In our view, fixed income expected returns are lining up to be quite decent in 2026 but are no longer remarkable, primarily because the 'Goldilocks' macro regime is over. Indeed, the current macro and market environment is less supportive of fixed income, in large part due to a more complicated duration landscape and a challenging spread valuation backdrop.

In many parts of the world, central banks are no longer easing. Even in the US, the bar is fairly high for the Fed to deliver more cuts than are currently priced in by the rates market. In the absence of aggressive policy easing, duration is therefore unlikely to be a major contributor to total returns. In addition, credit spreads are tight in many markets.

As a result, we believe that there is limited space for further spread compression, though we are not necessarily calling for a spread correction in the period ahead. In fact, our baseline scenario calls for stable spreads, helped by a robust macro backdrop and solid credit fundamentals, though we do not expect this alone to drive total returns.

This leaves us with income as a main driver of global fixed income returns, supported by total yields that remain attractive by historical standards (see Figure 1). Looking at the Bloomberg Global Aggregate Index (Global Agg), its yield is currently around 3.45%, producing a 10-year z-score¹ of 1.05 in our valuation analysis-a level that is quite attractive relative to history.

From a portfolio-construction perspective, this shift matters because the 'easy' sources of beta are becoming less reliable at the margin. When policy rates are no longer trending steadily lower, the distribution of outcomes for duration widens and rate volatility can potentially rise. Indeed, modest changes in inflation momentum, fiscal expectations, or term premium can translate into meaningful rate moves. At the same time, when spreads are already tight, carry remains appealing but the cushion against idiosyncratic shocks is thinner, making downside asymmetry more relevant.

This combination tends to reward disciplined risk budgeting and careful security selection prioritising bonds where investors are being paid for specific, identifiable risks (liquidity, structure, sector, or issuer fundamentals) rather than relying on broad market repricing. Put differently, as macro uncertainty rises and valuations look less forgiving, the value of being selective increases because small differences in entry point, credit quality, and balance-sheet resilience can have an outsized impact on realised returns.

As fixed income beta returns diminish, alpha may play a bigger role in generating returns. In recent months, we have seen the alpha generated by active asset managers rise above the Global Agg's long-term average of 91 basis points (see Figure 2). The current market environment of complexity and macro volatility, along with a focus on diversification and risk management, is creating opportunities for active asset managers to potentially generate higher excess returns. In turn, this alpha is likely to represent a larger share of total returns.

Together, factors such as fundamental mispricing, greater differentiation, and the emergence of 'winners' and 'losers' create a more favourable market environment for active managers. The spread dispersion within the Global Agg is the tightest it has been in many years, which means that there is a greater premium on the quality of the active manager, especially when it comes to security selection (see Figure 3).

Strategically, security-selection alpha appears to offer attractive characteristics

For a start, selecting a global active manager that primarily relies on security selection may offer some style diversification. Based on eVestment data, we have identified two distinct global fixed income peer groups. The first is active managers that cite security selection as their largest source of alpha (peer group 1). The second is the rest, that is, those whose self-reported largest source of alpha is not security selection (peer group 2).

What is striking is that peer group 1 represents a minority in the community of active Global Agg mandates.

What looks like a targeted reform to capital gains tax, negative gearing, superannuation, and trusts is a broad reallocation of incentives across the entire investment landscape.

Some of this is needed to address clear distortions.

Negative gearing of property and income splitting inside family trusts are clear examples, but when tax policy is used to punish growth capital relative to income strategies, good intentions can lead to poorer economic outcomes.

Australian equity returns have historically been a mix of income and capital, but that mix is highly regime dependent.

There have been extended periods where income dominated, periods where income and capital were balanced, and periods-particularly in more recent decades-where capital gains did the heavy lifting thanks to the deregulation, privatisation and trend decline interest rates.

This distinction matters enormously for tax. If returns skew toward capital and the tax system becomes less concessional on capital gains, effective tax rates rise, even if headline tax rates do not.

Not rejected outright or debated intensely. Just... not central. But that environment appears to be changing.

Across Australia, superannuation funds, platforms, and insurers are increasingly introducing annuities - used here as shorthand for lifetime income products - into their retirement offerings. What was once niche is becoming more visible, more accessible, and a more prominent element of the system itself. In several of Treasury's Guidance on best practice principles for superannuation retirement solutions, (Best practice principles) of February 2026, 'lifetime income products' are placed ahead of account-based pensions - a subtle but telling signal of their intended role in the system.

This raises an important and largely unspoken question:

At what point does a product class move from 'optional' to one that must be considered relevant under section 961B of the Corporations Act 2001 (Corporations Act): Provider must act in the best interests of the client (Best Interests Duty)?

From peripheral to present

Historically, annuities have been easy to exclude as they were:

•   limited in availability

•   often seen as poor value due to low interest rates

•   rarely requested by clients

•   difficult to compare

•   often absent from standard advice frameworks.

In that context, omitting them from written advice was not unusual and was often defensible.

Today, that context is shifting. More than a dozen providers now offer lifetime income products/annuities across platforms and superannuation funds, with several large funds integrating them into retirement solutions or actively developing offerings.

Policy settings, including the Retirement Income Covenant and Best practice principles, are encouraging funds to consider how members can draw sustainable income over time, with longevity protection and enhanced means-test incentives as part of that conversation.

As availability increases and institutional support grows, the classification of these products as 'peripheral' becomes harder to sustain.

A profession without a settled view

Conversations with approximately 50 advisers across Australia suggest that the profession has not yet formed a consistent position on lifetime income streams.

Instead, three broad perspectives emerge:

•   Some advisers are supportive particularly where longevity protection, Age Pension optimisation, or behavioural discipline are key considerations.

•   Others are open but cautious. They recognise the potential value of guaranteed income, but express difficulty in comparing products, understanding structural differences, and explaining trade-offs to clients with confidence.

•   A third group remains sceptical, citing concerns about relevance to wealthy or younger clients, as well as irreversibility and the risk of client regret, particularly where future capital access and estate flexibility are prioritised.

What is notable is not disagreement itself, but the absence of a shared framework. Advisers are not uniformly rejecting lifetime income streams, but nor are they consistently equipped to assess them.

When complexity meets obligation

This fragmentation may have had limited consequences when lifetime products were viewed as optional. However, if they are increasingly viewed as a relevant class of financial product, the implications change materially.

Under the Best Interests Duty, relevance is not determined by adviser preference, familiarity or ease of implementation. It is shaped by section 961B (2) of the Corporations Act, which requires advisers to identify the subject matter of the advice sought, including what is implicit, for example, a client who wants to avoid running out of money in retirement, even if they have not asked for a specific product type. It also requires advisers to conduct a reasonable investigation of products that would "reasonably be considered as relevant to advice on that subject matter".

If lifetime income streams now meet that threshold due to their availability, policy support, and potential role in managing longevity risk then the standard shifts.

The question shifts from:

"Do I use lifetime annuities?" to:

"Can I demonstrate that I have considered them appropriately?"

As SMART Compliance consultant and founder Brett Walker, notes:

If a product class is widely available and relevant to client outcomes, I suspect the regulatory expectation shifts. Advisers may need to demonstrate why it has not been considered, or if considered, why it has been discounted and what the client is giving up, not simply that it is outside their general area of expertise - even if clients haven't requested it.

The real barrier is not reluctance: It is how to evaluate these decisions

The challenge is not simply a reluctance to use annuities, but the absence of a shared and consistent way to evaluate them within existing advice processes.

Lifetime income products introduce trade-offs that are fundamentally different from accumulation-phase investments in terms of:

•   certainty versus flexibility

•   income for life versus access to capital

•   protection against longevity versus irreversibility of decisions.

These are not easily reduced to a single metric that can be compared with an account-based pension. In addition:

•   product structures vary significantly

•   comparability becomes inherently complex

•   modelling tools are often underdeveloped in this area

•   projections are sensitive to assumptions about lifespan, markets, and behaviour.

Advisers must contend with the reality that many of these decisions are difficult, if not impossible, to unwind once a client has implemented a recommendation.

As one adviser observed: "The complexity makes it difficult to make confident assessments... I need a high degree of confidence when making a recommendation that will be difficult if not impossible for the client to unwind."

This is not just about products. It is about how advisers are equipped to make and defend recommendations.

A gap between expectation and capability

There emerges a potential gap between regulatory expectations and what advisers can do:

•   Expectation: that advisers consider all relevant strategies and products

•   Capability: a lack of frameworks for evaluating and comparing lifetime income solutions with each other and with account-based superannuation.

In many areas of advice, gaps such as these are bridged by established methodologies including:

•   asset allocation frameworks

•   risk profiling tools

•   insurance quote comparison tools.

In the case of lifetime income streams, no equivalent structure has clearly yet emerged.

A question the industry may need to confront

Annuities have long been positioned as a unique tool - mainly for risk-averse clients but perhaps unnecessary for many others. However, the conditions that once made them easy to exclude are changing.

If lifetime income streams are now sufficiently available, dynamic, visible, and relevant within the retirement system, then the industry may need to ask:

Are they still optional to include in advice or are they becoming unavoidable?

And if the latter is true, a second question follows:

How can advisers demonstrate that they have assessed lifetime income options in a way that is consistent, defensible, and aligned with client outcomes?

Without that structure, the issue may not remain theoretical for long.

The regulator emphasises that while both structures are permissible, they carry different legal requirements and obligations, and the decision should be made with a clear understanding of how the fund will operate over time.

An SMSF must be established with either individual trustees or a corporate trustee, with distinct rules applying to each structure.

Individual trustees:

•   All members must be trustees, and vice versa.

•   Single-member funds must have at least two trustees and only one must be a member.

•   Members cannot be an employee of another member unless they are relatives.

•   Changes in membership-e.g. death or exit-require restructuring or replacement of trustees.

•   Although an SMSF can have up to six members, some state and territory laws restrict the number of trustees a trust can have to less than six. As an SMSF is a type of trust, trustees are urged to seek professional advice to check if their fund is affected. If it is, trustees are encouraged to structure their SMSF with a corporate trustee.

Corporate trustee:

•   A company acts as trustee, with members as directors.

•   For a single-member fund, the member can be either:

-   the sole director of the corporate trustee

-   one of two directors of the corporate trustee provided either the member and the other director are relatives, or the member is not an employee of the other director.

•   Directors must obtain a director ID and comply with the requirements of the Corporations Act 2001.

Other considerations

The ATO also highlights other practical considerations when choosing a SMSF trustee structure.

Establishment and ongoing costs

Cost considerations differ depending on the trustee structure, with corporate trustees subject to Australian Securities and Investments Commission (ASIC) registration and ongoing annual review fees, although concessional rates apply where the company acts solely as trustee of a superannuation fund.

SMSF establishment costs can be paid either personally or from the fund, with regulation 5.02 of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) allowing these costs to be charged against a member's benefits.

Where costs are paid personally, trustees may seek reimbursement from the SMSF provided the reimbursement relates strictly to establishment costs and is made as soon as the fund has sufficient cash. When done correctly, such reimbursement is not treated as a contribution, borrowing or financial assistance, as confirmed in SMSFR 2009/2 Self-Managed Superannuation Funds: the meaning of 'borrow money' or 'maintain an existing borrowing of money' for the purposes of section 67 of the Superannuation Industry (Supervision) Act 1993. However, if reimbursement is not sought for costs incurred on behalf of the fund, the payment will be treated as a contribution.

Importantly, establishment costs are capital in nature and not deductible, and trustees, including directors of a corporate trustee, cannot be remunerated for performing trustee duties, even where they have personally undertaken the fund's establishment.

Governing rules

Trustees and directors must comply with the SMSF trust deed and superannuation laws, while corporate trustees must also adhere to the company constitution and the Corporations Act. Directors are required to obtain a director ID prior to registration, with penalties applying for non-compliance.

Ownership of SMSF assets

Fund assets must be kept separate from personal assets and held in the correct legal name.

Individual trustee structures require asset titles to be updated when trustees change, which can be costly, whereas corporate trustee structures avoid this issue as ownership remains in the company name despite changes in directors.

Succession

Individual trustee funds must maintain at least two trustees, requiring restructuring if a trustee leaves or dies. In contrast, corporate trustee structures provide greater continuity, as the company remains unchanged even when directors change, reducing administrative complexity.

Key takeaways for practitioners

• Approximately 72% of SMSFs utilise a corporate trustee structure, compared to 28% with individual trustees, highlighting the growing preference for and advantages associated with using a company as trustee of an SMSF.
• The trustee structure decision is foundational and although not too difficult to unwind, it requires careful upfront consideration aligned to client circumstances and long-term strategy.
• Corporate trustees may provide greater administrative efficiency and succession planning advantages, particularly for single-member funds or evolving membership structures.
• Practitioners should ensure clients understand the ongoing legal obligations attached to each structure, including director ID requirements and governance responsibilities.
• Early professional advice is critical, as the ATO continues to emphasise that structural decisions directly impact compliance risk and operational flexibility over the life of the SMSF.

• Enhancing member protections in the superannuation system

• Compensation Scheme of Last Resort - reform options to support ongoing sustainability

• Curbing lead generation activity.

