'Voluntary' principles are likely to reflect regulators' expectations 14 min read
Treasury recently published the Guidance on best practice principles for superannuation retirement income solutions consultation paper (the Consultation Paper), setting out and seeking feedback on proposed voluntary 'best practice principles' to help superannuation trustees provide high-quality retirement income solutions for members.
On the same day, 7 August 2025, Treasury published a consultation paper about the Retirement Reporting Framework that was foreshadowed in the Government's November 2024 response to the previous 'superannuation in retirement' consultation. Unlike the best practice principles, the framework would be mandatory, requiring superannuation trustees to report information to the Australian Prudential Authority (APRA).
Treasury is seeking feedback on the proposed best practice principles in the Consultation Paper until 18 September 2025, and on the Retirement Reporting Framework until 5 September 2025.
In this Insight, we examine the consultation papers and what they could mean for superannuation trustees seeking to stay compliant.
Key takeaways
- The best practice principles will be 'voluntary', and are not intended to vary existing or impose new obligations. However, we think compliance may be a factor APRA and the Australian Securities and Investments Commission (ASIC) could take into account when assessing if a trustee has complied with the retirement income covenant—and where trustees decide not to implement a principle, the guidance says 'they should be able to justify this decision to their members'.
- The best practice principles likely to have the biggest impact on trustees (to the extent their current approach differs) are to:
- develop at least three 'cohorts' that reflect the composition of the membership at or approaching retirement;
- construct a separate 'trustee-designed retirement income solution' for each identified cohort;
- provide members with access to a lifetime income product that is not the Age Pension in at least one of the solutions (in addition to an account-based pension and lump sums); and
- engage with members by providing income forecasts and projections, information about trustee-designed retirement solutions, and access to financial advice services 'that reflect the composition and preferences of its membership'.
- The Retirement Reporting Framework would require reporting by trustees to APRA across a range of metrics, some of which are closely tied to the best practice principles, so APRA would have visibility of trustee compliance.
Background—the retirement income covenant
Trustees of regulated superannuation funds have obligations (the retirement income covenant) to:1
- formulate and give effect to a retirement income strategy that:
- is for the benefit of beneficiaries who are retired or approaching retirement;
- addresses how the trustee will assist those beneficiaries to achieve and balance the objectives of maximising expected income over retirement, manage longevity, investment, inflation and other risks, and having flexible access to funds during retirement; and
- defines, for the purposes of the strategy, retirement income, which must include after-tax income from superannuation and social security, the class (and any sub-classes) of beneficiaries who are approaching retirement and the period of retirement;
- take reasonable steps to gather information necessary to formulate and review the retirement income strategy;
- record in writing the retirement income strategy, and the determinations and decisions underlying it; and
- make available on its website a summary of the retirement income strategy.
The retirement income covenant took effect in 2022. Superannuation trustees are required to ensure that their retirement income strategy is subject to review of its appropriateness, effectiveness and adequacy at least every three years,2 as part of general continuous improvement expectation.3
Proposed best practice principles
The Consultation Paper proposes the following 'best practice principles', grouped by the following broad themes. We give our comments on the principles after each group.
The principles will be voluntary, but given Treasury's focus on them, there is likely to be a practical expectation of compliance, and adherence may provide some protection in the event of regulatory attention.
The draft guidance on the principles says that they are 'intended to complement trustee obligations, and articulate steps and actions that a trustee could take in satisfying existing legal obligations. They do not replace, override or vary trustee obligations under existing law'.
Many trustees have developed retirement income strategies to comply with the covenant that do not meet at least some of the proposed standards. If trustees will be expected to comply with all of the standards, this is likely to involve significant costs and time, to develop cohorts and solutions in line with the principles. Whether this is in the best financial interests of members, having regard to the likely impact and relevance of the changes for them, will be a relevant consideration for trustees in deciding how to address the principles.
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1. Undertake regular research to ensure an up-to-date understanding of the composition of the membership base and how member characteristics, engagement preferences and retirement income needs are changing over time. 2. Regularly use data and behavioural research to inform the design of information, engagement strategies and guidance services. 3. Improve understanding of the membership base by: a. identifying members who are at or approaching retirement; b. gathering information on characteristics relevant to its members’ retirement income needs, including in the lead up to retirement; and c. asking members about their engagement preferences, including in the lead up to retirement. 4. For the purpose of the principles, develop at least three cohorts that reflect the composition of the membership at or approaching retirement: a. basing cohorts on information gathered and held by the trustee; and b. using characteristics relevant to the development of trustee-designed retirement income solutions to develop cohorts, such as account balance and age. |
These principles are relevant to the trustee's obligations under the retirement income covenant to take reasonable steps to gather the information necessary to formulate and review the retirement income strategy, and to determine the classes of beneficiaries who are retired or approaching retirement for the purposes of that strategy. They potentially provide some guidance as to what regulators would consider to be 'reasonable steps'.
