AIST Policy News - 17 May 2018

AIST Policy News - 17 May 2018

Government moves on its retirement income framework

The Government has today released a retirement income covenant position paper as the first stage in the development of a comprehensive retirement income framework for super funds.

The covenant - to be added toSuperannuation Industry (Supervision) Act 1993 - will require trustees to develop a retirement income strategy and consider the retirement income needs of their members.

The new covenant will be supported by regulations that require trustees to offer what the Government has described as a ‘flagship’ comprehensive income product for retirement (CIPR) to members at retirement, subject to limited exceptions.

A CIPR is defined as providing:

  • constant income;
  • longevity protection;
  • some access to capital.

The Paper notes that a 100 per cent allocation to an account-based pension (ABP) alone does not meet the definition of a CIPR.  However, the requirement to offer a CIPR can be satisfied by a combination of an ABP and a deferred life annuity.

Clear exceptions for individuals for whom CIPRs are deemed unsuitable are if the person has a life-threatening or terminal illness or if they have less than $50,000 in super assets in a fund.  The paper also says that trustees may offer an alternate CIPR or another retirement income product to an individual or cohort through any form of personal financial advice. It also says trustees may choose not to offer a CIPR at all to an individual if the trustee has reliable information that a CIPR would not suit that person.

The covenant and supporting principles would apply to trustees of all types of funds except Australian eligible rollover funds (ERFs) and defined benefit (DB) schemes that offer a DB lifetime pension.

The Government proposes to legislate the covenant by 1 July 2019 but to delay commencement until 1 July 2020. It says this timing will allow the market for pooled lifetime income products to develop in response to the changes to the Age Pension means test arrangements announced as part of the 2018-19 Budget and for other elements of the framework to be settled.

Submissions on the proposed covenant principles are due by 15 June 2018. AIST member input into AIST’s submission should be directed to AIST’s head of advocacy, Ailsa Goodwin at

APRA releases findings of review of board governance practices

The Australian Prudential Regulation Authority (APRA) has urged super funds to examine whether their board has the optimum mix of skills, capabilities and experience needed to effectively carry out its responsibilities.

In a letter funds, APRA today outlined the findings of its thematic review into board governance practices in the industry. The review examined how well funds were meeting the requirements of Prudential Standard SPS 510 Governance.

The review covered 29 super funds of various types, sizes, ownership models and board structures, and focused on board composition, board appointment and renewal, and approaches to board performance assessments.

Based on the findings of the thematic review, APRA has issued a range of recommendations, including that funds should:

  • Consider the optimal composition of their boards;
  • Consider the extent to which the use of independent experts on committees signals a skills deficiency on the board;
  • Have sound board renewal and succession planning processes that strike an appropriate balance between ensuring continuity and bringing in diversity and fresh perspectives; and
  • Develop a robust and objective board assessment process that considers the performance of individual directors, as well as the board as a whole.

APRA has urged RSE licensee boards to review their existing governance arrangements against the practices outlined in the letter and address any identified areas for improvement.

AIST is developing a governance toolkit that will provide practical guidance on board assessment frameworks.

The AIST Governance Code and Code Guidance includes commentary on key matters outlined in APRA’s letter including board appointment, diversity, performance, renewal, skills matrix and professional development.