This paper focuses on the Enhancing member protections in the superannuation system (Consultation paper), April 2026, which sets out five proposals in relation to superannuation platform governance, superannuation switching' and member compensation.

The proposals are to:

•   strengthen the governance requirements for platform trustees

•   increase the penalties under the Superannuation Industry (Supervision) Act 1993 (SIS Act)

•   introduce a waiting period for inter-fund superannuation switches

•   limit fee deductions for switching-related financial advice

•   require platform trustees to compensate members for eligible losses.

While some of the proposals are focused on 'platform trustees' others will have broader application to all registrable superannuation entity (RSE) licensees.

Defining 'Platform Trustee' and 'Platform Product'

The Consultation paper proposes to introduce three new legislative definitions. A 'Platform Trustee' would be defined to mean the trustee of a 'Platform RSE', which would in turn be defined as a superannuation entity that offers one or more 'Platform Products'.

The 'Platform Product' definition is proposed to capture superannuation products that allow members to construct a bespoke superannuation portfolio by choosing directly from a wide and diverse menu of investment options that offer a broad range of member flexibility and exposure to specific investments. It would exclude products that exclusively offer pre-mixed trustee-directed options and do not include specific financial products as investment options.

Treasury has suggested that the definition of a platform RSE could differentiate fund offerings by the type, number or risk-profile of investment options available to members via these menus, including by specifying thresholds, and is seeking feedback on how the concept should be defined. These definitions will be important not just for trustees that currently consider themselves as offering platform products, but also any trustees that may offer investment options other than a small number of pre-mixed trustee-directed options and which could be caught up in the definitions.

Notably, the Consultation paper does not mention the existing definition of 'platform operator' in section 964 of the Corporations Act 2001 (Corporations Act), which includes RSE licensees that are or offer to be the provider of a 'custodial arrangement' within the meaning of section 1012IA of the Corporations Act.

Proposal 1: Strengthen governance requirements for platform trustees

Treasury states in the Consultation paper that the existing legislative and prudential framework establishes baseline expectations for trustee conduct and governance, however the collapses of the Shield and First Guardian Master Funds have highlighted that, in practice, strong obligations do not always translate into consistently robust platform investment governance outcomes.

Four reform options are identified:

•   Mandatory holding limits: a 'minimum diversification requirement' would be established by requiring platform trustees to apply and enforce holding limits on investment options. These limits could either be principles-based or could contain prescriptive elements.

•   Codified due diligence: platform trustees would be required to undertake initial due diligence when onboarding a product to offer as an investment option. Treasury says minimum requirements could be legislated, including requirements to maintain a documented onboarding framework, apply consistent product assessment criteria and retain evidence demonstrating how onboarding decisions were reached.

•    Limiting conflicted arrangements: this option would restrict certain conflicted arrangements and payments. Treasury calls out payments-including fees and rebates-linked to product listing or continued availability on a platform and payments that operate like volume incentives, including payments that increase as member flows increase. Currently, 'volume-based shelf-space fees' are prohibited under the Corporations Act-with exceptions for reasonable fees for services and discounts/rebates-this proposal appears intended to fill the gap by prohibiting shelf-space fees that are not 'volume-based' or which may be similar, however the volume-based shelf-space fee prohibition is not mentioned in the Consultation paper.

•    Restricting certain trustee operating models: the 'trustee-for-hire' model, where an external RSE licensee is engaged to provide the legal trusteeship function, would be prohibited or restricted. Treasury cites concerns that this model can in practice increase the 'operational separation' between the trustee and key elements of the day-to-day activities of the platform. Restrictions could range from targeted requirements - such as 'conditions', which we understand to mean RSE licence conditions- to an outright prohibition on particular arrangements.

Proposal 2: Increase penalties under the SIS Act

The maximum civil penalty under the SIS Act is 2,400 penalty units (currently $792,000). Treasury states that the Shield and First Guardian collapses 'have renewed attention on whether existing penalty settings under the SIS Act are proportionate to the potential harm to members and are sufficient to incentivise compliance'.

Treasury proposes two alternative options:

•   to double the maximum penalties under the SIS Act

•   to increase the penalties to align with those in the Corporations Act, which, for obligations such as the efficiently, honestly and fairly obligation, is the greater of 50,000 penalty units, three times the benefit obtained or detriment avoided, or 10% of annual turnover, up to 2.5 million penalty units.

Treasury says this second option would potentially calibrate penalties to the scale of superannuation funds to 'ensure proportionality of penalties, so as to minimise potential detriment to members'.

Proposal 3: Introduce a waiting period for inter-fund superannuation switching

This proposal would require members who make certain rollover requests to confirm their request with the transferring fund after a period of delay-e.g. five days. If confirmation is not received after the waiting period, the request would lapse after a further three business days. The transferring trustee would be required to inform the member of the relevant risks involved in making the switch, after receiving the initial request.

Two options are proposed:

•   for the waiting period to apply to all rollovers between superannuation funds

•   for the waiting period to only apply where a rollover meets prescribed criteria, which could include rollovers to self-managed superannuation funds, to superannuation platforms or to superannuation funds that offer 'higher-risk products'.

There is discussion in the Consultation paper about how 'higher-risk products' could be defined, including by reference to the definition of 'lower risk' managed investment schemes considered in the Compensation Scheme of Last Resort - reform options to support ongoing sustainability consultation paper.

Proposal 4: Limit fee deductions for switching-related financial advice

The Consultation paper notes that the collapses of the Shield and First Guardian Master Funds highlighted conduct where switching advice was provided at scale, facilitated by the availability of superannuation balances as a funding source for advice fees. Treasury notes that the ability to deduct the cost of super-switching advice may make members more likely to agree to larger advice fees, creating incentives that increase the risk of adverse outcomes.

The following options are proposed:

•   Prohibit trustees from allowing advice fee deductions where the associated statement of advice recommends the client switch superannuation funds.

•   Prohibit advice fee deductions in prescribed circumstances, including from superannuation platforms-which, we note, may be fatal to the superannuation platform industry, or where the member has not been a member of the fund for a prescribed period, or based on age or balance thresholds.

•   Codify obligations for receiving superannuation funds in relation to deducting fees for personal financial advice, building on existing expectations and the sole purpose test.

•   Require trustees to review advice fee deductions in defined circumstances, such as following a switch and potentially requiring the trustee be 'satisfied that a switching-related advice fee is reasonable, having regard to the nature and scope of the advice, the member's circumstances and the fee relative to the member's balance'.

•   Impose mandatory fee caps on switching-related advice fee deductions.

•   Require trustees to implement adviser and licensee onboarding and monitoring processes in relation to switching-related advice fee deductions.

Proposal 5: Require platform trustees to compensate members for eligible losses

Treasury is consulting on two alternative options under this proposal:

•   requiring platform trustees to compensate members for 'eligible losses' incurred on their platform

•   granting ASIC a power to direct a platform trustee to commence a remediation process where ASIC 'has reason to suspect a trustee has engaged or will engage in conduct that would constitute a contravention of a financial services law, and which may have led to member losses'.

The Consultation paper focuses primarily on the first of these options. 'Eligible losses' under this option would mean financial losses arising from external fraud or theft resulting in the collapse of an investment product, excluding losses attributable to ordinary investment performance or market volatility. Treasury says 'eligible losses' would not be intended to cover losses arising from internal events and says that operational risk events would usually be able to be addressed through the financial resources held to meet the operational risk financial requirement.

An independent third party would be responsible for 'activating' the obligation by determining whether an eligible loss has occurred and then directing the trustee to provide compensation. Compensation would be funded via trustee capital rather than fund assets, and the Consultation paper states that platform trustees would be required to maintain or be able to raise a dedicated pool of capital for the purpose of paying compensation. Treasury is consulting on whether this should be a pre-funded capital requirement or a post-event funding obligation.

Treasury says this would likely reduce pressure on the compensation scheme of last resort 'arising from mass-loss events in platform products' and would reframe the responsibility for 'losses on superannuation platforms from the broader superannuation and financial services sector to the entities responsible'. We note there is a large assumption in that sentence that it is the trustee which is the entity responsible for such losses.

In relation to what exactly would need to be compensated, Treasury is consulting on whether this should be the initial capital invested, that capital indexed against a benchmark or a capped amount or proportion of the loss.

In relation to the alternative option-of ASIC directing the platform trustee to commence a remediation process-there is little detail provided, however Treasury notes this might be 'more responsive than waiting for final court outcomes' but would give greater discretion to the trustee in respect of the compensation payable, potentially resulting in inconsistent outcomes.

Key takeaways

•   Stricter governance standards are on the horizon. Treasury is proposing reforms targeted at platform trustees, including mandatory holding limits on investment options, codified due diligence requirements, restrictions on conflicted arrangements and payments, and restrictions on certain operating models-including the 'trustee for hire' model.

•   Platform trustees may be personally liable for member compensation. Treasury is proposing an obligation for platform trustees to compensate members for 'eligible losses'-being financial losses arising from external fraud or theft that result in the collapse of an investment product, to be funded from trustee capital.

•   Tighter switching rules. Treasury is consulting on a mandatory waiting period for inter-fund switching-meaning rollovers from one fund to another-under which members would be required to confirm their rollover request after a waiting period and after being warned of relevant risks.

•   Significantly higher penalties. Treasury considers the current maximum civil penalties under the SIS Act-capped at $792,000-may be immaterial for large superannuation funds relative to funds under management. Treasury is considering doubling the maximum civil penalty or increasing penalties to align with those in the Corporations Act. fs

This is where a modern data platform or MDP can provide a practical modern technology for superannuation funds to address these data challenges.

An MDP is a unified platform equipped with tools and technologies to manage the full data lifecycle - from ingestion and storage to processing - transforming advanced analytics into a single, reliable source of truth. It supports various data types: structured, semi-structured, unstructured, and processing modes: streaming, real-time, batch, static.

Core capabilities of an MDP

Centralised data management: An MDP aims to resolve existing issues with fragmented data stored across different applications, on-premises databases, spreadsheets and reports by unifying everything into a single repository. This consolidated approach establishes a single source of truth. Additionally, centralising data allows for retention as close to the original source as possible and facilitates recovery of historical data if problems arise with business applications.

Democratisation of data: A well-implemented MDP allows data to be more accessible and understandable to a wider range of stakeholders within the organisation, regardless of their technical skills. The platform should make it possible for all users to easily discover and analyse data within the platform, understand the context associated with data, such as descriptions, history and lineage and empower users to own and consume their data with minimal dependences and reliance on the data or IT team.

Advanced analytics support: An MDP provides the flexibility to provision sandbox environments or additional compute capacity for predictive modelling, machine learning model or AI capabilities including performance monitoring.

Real-time processing: Within the modern data platform, businesses can process and analyse data as data arrives and take appropriate actions based on the analysed data. Additionally, if the data is processed and made available to the decision-makers in a timely manner, it empowers people to make data-driven decisions. Real-time dashboards track data quality, performance and compliance across the entire platform.

Security and compliance: A well-constructed MDP often comes with built-in security and compliance features, which help ensure data is well-managed, trusted and secure for all users in transit and at-rest. This includes role-based access, encryption and real-time monitoring to protect sensitive member data and prevent breaches.

Sustainability and efficiency: Many vendors of MDPs are recognising and measuring the environmental impacts of data centres and focusing on optimising energy use and resource efficiency. Considering an MDP that upholds their sustainability objective would align with the values of environmental sustainability and improve efficiency.

Scalable, cloud-native storage: Supports structured and unstructured data at any scale, handling both real-time and batch processing needs.

Governance and lineage tracking: Provides improved visibility into where data comes from, how it changes over time and who has access, which can assist with audits and regulatory reporting.

As demonstrated by Table 1, MDPs provide superannuation funds with a secure, scalable and unified environment to manage, process and analyse vast volumes of data. They are built on key layers that collectively can support better decision-making, operational efficiency and regulatory compliance.

Key layers of MDP

The building blocks or layers of a modern data platform, as illustrated by Figure 1, include:

Data storage and processing: Secure, flexible and cost-effective data storage.

•   Data warehouse: works best with structured data and where the use cases are data analysis and reporting

•   Data lake: suitable for both structured and unstructured data and ideal for streaming, AI/ML initiatives

•   Data lakehouse: combines the features of data warehouse and data lake and offers a unified platform for various workloads

Data ingestion: ETL (extract, transform, load) or ELT (extract, load, transform) can be done using data pipelines and data ingestion tools.

Data transformation and modelling: Involves taking raw data and conforming it into more useable format ready for analysis and reporting. This includes data profiling, data cleaning and data modelling.

Data advanced analytics: Applies artificial intelligence (AI) and machine learning (ML) in analytics to generate data-driven insights, helps optimise operations and mitigate operational risks.

Data observability: To fully understand the health of the whole data ecosystem, monitoring data performance, enhancing reliability and maintaining compliance.

A practical roadmap for implementation

Implementing an MDP requires a structured approach that balances technology, people and processes. The implementation roadmap typically consists of sequential and parallel stages, from assessment and planning through architecture design, data governance and integration, to analytics enablement, testing and go-live. Each stage involves critical tasks such as defining business objectives, establishing data governance policies, migrating and validating data, configuring platform components and training users.

