This week, the Australian superannuation sector celebrated a wave of strong, often double-digit, end-of-financial-year returns, providing members with a significant boost to their retirement savings. However, this success in the accumulation phase was starkly contrasted by a sobering regulatory reality check on the decumulation side. Three years after the implementation of the Retirement Income Covenant (RIC), a landmark data release from the Australian Prudential Regulation Authority (APRA) has exposed the industry's slow progress in developing effective retirement income solutions. This comes as the new Prudential Standard CPS 230 on operational risk management officially comes into force, heralding a new era of intensified regulatory oversight for trustees.
Bumper Returns Mask Decumulation Challenge
A host of superannuation funds have reported impressive performance for the 2025 financial year, defying market volatility. Australian Retirement Trust (ART) announced strong gains led by domestic equities and infrastructure, delivering a return of around 12% for its flagship option. Other major players followed suit, with AMP, MLC, Aware Super, HESTA, and LegalSuper all posting double-digit returns, driven by resilient equity markets and diversified portfolio strategies.
This positive performance in the accumulation phase, however, has been overshadowed by a critical assessment of the industry's retirement income offerings. Marking three years since the RIC came into effect, industry analysis suggests that "everybody must do more" to solve the retirement puzzle. This sentiment was substantiated by APRA, which for the first time published detailed performance data on a range of retirement products. The regulator’s move to dissect the performance of products designed for the decumulation phase shines a light on an area requiring significant development, highlighting the gap between members' needs and the current market solutions.
New Regulatory Era Begins with CPS 230
A new chapter in regulatory oversight began on 1 July, with APRA’s new Prudential Standard CPS 230 on operational risk management officially coming into force. The regulator has been unequivocal in its messaging, warning super funds that it expects no "cutting corners" with the implementation of the standard, which is designed to strengthen the management of operational and third-party risks. In preparation, the Association of Superannuation Funds of Australia (ASFA) and consulting firm Jana released draft guidance to help trustees with operational due diligence. The standard’s commencement coincides with survey data revealing that cybersecurity is now the biggest concern for super funds and banks.
Governance and accountability remain under the microscope. An independent report commissioned by APRA found that expenditure by the BUSSQ board related to the CFMEU was "sound," clearing the boardroom of wrongdoing. In a separate regulatory development, ASIC has provided further relief for licensees under the reportable situations regime, extending the timeframe for certain notifications.
Policy Wins and Persistent Debates
On the international policy front, the superannuation sector secured a significant victory after a concerted lobbying effort. Treasurer Jim Chalmers successfully advocated against a controversial US tax measure, known as Section 899, which threatened to impose substantial costs on Australian funds investing in the US. The US Treasury's subsequent retreat from the proposal was welcomed by the super sector, averting billions in potential losses.
Domestically, the debate over the Division 296 tax on super balances over $3 million continues. Prime Minister Anthony Albanese has defended the policy against public criticism from former Prime Minister Paul Keating. As the policy moves towards implementation, the focus is shifting to practicalities. Advisers are now grappling with how the tax on unrealised gains impacts death benefit planning, strategies for reversionary pensions, and the viability of holding crypto assets within an SMSF.
Looking Ahead & Takeaways
This week's news encapsulates the sector's dual focus: celebrating strong investment outcomes while confronting profound regulatory and structural challenges. The implementation of CPS 230 marks a non-negotiable step-up in risk management, while APRA's new retirement product data provides a clear benchmark for much-needed innovation. The successful deflection of the US tax threat shows the effectiveness of coordinated industry and government advocacy, a lesson that will be vital as the domestic Division 296 debate continues.
The next few months will see trustees embedding CPS 230 compliance into their core operations. Product development teams will be under pressure to respond to APRA's data and the persistent retirement income gap. For advisers, the complexity of Division 296 will continue to be a key driver of client engagement and strategic advice.
Key Takeaways:
- For Superannuation Trustees (Short-term, 0–3 months): Prioritise and embed full compliance with the newly effective CPS 230 standard. This requires an immediate focus on operational resilience, third-party risk management, and ensuring robust governance frameworks are in place and demonstrable to the regulator.
- For Product Providers (Short-term, 0–3 months): Urgently dissect APRA's new retirement product performance data to benchmark existing offerings. Use these insights to accelerate the development of innovative and effective decumulation solutions that address the clear market gap identified by the regulator and industry commentators.
- For Financial Advisers (Medium-term, 3–12 months): Transition from high-level discussions about the Division 296 tax to detailed, technical advice. Focus on its specific impacts on estate planning, asset valuations, and the treatment of different pension types to provide tangible value to high-net-worth and SMSF clients.
- For Investment Teams (Medium-term, 3–12 months): While celebrating strong FY25 returns, maintain a disciplined approach to asset allocation. Heed warnings about market complacency regarding geopolitical risks like trade tariffs and continue to explore opportunities in private markets, as evidenced by ongoing fund activity in infrastructure and private equity.