Cohorts are defined as 'classification of members in a superannuation fund who have similar characteristics and retirement income requirements, such as account balance and age'. No explanation is given why a minimum of three 'cohorts' has been chosen or what characteristics each of the three is broadly intended to cover.
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5. Provide members with access to: a. a lifetime income product that is not the Age Pension; b. an account-based pension; and c. lump sums. 6. Design product settings that allow for the construction of retirement income solutions that meet members’ retirement income needs, including: a. lifetime income product settings that have regard to member preferences around expected risk and return, such as managing longevity or investment risk; b. account-based pension product settings that help to manage expected risks, such as sequencing, market and inflation risks; and c. trustee-designed drawdown pathways for account-based pensions that more efficiently convert superannuation balances into income than the legislated minimum drawdown rates. 7. Allow all members that meet a relevant condition of release access to a retirement income solution that includes an account-based pension component, irrespective of account balance. 8. Ensure products and product settings can be used to construct both trustee-designed retirement income solutions and allow members to tailor their own retirement income solution. |
These principles are directed at the requirement for a trustee's retirement income strategy to maximise expected retirement income, and to manage risks to the sustainability and stability of retirement income, including longevity risk, investment risk, inflation risk and sequencing risk. They reflect an intention that trustees offer a broader range of retirement income products than merely lump sums and account-based pensions.
The express reference to lifetime income products seems to reflect a desire by the Government to encourage superannuation trustees to offer annuity products that shift longevity risk away from members (and from the Government via the Age Pension). While some trustees make available lifetime annuity products to their members, these products remain relatively unpopular, and so, many trustees have not included them as part of their retirement income strategy. There are costs and risks with offering these products to members, and trustees may have formed the view that longevity risk is addressed through investment selection and the Age Pension, as well as the ability for members to buy these products from external providers. The expectation that all trustees will offer lifetime income products would be a significant change to the way trustees currently operate.
The express reference to trustee-designed pathways and solutions reflects an expectation that, in discharging their retirement income covenant obligations, trustees will take a more proactive role in designing 'solutions' for members, potentially comprising a combination of multiple products to draw down their accumulated savings in retirement, rather than leaving the choice and mix of products to the member to select on their own or with the assistance of a financial adviser.
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9. Construct a separate trustee-designed retirement income solution for each identified cohort, that balance members’ need to maximise expected retirement income, manage expected risks, and maintain flexible access to capital. These should include: a. a lifetime income product component in at least one retirement income solution, that has regard to likely Age Pension eligibility; b. for most solutions, a drawdown pathway that is higher than the legislated minimum drawdown rate; and c. where a solution includes a lifetime income product, trustee-designed drawdown pathways for the account-based pension component that reflect the stability of income delivered through the lifetime income product. 10. Ensure each trustee-designed retirement income solution is broadly calibrated to the financial characteristics of a retiree cohort. 11. Design guidance services that assist members to understand and select the components of their retirement income solution, such as through personas or assisted choice tools. |
These principles complement the immediately preceding principles regarding the design of retirement income solutions, and reinforce the expectation that trustees offer a greater range of retirement income products, including annuities and annuity-like products. They reflect an expectation that the trustee's retirement income products will be designed to be appropriate for the specific cohorts that the trustee has identified (which trustees will already have to do under the design and distribution obligations).
They also reflect an intention that members make greater use of their superannuation to draw higher incomes in retirement, rather than merely drawing an account-based pension at the minimum drawdown rate. The expectation that most solutions will include 'a drawdown pathway that is higher than the legislated minimum' is unclear in terms of whether trustees would be expected to provide a higher drawdown rate by default or merely encourage members to take up a higher drawdown rate. The Consultation Paper refers negatively to a high prevalence of retirees drawing account-based pensions at the minimum drawdown rate and dying with their superannuation balance largely unchanged in the five years immediately preceding their death. However, it is unclear from the evidence cited whether this reflects a detrimental outcome from the perspective of members, or is the result of member preference and choice.
As mentioned earlier, trustees are expected to assist members in understanding and choosing between retirement income solutions, rather than merely presenting them with a menu of products to choose from.