Modernising a fund's data environment is a journey that requires careful planning and phased execution. An example of a 10-phase, high-level roadmap to guide the process would be:

Phase 1: Establishing your data strategy

•   design an enterprise data strategy that aligns and supports the business strategy, visions, and goals

•   establish key data initiatives that deliver value and strengthen business case and funding.

Phase 2: Assessment and planning

•   conduct a comprehensive data maturity assessment to identify gaps and risks

•   evaluate AI readiness to drive innovation while building strong data foundations

•   define scope and success metric

•   assess existing infrastructure and data sources.

Phase 3: Architecture and design

•   define target data architecture

•   decide on cloud versus on-premises or hybrid

•   understand and assess the right type of operating model for the business (i.e., centralised, dispersed, centre of excellence)

•   market scan based on MDP evaluation criteria to find the best fit for purpose solution

•   support establishing the chosen operating model

•   select MDP tools, platforms and integrations

•   establish a reference architecture, high-level design on how to build and implement MDP solution

•   establish governance and oversight forums and committees

•   define data governance framework.

Phase 4: Data governance and strategy setup

•   establish data and AI governance policies and standards

•   define roles, responsibilities and accountability

•   design metadata management, master data management and data quality processes.

Phase 5: Data integration and migration

•   identify and prioritise data sources

•   design and implement ETL/ELT pipelines

•   deploy centralised storage and automated ingestion pipelines

•   migrate high-priority datasets, beginning with those needed for regulatory reporting

•   migrate historical data to the MDP

•   test data quality and consistency.

Phase 6: Platform development and configuration

•   configure MDP components-storage, processing, analytics tools

•   set up user access controls and security frameworks

•   implement monitoring and logging.

Phase 7: Analytics, reporting and AI

enablement

•   build dashboards, reports and self-service tools

•   implement AI/ML models if applicable

•   test and validate insights

•   train users on analytics and self-service features

•   launch advanced analytics initiatives and AI pilot programs, such as personalised retirement tools

•   implement real-time observability dashboards to monitor data quality and performance

•   conduct scenario-based stress testing to model market shocks and liquidity risks.

Phase 8:  Testing and validation

•   conduct system testing, integration testing and performance testing

•   validate data accuracy, lineage and quality

•   user acceptance testing (UAT).

Phase 9: Change management and training

•   develop training materials and programs

•   conduct workshops for business users and IT staff

•   communicate benefits and usage guidelines.

Phase 10:  Go-live and support

•   deploy MDP to production

•   monitor performance and usage

•   provide ongoing support, optimisation and iterative improvements

•   refine governance frameworks as regulations and member needs evolve

•   introduce new, data-driven services such as proactive fraud detection and member lifecycle insights

•   use data to assess uptake of platform, improve and adjust based on performance, useability and more.

Conclusion: Building the future of superannuation through data

The superannuation industry is entering a transformative decade. As funds consolidate and grow to unprecedented scale, their ability to manage data securely and intelligently will define their success.

An MDP can serve as a supporting foundation for this transformation. It enables funds to meet regulatory demands, enhance cybersecurity, deliver personalised member experiences and help identify new opportunities for innovation.

By unifying data, embedding security and enabling real-time insights, an MDP allows funds to:

•   deliver faster, more accurate regulatory reporting

•   protect members from cyber threats

•   personalise services at scale

•   contribute to new capabilities like predictive analytics and AI.

Superannuation funds are taking different paths toward a future shaped by transparency, agility, and member-focused innovation. As data volumes grow and expectations evolve, a modern approach to data can help funds move beyond compliance and build the capabilities needed to become more data driven.

By adopting strategies suited to their scale, circumstances, and member needs, superannuation funds can position themselves to navigate complexity, competition, and change effectively.

SAFs offer an alternative for individuals looking for the increased flexibility of an SMSF but without the burden of being a trustee and the associated compliance risk. They are also an effective solution for individuals who are non-residents or bankrupt and therefore unable to be trustees of an SMSF.

If your career or business relies on you being a director then you must take the decision to set up an SMSF very carefully and be ready to put the time and effort in or choose SMSF specialist advisers to ensure your fund remains compliant so that you do not lose your ability to be a director of any company because of breaching SMSF legislation.

SAFs can provide all the legislative advantages afforded to SMSFs, without the risks associated with breaching legislative compliance requirements.

This is not a suitable option for small balances as an extra layer of trustee fees will be incurred. However for those with larger balances the option can be very cost-effective especially when it offers the ability to relieve oneself of the trustee responsibilities.

Main benefits of the SAF structure

Offloading the compliance risk

The main advantage of running an SAF is that the compliance risk is borne by the professional licensed trustee whose core responsibility is the provision of trustee services. If an SAF is in breach of the rules, the members of the fund will not be liable for the compliance mistakes of the professional trustee.

In an SMSF, all members must be a trustee or director of a corporate trustee which means all members bear the compliance liability. You cannot claim your spouse was solely responsible for running the fund. One case-Shail Superannuation Fund and Commissioner of Tax [2011] AATA 940-clearly shows the risk of being a 'silent trustee' where the verdict found the former wife, in her role as a trustee of the fund, was personally liable when it became non-complying after her former husband stripped out most of the assets and headed overseas.

Administration of the fund

A professional licensed trustee in charge of an SAF typically appoints professional organisations to carry out the administration of the fund or is skilled and experienced enough to avoid common breaches of legislative requirements. As the professional licensed trustee administers all information and transactions, record keeping is typically timely and accurate.

In SMSFs, the trustees are typically responsible for collating all the documentation and reports so their chosen administration service can prepare the financials of their fund.

Travelling overseas for extended periods

SAFs are more flexible for people who may go overseas for an indefinite period compared to SMSFs which are strictly regulated in that circumstance. Members of an SMSF who relocate for an extended period of time have to fulfil two requirements - the central management and control of an SMSF needs to be in Australia, and the active member test needs to be fulfilled. If any of these requirements are breached, the SMSF loses its residency status, is deemed non-compliant and will face exorbitant penalty taxes of up to 45%. An SAF however can have offshore members - provided they are Australian residents for tax purposes.

Protection and access to Superannuation Complaints Tribunal

In the case of fraudulent conduct or theft, SAFs have more readily available redress options including a grant of financial assistance as statutory compensation and access to the Superannuation Complaints Tribunal which deals with complaints about the decisions and conduct of Australian Prudential Regulation Authority (APRA)-regulated fund trustees and other decision makers.

Conversely, no compensation scheme exists for SMSFs, and they instead must rely on courts to resolve disputes or look to the Corporations Law to take action against a financial adviser, accountant or administrator for losses they believe are due to misconduct, negligence or inappropriate action.

Disqualified persons: Bankruptcy or criminal record

Individuals are not allowed to be trustees of an SMSF or directors of a corporate trustee if they have committed a crime involving dishonesty such as fraud, theft or embezzlement or if they have been declared bankrupt. The Australian Tax Office (ATO) will ban individuals from taking on positions of responsibility in an SMSF if it believes the person has breached the superannuation laws either very seriously or persistently or believes the person is not a fit or proper person and hence should be disqualified.

There are no issues with a disqualified person becoming a member of an SAF as they are not required to fill the role of trustee and it is in fact an often-preferred solution for those with an SMSF who find themselves in that unenviable position with assets that are not liquid.

Responsibility concerns due to ageing or onset of mental illness

Some older people may prefer to use an SAF because they have reached an age where they are no longer able, or may not want to, make effective management and operational decisions. SAFs still allow investors to be in charge of the asset allocation - subject to trustee approval (but they are becoming a lot more flexible) - and to maintain or acquire a similarly broad range of assets and avail of strategies available to SMSF investors. Problems often arise in an SMSF when an older trustee loses the capacity to function and participate in the fund's inner workings whereas in an SAF, the professional licensed trustee will continue to manage the fund for the benefit of its members.

Estate planning

There are a number of estate planning scenarios where an SAF is a better alternative to an SMSF. In an SMSF, the death of a fund trustee changes the composition of the trustees and may provide potential for disputes especially in blended families. In an SAF, the licensed trustee is an independent and unbiased party with no family relationship issues that we often see arise with estates.

In an SMSF, it is possible to try to include safeguards into the trust documentation; however, if one of several feuding beneficiaries has the cheque book or online banking, it may take the remaining beneficiaries considerable time and expense to track down the person and the money. As has been observed, "a remaining trustee with an online transaction access can do a lot of damage to an SMSF balance while family fight for control in the courts."

Taking care of vulnerable beneficiaries

SAFs can provide very tax effective death benefit income streams to intellectually disabled adult children. The hurdle of the person with a disability or their legal personal representative needing to be a trustee is removed because, unlike an SMSF, an SAF has a professional trustee.

The use of the professional trustee also ensures that ongoing services can continue to be provided to a disabled person is over 18 and once the parents have died or lost capacity. There is the ability to pay a death benefit income stream to the disabled child and then have any capital remaining return to the parent's estate on death.

Employer - employee fund

In an SMSF, a trustee cannot be an employee of another member - unless they are family. In an SAF however, a member can be an employee of another member. Further, since SAFs have a professional licensed trustee, the related-party issues that crop up in an SMSF are not an issue in an SAF.

In summary while an SMSF may be ideal for people who want to be fully in control of their investment decisions and retirement savings, an SAF is ideal for those who would like to actively participate in investment decisions but retain a low-level of compliance and legislative responsibilities.

It is possible to switch from an SMSF to an SAF or vice versa without incurring capital gains tax as all they have to do is retire as trustees themselves and appoint a professional licensed trustee to govern their SAF.

Why may a SAF be a better option than a retail or industry fund?

•   Moving to a SAF is not a CGT event whereas it would be if you moved to a retail or industry fund.

•   Members will likely to be able to keep assets such as direct shares, bullion, collectables and residential and commercial property subject to rules.

•   Members can still direct investments within the approved list.

•   Member-directed death benefit nominations are still possible and in fact often more achievable as the trustee can follow your wishes.

•   There are no issues with single member funds.

•   Privacy retained for those members in high-profile positions.

Investors that started the year with growing confidence that inflation was on a clear path lower, and that rate cuts would soon follow, are digesting a new reality.

At this point, policy uncertainty remains elevated, and markets are still grappling with the prospect that not only will rates remain restrictive for longer, but they could move higher from here.

This matters for investors with a whole-of-portfolio view because it changes the job description of defensive capital.

If you believe rates are on an upward trajectory, you can no longer assume the lower-risk portion of the portfolio is best served sitting in cash waiting for a more benign backdrop. Nor can investors ignore the opportunity cost of holding too much capital in structures that are either locked up, or insufficiently productive.

Good portfolio construction is about ensuring each part of the portfolio is doing the job it is meant to do. When every element is doing its job and earning its place, there is very little room for what I call 'lazy cash.'

The case against cash

In a scenario in which rates are higher for longer, it is reasonable to expect liquidity should be doing more than simply preserving capital. Investors need to think laterally about liquidity, duration and what it means to have 'portfolio flexibility'.

Ideally, the defensive portion of a portfolio is not simply a passive holding area. It needs to generate income, preserve optionality and avoid unnecessary exposure to interest-rate risk.

That is why floating rate corporate bonds are coming back into focus.

The fact that futures markets are pricing for further tightening means investors are being forced to ask more pointed questions: How much liquidity should a portfolio hold? How much duration risk is prudent? Where, in this environment, should defensive income come from?

At Escala, one of the recurring issues we see when taking on new client portfolios is that some portfolios have become more illiquid than their objectives really justify. That usually happens gradually. Capital is allocated to private assets, alternatives or longer-dated exposures in the name of diversification, and over time the balance shifts too far. The portfolio may still look sophisticated on paper, yet it is less flexible than it needs to be when conditions change or opportunities appear.

Investors who have genuine liquidity can respond. Investors whose portfolios are more illiquid than they realised, often cannot. That is one reason floating rate, investment grade corporate bonds are coming back into focus. Not as a tactical trade, and not simply as a place to park cautious capital, but as a more deliberate allocation for investors looking to improve diversification, maintain flexibility and generate income without taking unnecessary duration risk.

This is not a new idea

Escala have long used direct floating rate corporate bond exposures where investors are seeking a combination of capital stability, liquidity and income. What has changed is the backdrop. In a higher-rate, less certain market, floating rate investment grade credit has become a more compelling way to keep the defensive allocation working hard without giving up flexibility. That view is consistent with Escala's own fixed income and direct investment materials, which frame these portfolios around capital stability, income, liquidity levels, risk and return, and note the role of floating rate credit in a market where the rates outlook has been less predictable.

The appeal is straightforward. Floating rate notes are debt securities whose coupons reset periodically, usually every quarter, at a margin above a short-term benchmark. In Australia, that benchmark is generally the bank bill swap rate (BBSW), which remains central to domestic short-term funding and much of the local floating rate market. Because the coupon resets with that benchmark, the income on a floating rate bond adjusts as short-term rates move, rather than staying fixed at the level prevailing when the bond was issued.

