drive their RIC strategic direction.
The regulators said there were several steps that a prudent RSE licensee would take to implement their RIC strategy outlined in the table below:
APRA and ASIC suggested RSE licensees embedded their RIC strategies in existing business planning and governance frameworks, risk management practices and controls, as well as by assessing the adequacy of resources to support the retirement phase.
“There may also be opportunities for RSE licensees to use their retirement income strategy to assist meeting other obligations, including the Design and Distribution Obligations,” they said.
Although the RIC did not require RSE licensees to develop or offer retirement income products, APRA and ASIC expected RSE licensees to consider making changes to any existing retirement income product offerings.
“A retirement income strategy may also include providing a range of assistance to members, such as developing specific drawdown patterns, providing budgeting tools or expenditure calculators, providing factual information about key retirement topics, and providing forecasts to beneficiaries during the accumulation phase about potential income in retirement,” the regulators said.
APRA’s consultation on how the RIC could be integrated into the superannuation prudential framework was expected to commence later this year.