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12. Support all members to understand their retirement income needs by providing forecasts or projections of income in both annual and pay-cycle terms, including through: a. annual member statements; and b. budgeting tools or expenditure calculators. 13. Foster member engagement during the accumulation phase by providing information and tools that can help members prepare for and understand their retirement income needs, including on: a. moving into the retirement phase of superannuation; b. classes of retirement products and drawdown pathways; c. guidance services offered by the trustee; and d. government resources on retirement related topics, including information on non-superannuation sources of income in retirement such as the Age Pension and access to home equity. 14. Engage with members approaching retirement, to: a. provide them with information that is relevant to their cohort; b. provide information on trustee-designed retirement income solutions and a description of the financial characteristics used to inform each solution; c. inform them of how to access information on all retirement products offered by the fund; and d. encourage further engagement with information and guidance services to help inform members’ choice of retirement income solutions and better facilitate individual tailoring of retirement income solutions. 15. Provide access to financial advice services that reflect the composition and preferences of the fund's membership. 16. Include members that receive personal financial advice in the trustee's engagement with members approaching retirement, including information on trustee-designed solutions and retirement products. 17. Notify members who have withdrawn the minimum drawdown rate amount for three consecutive years about their ability to draw down at a higher rate. |
These principles spell out in more detail the assistance that trustees are expected to provide to members to choose between the various retirement income solutions that are made available to them. Trustees would be expected to provide or make available a greater range of resources to assist members in making such choices, including calculators, information and financial product advice; and to engage more proactively with members who are nearing retirement.
These principles are intended to complement the second tranche of the Delivering Better Financial Outcomes reforms to financial product advice, if and when those reforms are enacted, including the facilitation of targeted superannuation prompts (nudges) and clarification of when trustees may collectively charge advice costs. However, the proposed prohibition on prompts providing advice about particular products offered through the fund will be a significant impediment to informing members about the 'trustee-designed retirement income solutions', which will comprise specific products offered by the trustee.
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18. Assess the effectiveness of its trustee-designed retirement income solutions in meeting the needs of its cohorts and consider relevant data on measurable outcomes, usage, engagement and member behaviour to improve the quality of the trustee's retirement income solution offerings. 19. Have regard to the changing needs of members approaching retirement (over the short and medium term) when assessing the ongoing settings of trustee-designed retirement income solutions. |
These principles reflect the regulatory expectation for a continuous improvement approach to a trustee's retirement income strategy, and would apply in the three-yearly retirement income strategy reviews required under SPS 515.
Retirement Reporting Framework
The proposed Retirement Reporting Framework would be mandatory, sit alongside the retirement income covenant and the best practice principles, and require superannuation trustees to provide data to APRA about metrics and indicators regarding trustees' retirement offerings and their members' retirement outcomes. The Framework will involve public reporting on fund offerings and member outcomes for individual trustees, as well as at an industry level.
The framework will not be a performance test and there will be no legal consequences associated with any level of 'performance' indicated by the data reported to ASIC. However, some of the metrics are tied to the best practice principles, and data collected will necessarily give APRA insight into trustees' approach to implementing the principles and complying with the retirement income covenant obligations.
Proposed metrics for the Retirement Reporting Framework include:
- Indicators of fund offerings:
- whether the trustee provides options for drawdown of an account-based pension at a rate other than the minimum drawdown rate, and what those rates are;
- whether the trustee offers access to a longevity protection product;
- whether the trustee offers intrafund advice to members;
- whether the trustee offers comprehensive advice to members, or refers members to providers of comprehensive advice; and
- the number of unique users, as a percentage of members, accessing the trustee's guidance resources (disclosure documents, articles, calculators, etc.).
- Member outcomes metrics:
- the proportion of assets for members aged 65 and over invested in retirement products;
- median and average drawdown rates for members with account-based pensions, broken down by age;
- average account balance utilisation rate (ie proportion of account balance remaining at death, compared with start of transition to retirement) by cohort;
- proportion of members taking up longevity protection products;
- number of cohorts for whom the trustee has tailored retirement income solutions; and
- information sources that the trustee uses to determine its cohorts.
Once the Government has determined the metrics to be captured by the Retirement Reporting Framework, APRA will separately consult on the collection and publication of them.
What next for superannuation trustees?
With the retirement income covenant having been in effect for three years, superannuation trustees should consider the extent to which their retirement income strategy, and their practices in developing and updating it, are consistent with the principles proposed in the Best Practice Consultation Paper. If there are any principles that they believe are not practicable or desirable to comply with, superannuation trustees should make this known to Treasury. While compliance with the principles will, to the extent that they exceed the requirements under the retirement income covenant, in theory be voluntary for superannuation trustees, they will likely reflect regulators' practical expectations and the de facto industry norm.
Trustees should also consider the proposed Retirement Reporting Framework, what the trustee's reporting to APRA is likely to look like, and what implications might be drawn from this about the trustee's current compliance with the retirement income covenant.
Footnotes
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Superannuation Industry (Supervision) Act 1993 (Cth) ss 52(8A) and 52AA.
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APRA Prudential Standard SPS 515 Strategic Planning and Member Outcomes at [10].
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See eg APRA Prudential Practice Guide SPG 515 Strategic Planning and Member Outcomes at [73] and APRA letter to RSE licensees dated 7 March 2022.