This feature matters much more in this cycle than it did when rates were pinned near the floor. In a higher-for-longer environment, or one where rates may yet move higher again, fixed-rate bonds can be more exposed because their coupon is locked in and their capital values are more sensitive to changes in yields. Floating rate bonds behave differently. Because the coupon resets regularly, they carry much lower-almost negligible-interest-rate sensitivity than comparable fixed-rate securities. This does not make them risk-free, and it does not mean prices cannot move, but it does mean they are typically less exposed to rate-driven volatility than traditional duration-heavy fixed income.

That, however, is only part of the case. The more important point is where these securities sit in a portfolio.

The missing middle in most portfolios

Too often, investors think about liquidity in binary terms. Capital is either held in cash or deployed into higher-risk and often less liquid assets. In practice, most well-built portfolios should have a more thoughtful middle ground.

Some capital genuinely needs to be at call, particularly if there are known upcoming capital expenditures. But there is also a substantial pool of money that should remain available without sitting idle. That capital needs to earn its place in the portfolio, and this is where floating rate investment grade credit starts to stand out as an asset allocation tool, and with cash rates rising, it is now more compelling to look at 'lazy cash' and putting it to work.

Used properly, it can solve several portfolio problems at once. It can provide a relatively defensive source of income. It can keep interest-rate sensitivity substantially lower than fixed-rate bonds. It can preserve liquidity, depending on the implementation vehicle. And it can help restore balance in portfolios where illiquid exposures have crept beyond what the client's objectives really require.

That last point is worth dwelling on. Private markets, alternatives and long-dated strategies all have a role, and we are strong advocates of private markets and the risk return benefits they provide. But illiquidity should be a deliberate choice, not the accidental outcome of years of capital being allocated into attractive themes without enough regard for the portfolio's overall flexibility. In our opinion, liquidity should be highly valued, particularly when cash rates are rising and the defensive portion of a portfolio is producing higher returns.

One of the harder conversations in private wealth is not whether an asset looks appealing in isolation, but whether the cumulative liquidity profile of the portfolio still matches what the investor said they want: optionality, resilience and the ability to act when the world changes quickly.

In our experience, that mismatch is more common than many investors appreciate. A client may say they want a portfolio that is robust, diversified and able to respond to market dislocations, but when you look closely, too much of the capital is tied up. The result is a portfolio that can endure volatility in theory but cannot exploit it in practice. Illiquidity can also build in the risk-free portion of a portfolio through term deposits. While term deposits can play and important role, they are also illiquid and fail the test of flexibility and optionality. Investors who locked in a 12-month term deposit at the start of the year, will now be wishing they held off.

That is why floating rate corporate bonds deserve to be framed as a smarter allocation choice. They are not exciting in the way a private markets theme or a specialist strategy might be. However they can materially improve the efficiency of the lower-risk part of the portfolio. They give investors a way to hold capital in a form that remains accessible, continues to generate income and does not require a heroic macro call to justify its place.

That said, this is precisely where discipline matters.

This is not risk-free

Floating rate corporate bonds are still corporate credit-investors are taking issuer risk. They are exposed to downgrade risk, spread widening and, in the worst case, default. The fact that the coupon resets with BBSW reduces interest-rate duration, but it does not remove credit risk. In periods of stress, prices can still move if investors demand more compensation for holding corporate debt or if the quality of an issuer is reassessed. That is why manager selection, issuer diversification and portfolio construction remain critical. Escala's Direct Investment Group materials explicitly frame these portfolios around targeted objectives including capital stability, income stream, liquidity levels, risk and return, and which is the right lens through which to assess them.

This is also why the asset class is sometimes misunderstood. Floating rate credit is often described lazily as 'cash plus'. That is too simplistic. The better comparison is a conservative credit allocation that sits between true cash and longer-duration fixed income. When used thoughtfully, it can improve diversification and liquidity management and reduce portfolio volatility. If used carelessly, it can leave investors with credit exposures they have not properly underwritten.

The structure of the Australian market helps here. The local floating rate universe includes major banks and other high-quality issuers, which gives the asset class more depth and practicality than many private investors assume. BBSW remains a core benchmark across domestic funding markets, and the Reserve Bank of Australia (RBA) describes it as a key benchmark for Australian short-term bank funding. That makes floating rate credit more usable at scale than many investors realise.

Stepping back, this is really a broader point about how diversification is evolving. For sophisticated investors, diversification is no longer about simply spreading capital across a list of asset classes and hoping that is enough. It is about understanding how each part of the portfolio behaves, what role it is meant to play, and whether the portfolio-as a whole-is aligned with the investor's actual objectives.

Growth assets are there to compound capital over time. Alternatives can broaden return drivers and reduce dependence on listed beta. Illiquid assets can be valuable, but only to the extent that an investor can genuinely tolerate the lock-up and the portfolio still retains enough flexibility elsewhere. Importantly, defensive capital should not just sit there. It should preserve optionality, generate income where possible, and reduce the likelihood that investors are forced into poor decisions when markets become disorderly.

That is why liquidity matters so much in this environment. Its value is not simply that it lets investors retreat. In practice, its real value often shows up when it allows them to act. When markets dislocate, investors with accessible capital can rebalance, deploy into mispricing or simply take advantage of conditions that others cannot. Investors whose portfolios are too illiquid are less well placed to do that, while investors whose liquid capital is sitting unproductively in cash by default, miss out on the benefits of compounding higher returns over time.

None of this means fixed-rate bonds no longer have a role, or that floating rate credit should dominate the defensive allocation. Duration can still matter, particularly if growth weakens sharply or policy ultimately moves lower more quickly than expected. Nor does it mean every illiquid allocation is misplaced. The issue is balance. In the market Australia currently faces a 4.10% cash rate (as at April 2026), a live debate about inflation persistence, and a renewed external shock complicating the outlook - investors need to think more carefully about whether their portfolios are liquid enough to match their objectives and flexible enough to take advantage of the opportunities volatility creates.

Ultimately, this is not about chasing the next trade. It is about getting portfolio construction right.

In a higher-rate world, the defensive side of the portfolio can do more than simply preserve capital. It can provide and enhance income. It can preserve flexibility, and if structured properly, it can help investors stay positioned rather than sitting still.

That is why floating rate investment grade corporate bonds stand out in the current cycle. Not because they are new, and not because they remove risk, but because they solve a practical portfolio problem. For investors trying to sharpen diversification, improve returns, correct for excessive illiquidity and keep enough capital available to act when markets dislocate, they are becoming not just a sensible holding, but a smarter allocation choice.

Alternatively, Division 296 tax can be considered as applying to the superannuation earnings, will be attributed to each tranche -or slice, level or portion-of a taxpayer's TSB.

When does it start?

Division 296 tax will first be paid in respect of the 2026/27 income year and all subsequent income years. The first assessments of Division 296 tax-in respect of the 2026/27 income year-are likely to be issued in mid to late 2028.

Who pays Division 296 tax?

The tax is imposed on the taxpayer-and not the superannuation fund or the trustee of the superannuation fund.

In most cases, the taxpayer is likely to arrange for the Australian Taxation Office (ATO) to collect the tax from the taxpayer's superannuation accounts. This will be done by means of a release authority issue by the ATO to a fund holding superannuation accounts for the taxpayer, where the fund releases the money to the ATO, to discharge the debt arising from the Division 296 tax assessment.  However, the taxpayer could personally pay all or a portion of the Division 296 tax.

Are the thresholds indexed?

Yes, they are. The $3 million and $10 million thresholds will be indexed to increases in the CPI index and will be adjusted in increments of $150,000 and $500,000 respectively.

Does it make any difference whether the taxpayer is entirely in pension phase?

No, it does not. To take an extreme example, Dianne, attained age 75, has only one superannuation interest, which is in pension phase. Let us assume that her total superannuation balance at 30 June 2027 was $7 million, and her superannuation earnings were $1,000,000. Dianne has obviously had remarkable investment earnings!

The superannuation fund will pay no income tax in respect of Dianne's superannuation earnings as the superannuation interest is entirely within the retirement phase.

However, Division 296 tax is not a tax on the taxable income of the superannuation fund - it is a tax on the superannuation earnings of Dianne which are attributable to each tranche of her TSB.

Consequently, Dianne is still liable for Division 296 tax even though she is entirely in pension phase.

How are the 'taxable superannuation earnings' of an income year of a taxpayer calculated?

This is a four-step process.

First step

The trustee must determine the Division 296 fund earnings of the superannuation fund for the relevant income year.

The simplified calculation is:

Division 296 fund earnings = Taxable income - assessable contributions + Net ECPI

Where taxable income is the taxable income of the fund for the relevant income year; assessable contributions are the total of the contributions included in taxable income of the income year and Net ECPI is net exempt current pension income of that income year.

This is a simplified formula as it assumes that there is no non-arm's length income and investments in pooled superannuation trusts. If there are, a more complicated formula applies.

Assessable contributions are deducted as they do not constitute fund earnings but were included in taxable income of the fund. The formula makes no reference to non-concessional contributions as these contributions are not included in the assessable income of the fund.

Net exempt pension income is added, as this income constitutes superannuation earnings (even if not subject to income tax).

If the fund has a net loss (rather than taxable income) - the formula still applies - with the net loss included as a negative value for the taxable income.

It is possible for a fund to have negative fund earnings for an income year. In this case, the Division 296 fund earnings will be treated as having nil fund earnings. Consequently, negative Division 296 fund earnings of one fund cannot offset the positive Division 296 fund earnings from another fund. Additionally, the formula for Division 296 fund earnings has no variable representing the carry forward of prior year negative fund earnings.

Second step

The trustee of the fund must allocate the Division 296 fund earnings amongst each superannuation interest which existed at any time during the income year.

This allocation must be fair and reasonable. Regulations will be issued in relation to the attribution of Division 296 fund earnings and which, may require the trustee to have regard to the length of time that the interest existed in the fund during the income year-possibly, which portion or portions of an income year as well-and, if the fund had different investment portfolios, the portion of and duration during which the superannuation interest was in those investment portfolios.

The regulations may require the trustee to obtain an actuarial certificate to support the attribution.

Third step

The trustee must report to the ATO, the amount of Division 296 fund earnings attributed to each superannuation interest that existed at any time during the income year and the TSB value of each superannuation interest which existed at the end of the income year.

Fourth step

The ATO will, from the amounts and figures reported at the third step, determine the total superannuation balance of the taxpayer and the aggregate of the Division 296 fund earnings of each taxpayer. The ATO will also receive information from superannuation entities (other than SMSFs) which are concessionally taxed such as industry funds, public offer funds, approved deposit funds, retirement savings accounts and rollover annuities.

The ATO will then issue Division 296 tax assessments to taxpayers who have taxable superannuation earnings for the income year, and which have a TSB greater than $3 million.

The TSB used will normally be the greater of the TSB at the end of income year or the TSB immediately before the beginning of the income year.  (However, there are two important exceptions - which are discussed later).

Using the greater value of the TSB ensures that Division 296 Tax for an income cannot be avoid by cashing out superannuation amounts to reduce the year-end TSB to be less than $3 million.

Example 1 - Single superannuation interest in one SMSF in accumulation phase

Bert is the sole member of the 'Bert SMSF' and his total superannuation balance at 30 June 2028 is $12 million. The year end TSB balance is used, as this is greater than the TSB immediately before the start of the 2027/28 income year. His superannuation earnings for 2027/28 are $1,100,000.

Example 2 - Two superannuation interests in one SMSF, one interest in pension phase (value $2 million) and another interest in accumulation phase (value $10 million)

In this example, Bert is still the sole member of the 'Bert SMSF' and his total superannuation balance is still $12 million at 30 June 2028. His superannuation earnings for 2027/28 income year are still $1,100,000. However, Bert now has two superannuation interests: one in pension phase-value of $2 million at 30 June 2028, and the other superannuation interest in accumulation phase-value $10 million at 30 June 2028.

Bert's superannuation earnings would be attributable as follows - assume the superannuation earnings pension interest superannuation earnings were $700,000 while the accumulation earnings were $400,000 (total $1,100,000 earnings).

In this case the attribution of the aggregate super earnings is based upon a straight-line apportionment of the aggregate superannuation earnings to each TSB tranche.

The important point is that the total Division 296 tax liability is the same whether the pension interest is treated as being in the first tranche or the last tranche of the TSB as demonstrated in Table 6. Also, it is irrelevant whether the pension interest was in one SMSF and the accumulation interest was in another SMSF (assuming the same aggregate superannuation earnings).

Why use the 2027/28 income year in the example and not the 2026/27 income year?

There is a simple reason-for the 2026/27 income year special transitional measure applies whereby the Division 296 tax calculation will be based upon the year end TSB of the taxpayer.

For all other income years, the TSB will be based upon the greater of the year-end balance and the balance immediately before the start of the income year.

By using only the year-end TSB for the 2026/27 income year, Division 296 tax will not apply if the year-end balance is reduced to $3 million or less. This reduction could be achieved by cashing out sufficient superannuation to reduce the year-end balance to below $3 million-or $10 million if the taxpayer wishes to avoid the additional Division 296 tax rate of 10%.

This transitional measure effectively only applies to taxpayers who have attained an unrestricted release condition - such as the attained age 65 condition, or taxpayers who have attained their preservation age and retired or otherwise satisfied an unrestricted release condition.

Additionally, this transitional measure can apply to taxpayers in respect of an income stream funded by a death benefit, as the superannuation interest supporting the income stream is entirely unrestricted non-preserved and, as such, the taxpayer can cash out all or part of the balance of that income stream to reduce their year-end TSB.

However, careful consideration must be given to this cashing out strategy. Generally, amounts cashed out cannot be automatically returned to the superannuation system except as new contributions within the relevant contribution cap space (if any). Further, unless the cashing out occurs after age 60, the taxpayer may incur income tax on the amount cashed out.

Will taxable superannuation earnings include capital growth accrued before 30 June 2026?

There is a second transitional measure which can be used to ensure that only capital growth since 30 June 2026 is included in the calculation of Division 296 fund earnings -and only for the purposes of calculating Division 296 fund earnings. The transitional measure does not apply to the calculation of the taxable income of the fund.

In this case the trustees may elect to reset the capital gain tax (CGT) cost base of CGT assets held by the fund on 30 June 2026 to their market value as at 30 June 2026.

This election is an 'all or none' election. If an election is made, then the election applies to every CGT asset held by the fund on 30 June 2026. The effect of the election is that the first element of the cost base will be the market value as at 30 June 2026 and each other element of the cost base (if any) is taken to be nil.

However, as the election is an 'all or none' election, there may be CGT assets held as at 30 June 2026 where it is not desirable for the market value to be reset. Careful consideration must be given whether to take advantage of this transaction measure.

In this paper, we show how three of these vulnerabilities help to explain concentrated equity's rise in popularity, and we bring to light underappreciated risks. However, first we set the stage by contrasting concentration in its ideal form to the reality of how it is often put into practice.

Concentration: Ideal and reality

Concentrated equity was a response to asset owners' search for higher returns in a post-financial-crisis environment of low interest rates and scepticism that equity beta would suffice to meet ambitious performance targets. A rationale for concentration arose from scrutiny of equity managers' stock picking prowess and how much they were charging for it.

Academic literature from the late 2000s captured frustration with fees. It accused diversified discretionary managers of 'closet indexing,' charging active fees for quasi-passive product by bloating their portfolios with stocks about which they knew little simply to absorb assets under management (AUM).

A skill-based motivation arose out of the 'best ideas' literature, academic research that found discretionary mutual fund managers' largest active positions were also their strongest performers. It did not seem much of an extrapolation from those results to suggest that focusing stock pickers on producing just a few 'high conviction' ideas might improve net-of-fee results delivered to asset owners.

Crucially, the foregoing motivations for investing in concentrated strategies does not imply that asset owners should hold an undiversified equity portfolio. They do not imply a rejection of diversification, just a shift in the locus of diversification from the investment manager(s) to the asset owner. The asset owner could select and construct a well-diversified collection of concentrated managers.

In assessing how well the concept of concentration translates into the real world, we would pose three questions:

Do concentrated managers actually deliver superior stock picking skill?

Unfortunately, our empirical analysis does not suggest that they do, as a group. In a broad study of U.S. long-only institutional equity strategies from 2013-2023, we found no evidence that concentrated managers delivered higher alpha. To be clear, the results do not imply that concentrated managers with exceptional stock picking ability do not exist. But they do suggest that asset owners should expect that they will have to work to find them, which begs a follow-on question.

Does implementing a concentrated allocation pose special challenges?

Yes. In fact, concentration increases the difficulty of manager selection. That is because all else equal, holding fewer stocks produces a return stream with higher active risk than a well-diversified portfolio. More noise means it will take more data (a longer track record), to confirm the signal-i.e. to conclude that the concentrated manager has alpha with any given degree of statistical confidence.

In addition, our empirical work showed how concentration presents challenges for risk control and performance analysis. Concentrated portfolios exhibit greater style drift, greater variation in risk exposures, and suboptimal tradeoffs between drivers of outperformance, like value and momentum. In addition to noisier returns, these characteristics likely reflect reliance on heuristic methods in portfolio construction.

Will asset owners actually implement a concentrated allocation in its ideal form?

Unfortunately, in our experience, the answer is No. Many investors who go down the path of concentration do not implement well-diversified allocations. Many hold narrow and biased collections of concentrated strategies, perhaps even a single manager or a few growthy ones.

The allure of concentration and the tendency to under diversify in its execution are hardly surprising, because both are tied to deeply rooted behavioural biases.

Preference for right skewness

One of these biases is a preference for right skewness. For thousands of years, people have been drawn to lotteries, games that offer the possibility of a large payoff, but where the chance of winning is small and paying to play is a losing proposition in the long term. This bias is pervasive in investing, too. Academic research has documented investors' willingness to pay up for assets whose return distributions have a 'fat right tail.' The tendency helps to explain important patterns in asset pricing, including the low-volatility mispricing and the value premium.

There is a direct connection between the preference for right skewness and the allure of concentration. For a mean-variance investor, diversification is definitively a good thing in concept, because holding more stocks reduces risk (all else equal). But that is not the case for an investor who wants a shot at an outsized payoff: diversification quickly tamps down the right tail of the return distribution. As a result, investors who prefer skewness might opt to hold just a few stocks, and perhaps stocks with a biased set of characteristics, e.g., load up on speculative growth.

However, concentration may materially increase the risk of significant portfolio underperformance over the long-term. Empirically, more stocks have performed poorly than well in the long run, and a small number of stocks have accounted for a large portion of market gains. Holding fewer stocks may significantly increase the risk of missing out on the few exceptional winners, which increases the probability that any chosen concentrated portfolio will underperform.

This concern is especially relevant in a world where many benchmarks have become highly concentrated, driven by stellar returns of stocks like the Magnificent 7 in the U.S. and the Taiwan Semiconductor Manufacturing Co Ltd (TSMC) in emerging markets. Their conspicuous performance has helped to normalise the idea of holding just a few stocks, and growthy ones at that. Ironically, however, the appropriate lesson is to diversify, because predicting in advance which few stocks will deliver stellar returns is an enormous challenge. One may get the theme right in many respects yet still miss out on upside.

Disproportionate focus on 'winners'

A second bias that helps to explain concentration's allure and that influences its implementation is a disproportionate focus on 'winners.' The financial media, for example, lavishes attention on managers that have generated exceptional outperformance-until they do not.

Famous examples of lionised managers whose stars quickly fell include Bruce Berkowitz and Bill Miller. But fawning manager profiles and lists of rising stars, the 30 under 30, best performing funds, and so on, make for enduringly effective clickbait.

Concentrated strategies are tailor-made to exploit the attention showered on outperformers. To illustrate why, consider an allocator who filters their choice set by screening for strong active returns. Whether or not the concentrated managers deliver superior skill, the allocator is likely to find concentrated strategies overrepresented in the resulting sample, especially at the top end of the range. That is because poorer diversification and higher active risk induce greater dispersion in concentrated managers' performance. Consistent with that explanation, we find empirically that concentrated managers are overrepresented in both tails of the active return distribution-the worst, as well as the best.

This problem is pernicious. Markets are noisy, and there are enough strategies in the marketplace that a decent number will throw off eye-catching track records simply due to luck. The hunger to find winners and the attendant willingness to believe ex post stories that attribute outlying outperformance to skill generates interest in those managers and their investing approaches for unsound reasons. As a group, concentrated strategies are built to appeal to this bias.

Performance chasing

Performance chasing is another pervasive bias that plays into concentration and its under diversified implementation.

In addition to behavioural roots, the staff at many institutions feel powerful incentive to recommend investing styles and strategies that have been performing well; they see significant career risk in making idiosyncratic or contrarian calls that do not work out.

During the years in which concentration grew in popularity, there is little doubt that performance chasing helps to explain many an implementation through allocations to growthy, tech-oriented portfolios in recent years.

Moreover, managers cater to investors misguided backward-looking thematic interests-closet indexing is hardly the only manifestation of asset gathering incentives gone awry. In the data-rich ETF space, academic research has documented that specialised-and relatively high-cost-ETFs, "tend to hold attention-grabbing and overvalued stocks and therefore underperform significantly ..."¹

Concentrated thematic investments in smaller, illiquid stocks exacerbate risks of chasing returns. As strong performance draws investor attention, new inflows may inflate prices, further boosting performance and drawing additional assets. This feedback loop poses risk to later investors, who are left holding the bag when the flow driven price momentum abates and expectations reset.

Key takeaways

Concentrated equity investing is alluring yet dangerous: it may seem like a natural solution to asset owners' need for higher returns, but it also taps into some of investors' most powerful behavioural vulnerabilities.

These biases help to explain concentration's rise in popularity, and they influence how it is implemented. Associated risks include bias in manager selection, long-term underperformance, and exposure to overvalued assets and crowded trades.

Conclusion

A central lesson of behavioural finance is that investors should be ever watchful of behavioural biases and incentives that distort their decision making.

Concentrated equity makes for an especially powerful example, because this investing approach happens to be so well-suited to exploit those vulnerabilities. Preference for right skewness, asymmetric focus on winners, and performance chasing help to explain concentration's rise to popularity over the past decade and have influenced how it has been implemented. But we see these dangerous influences at work in many investing contexts. Stay vigilant. fs

Note. The Australian Taxation Office (ATO) is expected to confirm indexation of the contribution caps in March, while indexation of the TBC has already been confirmed.

While individuals who have fully utilised their personal TBC will not benefit from the increase, there may be opportunities before and/or after 1 July for those who:

•  are yet to start a retirement phase pension

•  have not fully utilised their personal TBC and are looking to transfer additional amounts into retirement phase

•  have a transition to retirement pension and will meet a full condition of release before 30 June.

Summary of cap increases

The annual concessional contribution (CC) and non-concessional contribution (NCC) caps are expected to increase as shown in Table 1. The annual CC cap is set to increase to $32,500 and the annual NCC cap is set to increase to $130,000, which is equal to four times the CC cap on 1 July 2026.

Concessional cap advice opportunities and considerations

Pre-30 June 2026

Example

Peter, age 65 and retired, sold an investment property in February 2026, receiving a discounted capital gain of $200,000. He has no other income in 2025/26. His 30 June 2025 TSB was less than $500,000. He has access to the current year CC cap of $30,000 plus $100,000 of carry-forward unused concessional contributions from the prior five years.

Peter's financial adviser recommends he makes a personal deductible contribution of $130,000 into his superannuation account, which is the maximum he can contribute using catch-up CCs. 15% contribution tax will be withheld from the CCs.

This contribution will benefit Peter by:

•  increasing his retirement wealth in the low tax super environment

•  reducing his taxable income from $200,000 to $70,000 in 2025/26.

Post 1 July 2026

Non concessional contribution advice considerations and opportunities

Current NCC caps and TSB thresholds are compared with those that are expected to apply in 2026/27 with the:

•  general TBC set to increase to $2.1 million

•  annual NCC cap set to increase from $120,000 to $130,000.

New NCC advice opportunities

The increase in the TSB thresholds on 1 July 2026 may enable individuals to make NCCs in 2026/27 that they cannot make in 2025/26. This will be the case if their 30 June 2025 TSB was greater than $2 million but will be under $2.1 million on 30 June 2026.

These individuals may be able to:

•  make NCCs up to the annual cap of $130,000 in 2026/27

•  trigger the bring-forward rule in 2026/27-if their 30 June 2026 TSB drops below the two or three-year bring-forward TSB threshold

•  complete a bring-forward triggered in 2024/25, in 2026/27

•  utilise a recontribution or spouse contribution strategy

•  access a government co-contribution or spouse contribution tax offset (if eligible).

Enhanced NCC opportunities

Some individuals may be able to make larger NCCs by deferring the triggering of a bring-forward until 2026/27, when the higher TSB thresholds are set to apply.

For example, the increased TSB thresholds for 2026/27 may allow some individuals to delay triggering the three-year bring-forward while also making an NCC in 2025/26 below the annual NCC cap, provided their TSB stays below $1.84 million on 30 June 2026.

Example

Penny, age 67, has a 30 June 2025 TSB of $1.68 million, which is below the TSB threshold of $1.76 million to trigger the three year bring forward of $360,000 NCCs in 2025/26. She is not in a bring forward period.

As illustrated in Table 5 on the following page, deferring triggering the bring forward rule creates an opportunity to contribute more to superannuation.

If Penny limits her 2025/26 NCC contribution to the annual cap of $120,000, and if her TSB on 30 June 2026 is less than:

•  $1.97 million she can contribute up to $380,000 in total (option 2) instead of $360,000 (option 1), which is $20,000 more, or

•  $1.84 million she can contribute up to $510,000 in total (option 3) instead of $360,000 (option 1), which is $150,000 more.

Similarly, individuals who are only eligible to trigger a two-year bring-forward of $240,000 in 2025/26-with TSB of $1.76m to < $1.88m on 30 June 2025-may consider delaying their NCC until after 1 July 2026 to see if they are eligible to trigger a three-year bring-forward of $390,000 in 2026/27-with TSB < $1.84m on 30 June 2026.

Furthermore, individuals who are only eligible to contribute up to the annual NCC cap of $120,000 in 2025/26-with TSB of $1.88m to < $2.0m on 30 June 2025-may consider waiting to see if they are eligible to use the two-year bring-forward of $260,000 in 2026/27 -with TSB < $1.97m on 30 June 2026.

Helping individuals track and manage their TSB

It will be important to monitor affected individuals' TSBs as they approach the key 30 June 2026 TSB date. This will enable eligibility for certain contribution opportunities in 2026/27 to be determined. These include:

•  NCCs, including those made under the bring-forward rules, as well as those aimed at qualifying for a government co-contribution or the spouse contribution tax offset

•  personal deductible superannuation contributions

•  catch-up CCs.

Individuals can track their TSB and related information through their myGov account, via a linked Australian Taxation Office (ATO) online services account.

ATO online services displays information about a individual's TSB as at the prior 30 June, which includes:

•  accumulation account balances

•  retirement phase income stream balances

•  outstanding balance of a limited recourse borrowing arrangement (LRBA) for SMSF members who have borrowed to invest since 1 July 2018, if the LRBA is with a related party or the member has satisfied a full condition of release

•  in transit rollovers, less

•  amounts contributed to superannuation as structured settlements.

Beware of delays in accurate TSB information in myGov

Generally, myGov is the starting point to ascertain an individual's TSB. However, APRA regulated superannuation funds have until 31 October to report TSB values as at the prior 30 June 2026 (with the choice to report earlier). SMSFs report a member's TSB in the SMSF annual return which, in some cases, can be lodged up to 5 June 2027 in the following financial year (i.e. nearly 12 months after). This means there can be a delay in being able to access this information via myGov.

If a contribution needs to be made early in the financial year-for instance if an individual is turning 75, it may be necessary to estimate their TSB at 30 June 2026 to ensure the recommended contribution strategy can be implemented without triggering an excess contribution. Possible sources of information are:

•  myGov - to assist in identifying all super interests across accumulation and pensions

•  individual records - again to assist in identifying all superannuation interests

•  individual superannuation fund(s) - either annual statements or contacting the fund to request an exit value.

Remember the TSB captures the exit value of accumulation and account-based income streams, which can differ from the account balance.

If TSB estimates are used, it may be worthwhile leaving a buffer below the maximum amount. Otherwise, consider delaying contributions until later in the financial year, once the information is available on myGov.

Ways to manage an individual's TSB

If an individual's TSB is approaching a particular TSB threshold, there may be strategies that could be used before 30 June 2026 to help manage the TSB to enhance contribution opportunities in 2026/27.

These may include:

•  splitting eligible CCs made in 2024/25 to a spouse if not already done-prior to 30 June 2026

•  if an individual needs additional funds in the near term-for example, for upcoming expenses or as part of a spouse contribution strategy, consider making withdrawals from accumulation or pension phase before 30 June (assuming the individual has access to their superannuation)

•  deferring certain contributions until after 1 July (if eligible to do so), such as:

­downsizer contributions (if an eligible dwelling is sold later this financial year and the 90-days after settlement window overlaps into next financial year) small business CGT cap contributions.

TPA applies this same principle to portfolio construction - prioritising objectives, risks, and outcomes over predefined asset class labels. By focusing on the portfolio objectives, TPA opens the door to investments that investors might otherwise overlook.

Total portfolio approach in practice: Real world case studies

Australian Sovereign Wealth Fund case study: Managing cross asset interest rate risk

In 2019, Australia's Future Fund used TPA to identify rising interest rates as a key risk, prompting a reduction in portfolio duration by trimming exposure to long-dated assets such as late-stage venture capital. This included selling over AUD $6 billion in private equity across 2019/20, avoiding steep discounts and adding an estimated AUD $2 billion in value as rates later climbed and valuations fell. While the Covid-19 onset briefly reversed rate trends, the fund's conviction and long-term orientation ultimately led to a positive outcome.

Crucially, this move reflects a core TPA insight: interest rate sensitivity extends beyond fixed income. Equities, especially growth-oriented or long-duration assets, are also exposed to rate changes through valuation effects. The Future Fund's ability to act on this cross-asset opportunity highlights how TPA enables more holistic, dynamic risk management than traditional siloed approaches.

WTW investment case studies

Infrastructure debt case study: Investing beyond traditional asset class boundaries

A few years ago, we found a unique infrastructure debt strategy, considered an attractive addition to clients' portfolios. Due to the nature of the strategy, it did not fit neatly into an SAA defined asset class because it overlaps both real assets and private credit. However, it offered unique exposure to a thematic renewable energy trend.

In a traditional SAA framework, this opportunity would likely have been excluded for the following reasons:

•   Rigid asset class definitions: In an SAA framework, asset allocations are strictly defined so this investment does not clearly fit into a single category.

•   Siloed coverage teams: Competing asset class teams may limit collaboration, making it difficult to pursue idiosyncratic overlapping opportunities.

•   Narrow portfolio focus: SAA focuses on predefined asset classes, often ignoring the potential contribution of unique opportunities to overall portfolio outcomes.

In contrast, TPA's collaborative and integrated structure enabled the real assets and credit teams to jointly conduct due diligence. As a result, the opportunity was added to clients' portfolios, improving diversification and capturing thematic tailwinds.

Payoff example: The introduction of the strategy improved many of the top-level factors considered when managing portfolios, further illustrating the benefits of TPA. The radar chart depicted by Figure 1 highlights several of these factors, including improved risk-adjusted return figures, albeit at the cost of liquidity.

Fallen angels case study: Capturing credit opportunities between investment grade and high yield

Fallen angels are bonds that the credit rating agencies (S&P, Moody's, Fitch) once rated investment grade, but were later downgraded to high yield, often because the issuer's financial health declined. When this happens, prices often drop sharply. As selling pressure fades and companies work to regain their investment grade status, prices typically rebound to fair-market value and can often result in positive returns for investors that buy early. This is known as the 'fallen angel effect,' which can create a unique investment opportunity for two main reasons:

•   Market overreaction: Investors often oversell in response to downgrade news, pushing prices below fair value.

•   Forced selling: Investment policy statements or investment guidelines require many institutional investors to sell bonds that fall out of the investment grade universe, adding further downward pressure on bond prices.

In 2020, amid the market volatility caused by the Covid-19 pandemic, the BBB corporate bond segment-bonds with the lowest investment grade rating-had grown substantially, and companies were borrowing more than before the pandemic - both tailwinds for a strategy that capitalises on the fallen angel effect.

Given these tailwinds, we partnered with an investment manager to design a strategy that captured the fallen angel premium. Our investment thesis played out as expected: a wave of downgrades occurred in mid-2020, followed by a market recovery that benefited this strategy. Over the first 12 months of investment, the fallen angels index outperformed the high-yield index by 4.3% as highlighted by Figure 2.

This strategy works best in a TPA framework, but it is an unlikely strategy under an SAA framework for the following reasons:

•   Dynamism: TPA allows us to adjust allocations based on evolving market conditions and act on timely opportunities as they arise. In this case, it enabled us to deploy capital into a niche but attractive opportunity, something a fixed SAA framework would not accommodate.

•   Rigid asset class definitions: Similar to the infrastructure debt example, under SAA, corporate credit is typically divided into strict buckets: investment grade and high yield. Fallen angels sit between these categories, meaning they do not neatly fit into either. As a result, investors using SAA would likely overlook or entirely exclude fallen angels.

Catastrophe bonds case study: Diversification through uncorrelated risk

Catastrophe bonds, commonly referred to as 'cat bonds,' are structured financial instruments that allow insurers to transfer specific risks associated with natural or man-made disasters, such as hurricanes or earthquakes, to investors in the capital markets. By purchasing these bonds, investors assume the risk of catastrophic events in exchange for potentially higher returns.

The popularity of catastrophe bonds is growing because of:

•   increasing frequency and severity of catastrophic events

•   the insurance industry's need for more efficient risk management solutions.

As weather and disasters are not correlated to or dictated by markets or economics, catastrophe bonds provide strong diversification benefits relative to traditional asset classes, making them appealing in multi-asset portfolios. Looking ahead, the opportunity is supported by cyclical dynamics: after major loss events, demand for protection rises while supply decreases pushing premiums higher.

Catastrophe bonds do not fit well in an SAA approach because of their uncorrelated nature, lack of a benchmark fit and their deviation from conventional debt instruments. However, TPA's flexible framework allows for their inclusion. They were incorporated as part of a broader strategy aimed at enhancing the portfolio's return distribution and portfolio diversification given their uncorrelated returns relative to traditional asset classes.

TPA versus SAA: Key takeaways

•   TPA shifts portfolio construction away from rigid asset class labels and toward investment objectives, risk factors and overall portfolio outcomes.

•   SAA frameworks can miss opportunities and risks that cut across asset classes, particularly in complex or increasingly interconnected markets.

•   By assessing investments on their contribution to the total fund, TPA expands the opportunity set to include strategies that may sit between traditional categories.

•   Real-world examples, from infrastructure debt and fallen angels to catastrophe bonds, illustrate how TPA enables dynamic, cross-asset decision-making.

•   TPA improves portfolio resilience by finding hidden risk exposures and enhancing diversification, even when individual positions are relatively small.

•   For asset owners with multiple objectives, private market exposure or evolving risk environments, a TPA framework provides a more flexible and forward-looking portfolio than traditional SAA.

When a total portfolio approach makes sense

Just as genre-bending music invites listeners to experience sound in a more fluid and expressive way, TPA empowers asset owners to invest with greater creativity, responsiveness and alignment to their goals.

Investments like infrastructure debt, fallen angels and catastrophe bonds may not find a home in traditional SAA frameworks. But under TPA, investors can evaluate them on merit and contribution to the total fund's objective. In a world where markets are increasingly complex and interconnected, embracing TPA is like discovering a new musical language, one that harmonises innovation with intention and performance with purpose.

Background

When a client is permanently incapacitated, they may be eligible for a tax-free uplift that increases the tax-free component of the 'disability super benefit'.

While the tax-free uplift can provide some powerful tax and estate planning opportunities, it is often misunderstood and underutilised.

In this article, we explain:

•   when and how clients can access a disability super benefit and the associated tax savings

•   how the tax-free uplift is calculated

•   ways to enhance the tax-free uplift, and

•   key advice tips and traps.

Key take-outs

Here is a summary of the key take-outs.

Tax-free uplift is also available with disability rollovers

The tax-free uplift is not just applied when clients under age 65 receive one or more disability lump sums. It may also be available when making full or partial rollovers. This may include rollovers to commence a disability income stream or to retain the money in the accumulation phase of super for accessing at a later date.

Disability rollovers may also provide estate planning benefits

When rolling over a disability super benefit, the uplift in the tax-free component can help manage tax payable on super death benefits paid to non-dependent beneficiaries, such as adult children.

Tax-free uplift can be enhanced before and during a TPD claim

There are two potentially powerful strategies that could be used to generate a larger tax-free uplift. These are:

•   Establishing TPD insurance in a new super fund, where premiums are paid with personal contributions, not rollovers or employer contributions. If TPD is already held, consider 'Tips and traps - Insurance considerations' later in the article.

•   Making non-concessional contributions (NCCs) prior to rolling over a disability super benefit. This will increase the uplift in the tax-free component, enabling your client to start a larger tax effective pension. If social security is a consideration (for instance, the disability support pension), this will also allow the client to hold more money in the accumulation phase of super, where it is not assessed until they reach age 67.

There is a lot to consider when starting a disability income stream

Where a client wants to start a disability income stream, make sure you find out if they need to rollover to a different super provider to access the tax-free uplift. They might not need to. If they do need to roll over to a different super provider, keep in mind:

•   the new super fund will need medical evidence demonstrating that the client still meets the 'permanent incapacity' condition of release to commence a disability pension (where a 15% tax offset applies to taxable pension payments), and

•   there may be tax and other considerations.

Summary of key requirements for tax-free uplift

The following summarises the key requirements that need to be met to qualify for the tax-free uplift, with more details provided below.

Who can access benefits and tax concessions?

Permanent incapacity condition of release

If a client wants to access the tax-free uplift, they first need to meet the 'permanent incapacity' condition of release. To do this, the fund trustees need to be reasonably satisfied the member is unlikely, because of ill-health (physical or mental), to ever engage in gainful employment for which they are reasonably qualified by education, training or experience. Once this condition is met, all benefits accrued to that point will become unrestricted non-preserved.

Medical certificates

Medical certificates must be obtained from two 'legally qualified medical practitioners' before the:

•   fund trustees can apply the tax-free uplift on lump sum withdrawals and rollovers, and

•   the member can receive the 15% tax offset on pension payments under age 60.

Generally, most super funds will also use these certificates to be reasonably satisfied that the client has satisfied the permanent incapacity condition of release. These certificates do not last indefinitely. Where a period of time has elapsed (for example, 12 months), new certificates may need to be obtained to:

•   non-preserve additional contributions/growth

•   commence a disability pension, or

•   qualify for the tax-free uplift on future lump sum withdrawals and rollovers (if not already applied).

In ATO Interpretative Decision, Superannuation - Disability superannuation benefit: medical certificates (ATO ID 2015/19), the ATO confirmed that a trustee could rely on the original medical certificate to apply the tax-free uplift to more than one lump sum payment provided:

•   they are paid over a short period (in the case provided this was November for the first payment and the following April for the last), and

•   there is no evidence to suggest the individual's circumstances have changed in some relevant way.

ATO ID 2015/19 also outlines who may be considered a 'legally qualified medical practitioner'.

Contributions and earnings after meeting permanent incapacity definition

Generally, any contributions and investment earnings received after applying for permanent incapacity will be preserved. The client can access the preserved benefits if their medical certificates are still valid and their circumstances have not changed (for example, they have not recommenced employment). If the medical certificates are no longer valid, consider whether the client can obtain new certificates (that is, satisfy permanent incapacity again) or meet another condition of release (which may have different tax implications).

This Bill proposes voluntary spousal superannuation redistribution to address the gender superannuation gap. The mechanism would allow annual transfers between spouses with different super balances, subject to strict eligibility criteria.

Structure

The Bill is divided into two parts: 'Superannuation amendments' and 'Taxation amendments.'

'Part 1- Superannuation amendments' inserts a new section 32A into the Superannuation Industry Supervision Act 1993 (SIS Act). This section expressly clarifies that the binding operating standards issuable by the regulator with respect to regulated superannuation funds and approved deposit funds can encompass 'Standards related to rolling over or transferring amounts or the purpose of redistributing benefits between spouses.'

The remainder of Part 1 comprises new Division 6.7A of the Superannuation Industry (Supervision) Regulations 1994 (SIS Reg) titled 'Annual opportunity for spousal superannuation distribution'. These are operating standards that activate and detail how the scheme will operate.

'Part 2 - Taxation amendments' amends the Income Tax Assessment Act 1997 (ITAA 1997) and inserts new section 307-500. This requires that payments to a receiving spouse be comprised of (for accounting purposes) the same portions of tax-free and taxable components as the total withdrawal benefit of the transferring spouse. In other words, one cannot elect to solely transfer a tax-free proportion of one's withdrawal benefit to a receiving spouse.

Eligibility and operation

The proposed standards would apply to regulated funds and approved deposit funds.

This means that those in self-managed super funds and unfunded public sector superannuation schema (state or federal) will be unable to action a transfer to their spouse in the absence of targeted changes to extend coverage to such funds.

Moreover, amounts tied to defined benefit superannuation interests, benefits in the pension phase, and those subject to payment splitting or payment flags under family law arrangements may not be transferred or rolled over.

Eligibility criteria

Those who meet these threshold eligibility requirements must then ensure the following criteria are met:

•  The transferring spouse must have a greater withdrawal benefit than the receiving spouse.

•  Both the transferring and receiving spouse must have a single regulated superannuation fund.

•  The receiving spouse does not have a withdrawal benefit that is equal to or greater than the transfer balance cap for the year in which the application is made.

•  The receiving spouse has consented to the application being made.

•  The receiving spouse is younger than 65 years of age.

•  The receiving spouse is aged between their preservation age and 65 but not yet retired and makes a signed statement attesting to this fact.

Application process

An application may not be made where a successful application has already been made within the same financial year, or where an application made in a given financial year is still under consideration.

The trustee of a transferring spouse's fund (transferring trustee) must provide the trustee of the receiving spouse's fund (receiving trustee) with a copy of the application-to be made in a form prescribed in due course-within three business days of receiving it from the transferring spouse.

The receiving trustee must then communicate the value of the receiving spouse's withdrawal benefit to the transferring trustee within three business days from receiving a copy of the application.

Within thirty business days from receipt of the receiving spouse's withdrawal benefit value, the transferring trustee must action the transfer or rollover. We expect that the existing SuperStream rollover infrastructure would be utilised in the administration of the changes.

Spousal redistribution limit

The scheme allows the transferring spouse to transfer an amount that is the lesser of:

•  Half the difference between the value of the transferring spouse's withdrawal benefit and the withdrawal benefit of the receiving spouse at the time of the application.

•  The difference between the receiving spouse's withdrawal benefit and the transfer balance cap for the year in which the application is made.

Examples

•  If Toby has a $4 million superannuation balance, and his spouse Taylor has $500,000 in superannuation, Toby can transfer up to $1.5 million to Taylor-bringing Taylor's superannuation balance to the current $2 million cap.

•  If Sanath has $2 million in superannuation and Isa, his spouse has $500,000, Sanath can transfer $750,000 to equalise their superannuation balances at $1.25 million.

Evaluation

Creating the scheme through operating standards/regulation is a practical, approach that will allow the scheme to be adaptably iterated.

While this insertion of section 32A into the SIS Act aims to minimise the prospect of such operating standards being ultra vires, it is unlikely to have been strictly necessary.

Section 31 lists a several matters in relation to which the regulator may issue operating standards but already states that the regulator's power is not limited to the itemised matters.

It could be argued that clarification would be more appropriate or even helpful within section 62 of the SIS Act. This section lists the core and ancillary purposes for which a trustee must maintain the fund. This list currently canvasses the provision of benefits to dependants only in the case of death. This could be broadened in scope to allow for the provision of all benefits to also be for dependants of the member.

Consent and safeguards 

It is important that the receiving spouse (who is statistically likelier to be a woman) must consent to the transfer or rollover. Studies have shown that financial control and unsolicited gift giving is sometimes an avenue through which domestic violence and coercive control is perpetrated.

Ensuring that both partners consent to the transaction is a constructive means of mitigating any mala fide exploitation of wealth imbalances between the two parties.

Administrative challenges

Another interesting feature is the transferring trustee's obligation to refuse a transfer or rollover if it 'has reason to believe' that a receiving spouse aged between preservation age and 65 has in fact retired - despite making the necessary declaration that they have not done so.

Given that the only piece of information that the transferring trustee is obligated to obtain from the receiving trustee is the value of the receiving spouse's withdrawal benefit, it is unclear how the transferring trustee would ever obtain 'reason to believe' that the receiving spouse had made a misrepresentation in their statement.

If probity of process is the concern, the Act should require the transferring trustee to provide and corroborate the signed statement of a receiving spouse in this situation with the receiving trustee. The receiving trustee should be able to promptly confirm if the receiving spouse's account is in the retirement phase and may even be able to cross-check the presence or absence of recent employer contributions to help inform the assessment of whether the receiving spouse has actually retired.

Tax component considerations

Finally, the inability of the transferring spouse to determine the proportion of their transferred/rolled-over amount that is tax-free is perhaps a missed opportunity. The receiving spouse - likely to have a lower balance due to time spent out of the workforce- would enjoy even more equitable outcomes in retirement if the money placed in their account is tax-free when a condition of release is met.

Limitations

Addressing symptoms, not causes

In her tabled explanatory memorandum, Senator Hume observes that:

Splitting balances-using a roll over from one superannuation fund to another-is a genuine structural change that will directly tackle the gender super gap, one of the most systemic structural failures of the superannuation system.

A transfer of accrued withdrawal benefits from the name of one spouse to another would, on paper, certainly reduce the gender super gap. However - differences in the performance of separate funds aside - the receiving spouse gains no more or less amount in actual retirement savings than if the money were still held in their partner's superannuation fund.

This is because the proposal does not change the fundamental dynamics inherent in the typical family unit; namely that one partner is reliant on the other partner for a secure retirement. Whether retirement savings are held in the name of one partner or the other is arguably a question with little practical significance assuming that the household remains together in retirement.

Relationship breakdown considerations

One possible counterargument is that voluntary rollovers or transfers between spouses eliminates complexity or contention that may be present in future divorce or separation proceedings. However, as Senator Hume herself acknowledges:

Already in Australia, equitable splitting of superannuation is considered in divorce proceedings. This used to require a court order, but that is no longer the case. There are now standard forms and recognised tax treatments of a rollover amount from the super account of one partner to another at the end of a relationship.

Wealth concentration effects 

There is also an argument that wealthier Australians will disproportionately benefit from the change. Redistributions may be used to minimise exposure to the government's proposed  Division 296 tax on super earnings attributable to balances over $3 million (if/when legislated) and to minimise a wealthier spouse's prospect of exceeding the transfer balance cap in retirement.

Alternatives

If the gender super gap is to be tackled on more than just a balance sheet, in a more socially equitable manner, the system needs to create pathways for women to generate more retirement income savings, separate from what a partner may willingly redistribute.

Possible policy solutions that have already been touted include:

•  Carer credits: A form of 'carer credit', i.e., remuneration and/or superannuation contributions made by employers or governments in recognition for the unpaid labour undertaken by a woman in raising children or caring for family.

•  Enhanced contribution capacity: Increase the contributions caps and extend the catch-up contributions horizon for women generally, or for women who have taken an extended period of absence from the workforce to raise children or care for family.

•  Tax system realignment: Realigning the low-income superannuation tax offset (LISTO) with current income tax brackets to ensure 700,000 Australian women do not pay more tax on super than they do on their take home pay.

•  Investment strategy adjustments: Consider altering default investment settings for women who have taken a period of absence from the workforce and regular superannuation contributions; maintaining a higher risk profile for a longer period of time may, in some circumstances, be a desirable means to more quickly rebuild savings.

Conclusion 

The Bill is well-intentioned and an important public policy 'signpost' for this term of parliament but effectively tackling the gender super gap requires more than just paper-based redistribution.

It will require providing some form of reimbursement for the unpaid investment made primarily by women in the most important asset of all, the wellbeing of our community. fs

This paper explores key liquidity management strategies, including extending the tenor of FX forwards, optimising collateral usage, holding excess cash, reducing FX hedge ratios, and introducing cross-currency basis swaps. It also examines differentiated hedging approaches for public versus private assets, given their distinct liquidity profiles.

Hedging FX exposure from global listed and unlisted assets presents a range of challenges, including cost efficiency, regulatory compliance, operational complexity, and risk management. Among these, liquidity risk has emerged as the most critical concern, driven by settlement obligations during periods of AUD depreciation, replacement costs when rolling hedges in volatile markets, and regulatory expectations from the Australian Prudential Regulation Authority (APRA) and the RBA for prudent liquidity management.

Why liquidity risk is the main concern

Australian superannuation funds are steadily increasing their offshore allocations, driven by diversification objectives and deployment demands. As exposure to private and unlisted assets grows, FX hedging requirements-and the associated liquidity pressures-are rising even more rapidly, particularly given that funds typically hedge 100% of this exposure. This has heightened the industry's sensitivity to movements in the Australian dollar. As depicted by Figure 1 on the following page, the liquidity crunch of 2020 served as a stark reminder of the importance of maintaining robust liquidity buffers to navigate market dislocations. Looking ahead, even modest market disruptions could trigger significant stress, given the scale of offshore exposure now embedded across the sector.

Shorter-dated FX hedging significantly amplifies liquidity risk across trustee portfolios. Frequent settlements-often monthly or quarterly-create regular liquidity demands, requiring funds to maintain elevated cash reserves or liquidate assets to meet settlement obligations. This leads to performance drag and in stressed markets, such as during the GFC or Covid-19, these liquidity pressures can force asset sales at depressed valuations. To mitigate these risks, some funds reduce hedge ratios, however this introduces additional exposure to rapid AUD rebounds, increasing volatility and downside risk at the total portfolio level.

The Australian dollar has historically been procyclical, experiencing significant depreciations during periods of market turmoil. This means that hedging investment currencies back to AUD may result in substantial liquidity drawdowns when market conditions are unfavourable, particularly when risk asset valuations are declining. It is not uncommon for these liquidity drawdowns to exceed 20% of the notional hedge exposure. This drawdown pressure is often exacerbated when FX hedging programs utilise short-tenor-one to six-month-FX forwards. A notable example occurred during the Covid-19 market shock in March 2020, when the AUD fell approximately 15% against the USD, triggering up to $17 billion in daily margin calls across superannuation funds to meet FX settlement obligations.

The RBA in its Financial Stability Review, October 2025 reinforced the importance of liquidity risk management, noting that as the sector expands its foreign asset exposure and FX hedging activities, rollover risk and margin call pressures will likely increase. The report also highlighted that simultaneous stress events could force funds to "secure liquidity in ways that could amplify financial market stress."

Listed versus unlisted assets considerations

Superannuation funds are increasingly allocating capital across both listed and unlisted assets, each with distinct liquidity profiles and investment horizons. Listed assets-such as listed equities and bonds-are highly liquid and typically suited to shorter-tenor FX hedging strategies, with more frequent settlement requirements.

Conversely, unlisted assets-including infrastructure, real estate, and private equity-are less liquid and often held over extended periods, frequently exceeding 10 years. Hedging these assets requires careful consideration of liquidity constraints and the cumulative cost of rolling short-dated forwards over long time horizons.

For listed assets, funds can dynamically adjust hedge ratios and employ shorter-tenor FX forwards in response to market conditions. For unlisted assets, a more strategic approach is warranted, potentially involving longer-tenor instruments or a combination of FX forwards and cross-currency basis swaps to reduce rollover risk and manage liquidity more effectively.

While it is common practice to hedge currency exposure at the total portfolio level, this approach may overlook the differing liquidity risk profiles of listed versus unlisted assets. As allocations to global unlisted assets grow, superannuation funds should consider separating their hedging strategies to better reflect the characteristics of each asset class. Tailoring FX hedging frameworks to distinguish between listed and unlisted exposures allows for more precise liquidity risk management and can help avoid unintended consequences during periods of market stress.

The IFM Treasury team has been managing currency and liquidity risks associated with private assets for over 15 years through a hybrid approach that combines extended-duration FX forwards, cross-currency basis swaps, and FX options to manage downside AUD spot risk and reduce rollover pressure. This paper outlines the benefits and considerations of alternative liquidity and currency risk management strategies for Australian superannuation funds, including extending FX forward tenors, using cross-currency basis swaps, FX options, collateral optimisation, holding excess cash, and adjusting hedge ratios.

Alternative liquidity risk management strategies

As FX hedging programs grow in size and complexity, Australian superannuation funds must adopt a broader set of tools to manage liquidity risk effectively. To build resilience, funds are increasingly exploring alternative strategies that offer greater flexibility, reduce rollover risk, and align more closely with the liquidity profiles of their underlying assets.

In Table 1, a range of liquidity risk management strategies are outlined, summarising their key benefits and considerations to help funds tailor their approach based on portfolio needs and governance frameworks.

Extending tenor of FX forwards

Extending FX forward tenors beyond short-dated contracts-such as the commonly used 3 or 6-month tenors-to 2-3 years can significantly reduce rollover frequency and help mitigate liquidity shocks. This approach also better aligns hedge maturities with the cash flow profiles of underlying assets, particularly for long-term private investments. A laddered structure of longer-dated forwards provides predictability and smooths liquidity impacts during periods of AUD depreciation, lowering drawdowns compared to short-tenor hedges.

This approach also reduces operational intensity and stress during market turmoil, creating a more stable liquidity profile for superannuation funds. Hedges can be structured to maintain a uniform distribution out to two or three years, with rolls occurring three to six months before expiry to ensure certainty of near-term liquidity requirements.

As shown in Figure 2, over the last 20 years the annual liquidity drawdowns of the hedging strategies using 3-month FX forwards are significantly higher compared to the hedging strategies with longer tenors using 12-month and 3-year FX forwards for comparison strategies. The liquidity drawdowns exceeding 20% of the notional hedge have coincided with material equity market weakness (2001,'09,'16, '20 & '25), adding material liquidity requirements to investor hedging programs. This is often at the time when liquidity is scarce for investors, due to risk-asset volatility impacting redemptions and asset allocation rebalancing requirements.

However, longer-dated forwards introduce important considerations. They generally attract higher credit charges for non-collateralised positions, though these costs are often minimal compared to the expense of holding excess cash for margin requirements. Strong counterparty relationships and sufficient credit lines are essential to support extended maturities.

Another consideration is that FX forwards do carry some interest rate duration risk, this exposure remains relatively modest when tenors are kept within the 2-3 year range. Duration risk nonetheless requires an effective risk management framework. IFM has developed a Strategic Hedge Framework to help manage duration risk, alongside counterparty exposure and liquidity risk.

Importantly, forward points in FX forwards tend to be negatively correlated with AUD/USD spot movements. This means that when the AUD depreciates, the interest rate differential embedded in the forward contract often generates a positive return, helping to offset mark-to-market losses from the spot movement. This dynamic provides a natural cushion during periods of AUD weakness. The longer the tenor of the FX forward, the greater the potential offset from forward point movements-helping to smooth liquidity impacts and reduce the need for immediate cash settlements. From a total portfolio approach, incorporating longer-tenor FX forwards can also reduce overall portfolio volatility.

Combining long-dated forwards with alternative strategies such as FX options can further manage liquidity risk, ensuring any adverse impact from significant FX movements is experienced gradually, allowing time for portfolios to respond and for underlying assets to maintain cash flows.

Cross-currency basis swaps

Cross-currency basis swaps (CCS) provide an effective alternative or complement to FX forwards, particularly for extending hedge tenors beyond two years without introducing interest rate duration risk. Unlike long-dated forwards, which embed interest rate differentials and duration exposure, CCS exchanges principal and interest payments in two currencies, neutralising duration risk while delivering long-term currency hedging. This approach is especially useful when interest rate differentials create negative hedging returns, as CCS can extend tenor without locking in those costs.

CCS align well with long-term private asset profiles and can improve collateral efficiency when structured under credit support annex (CSA) agreements, often working best in combination with forwards for an optimal hedge structure. However, CCS involve more complex documentation and operational setup and require collateral and ongoing margining, making strong governance and operational capability essential.

FX options

FX options provide superannuation funds with a mechanism to manage downside liquidity risk in extreme currency moves. Specifically, options can be structured to protect against significant AUD depreciation (e.g., >10%), which historically has triggered large margin calls on FX forwards and collateral requirements. Unlike forwards, options provide asymmetric protection with a defined cost-limited to the premium-without daily margining. This makes them a valuable complement to existing hedging programs, particularly in mitigating tail-risk liquidity events.

Options act as insurance against sharp AUD declines, helping reduce the risk of sudden liquidity drains. Their cost is upfront and transparent, with flexibility to tailor strike levels and time horizons to match specific stress scenarios. However, premium costs can be high in volatile markets due to implied volatility pricing. Governance approval is typically required, and liquidity for very long-dated AUD options (beyond two years) remains limited.

Monetisation strategies and clear derivative use policies are also important considerations when integrating options into a broader liquidity management framework.

Collateral solutions

Using collateral-such as cash, bonds, or equities-to meet mark-to-market exposure can enhance credit terms and reduce hedging costs, while avoiding the need for large cash buffers. However, this approach introduces operational complexity in managing collateral, potential opportunity costs from encumbered assets, and the risk of procyclical margin calls during periods of AUD weakness.

Holding excess cash

Maintaining excess cash reserves provides immediate liquidity and operational simplicity, offering resilience during stress events. However, holding large cash buffers can significantly drag on performance, introduce benchmark tracking error, and expose portfolios to inflation risk. In adverse liquidity conditions, funds may be forced to sell liquid assets like equities at cyclical lows to meet FX settlements - precisely the scenario that a robust FX liquidity management framework is designed to avoid.

Reducing hedge ratios

Reducing FX hedge ratios is another strategy to alleviate future liquidity risk, though it increases portfolio exposure to currency movements. This approach lowers liquidity demands and introduces currency as a potential diversifier. However, it comes with key considerations: higher portfolio volatility, tracking error, and the risk of underperformance relative to benchmarks and APRA performance tests-particularly when AUD offers a yield advantage over the hedged currency.

Conclusion 

Effective liquidity management is critical for Australian superannuation funds as they continue to expand their global investment portfolios. Managing FX-related liquidity risk requires a multi-faceted approach that balances cost, flexibility, and resilience.

Extending the tenor of FX forwards can help reduce rollover risk and improve cash flow certainty, although it may involve considerations around pricing and counterparty exposure. Cross-currency basis swaps offer a way to extend hedge maturity without introducing duration risk and can be well-suited to match long-term private asset profiles. While they may require additional structuring and operational coordination, they present a valuable tool in the liquidity management toolkit.

FX options provide asymmetric protection against extreme currency moves, helping to mitigate tail-risk liquidity events without daily margining. Although premium costs can be elevated in volatile markets, options offer flexibility in strike and tenor design, making them a useful complement to traditional hedging programs. When used alongside other strategies-such as collateral optimisation, maintaining adequate cash buffers, and adjusting hedge ratios-these tools can significantly enhance a fund's ability to withstand liquidity stress.

Ultimately, a well-structured liquidity risk framework should incorporate robust governance, regular stress testing, and proactive engagement with counterparties and regulators. By diversifying liquidity management strategies and tailoring them to portfolio needs, superannuation funds can build greater resilience and ensure continuity through periods of market dislocation.

As superannuation funds grow, they face rising complexity: more members, more products, more data and heightened scrutiny from regulators and the public. They must balance cost efficiency with the need to deliver better retirement outcomes and superior member experiences.

At the heart of this challenge lies data

Every aspect of a fund's operations - from investment decisions and regulatory reporting to fraud detection and member engagement - depends on accurate, accessible and secure data. Yet many superannuation funds are hampered by legacy systems and siloed processes that were never designed for today's demands, let alone the massive operational scale expected in the next decade.

Industry consolidation is intensifying this pressure. Over the next several years, the number of funds will shrink dramatically, leaving 20 to 30 mega funds each managing hundreds of billions, if not trillions, of dollars. These organisations will need to operate at a level of sophistication never seen in superannuation. Without a unified approach to data, they risk inefficiency, compliance breaches and reputational harm.

To remain competitive and compliant in this new environment, many funds are exploring modern data platforms (MDPs) - integrated, secure and scalable foundations that unify data across the organisation, creating a single source of truth while enabling faster insights, seamless reporting, advanced analytics and AI-driven member services.

The drivers for transformation

The push towards enhanced data infrastructure is not just about technology. It is a powerful set of industry forces reshaping the sector: regulatory expectations, consolidation and scale, evolving member needs and cybersecurity threats.

1. Regulation and oversight are increasing

Regulators are significantly increasing their expectations around data governance and reporting. Funds are now required to provide audit trail-ready, granular data across every aspect of their operations, including investments, member transactions, valuations and risk management. Super funds must demonstrate they can collect, manage and report data accurately and consistently, with clear evidence of control over every stage of the data lifecycle.

They must also demonstrate active oversight of third-party providers, as outsourcing has become a key area of focus. Funds need complete visibility into where their data resides, who has access to it, and how it flows across internal and external systems.

Cybersecurity is another priority. Recent cyber incidents involving compromised member data have highlighted weaknesses in identity management and authentication controls. Regulators now expect funds to adopt stronger security measures, such as multi-factor authentication and real-time threat monitoring, to protect sensitive member information.

Artificial intelligence is also under the microscope. AI is increasingly being used to automate decisions, predict member behaviour and personalise retirement planning. However, without clear governance, these models can introduce bias, lack transparency, or cause unintended harm to members. Regulators expect funds to have explainable, ethical and transparent AI systems that can withstand scrutiny.

Example:

A super fund launches a tool that uses machine learning to recommend retirement strategies. Without governance, the model draws on incomplete data and produces biased outcomes, disadvantaging some members. In today's environment, this would trigger both regulatory intervention and reputational damage.

2. Managing unprecedented operational scale

Consolidation is reshaping the industry. As smaller funds merge or exit, larger entities are emerging with millions of members and vast amounts of assets under management. These mega funds face new challenges:

•    Data quality and data silo issues: Data quality is a common concern for organisations handling large and complex datasets. This is especially true for superannuation funds with multiple mergers. Duplicate data, missing data, relational inconsistency and typographical are common examples of data quality issues. Other sources of data issues can come with data silos, where data is spread across multiple, independent systems (from mergers or administrators) and controlled by different groups within and outside the control of the super fund. The challenges caused by data silos include data inconsistency, difficult data integration, data duplication and multiple data governance models. These problems can undermine user confidence in the data, hinder data-driven decision-making and lead to inaccurate or distorted insights.

•    Massive data volumes and data complexity: Super funds handle billions of transactions annually that must be processed and stored securely. This involves integrating data from multiple sources, including employers, custodians, administrators and regulators, each using different data structures and formats. The challenge lies in consolidating diverse master and transactional data, such as employee details, salary and super contributions.

•   Complex reporting requirements: Boards and regulators expect timely access to accurate, relevant and validated information.

•   Increased operational risk: A single system failure can affect millions of members and jeopardise trust.

Legacy systems cannot cope with this level of demand. Many rely on manual reconciliation, siloed third-party reporting and fragmented databases, slowing down operations and introducing error risks.

Example:

Following a merger, a fund inherits multiple data systems with conflicting definitions of 'opt in' under Treasury Laws Amendment (Putting Members' Interests First) Act 2019. Without a unified platform, reconciling these inconsistencies becomes a massive operational burden and a potential compliance issue.

3. Changing member expectations

Member demographics are shifting and expectations are rising:

•   A growing proportion of members are approaching retirement driving demand for more complex retirement income products and personalised advice.

•   Younger members expect seamless, digital-first experiences, from mobile access to real-time updates comparable to those offered by leading banks and fintechs.

•   Across all age groups, members want transparency and control over their retirement savings, as well as reassurance that their data is protected.

Meeting these expectations, funds need a unified view of each member - something that fragmented legacy systems can struggle to provide. Enhanced data integration can help funds deliver more personalised, secure services that build member confidence.

Example:

A member nearing retirement logs into their superannuation fund portal expecting tailored projections and recommendations. Instead, they must fill in pages of personal information that the fund already holds and receive generic content because the fund's systems cannot integrate data from multiple platforms. This erodes trust and engagement.

For example, while digital engagement is growing, member priorities differ significantly. Not all members actively engage with their super or use digital services extensively. Research shows a substantial portion of members remain passive, checking their balance infrequently. For these members, investing in sophisticated digital experiences may deliver limited returns. Funds must balance innovation with fee competitiveness, ensuring technology investments align with how their specific membership base engages with superannuation.

4. Growing cybersecurity threats

As custodians of trillions of dollars in member assets and sensitive personal data, superannuation funds are prime targets for cyberattacks, data security breaches and leaks of confidential information. Recent incidents targeting AustralianSuper, Rest, Hostplus, Insignia and Australian Retirement Trust have highlighted weaknesses in authentication controls and identity management systems, resulting in fraud, financial loss for members, data theft and reputational damage.

Enhanced data infrastructure can strengthen a superannuation fund's cyber resilience by:

•   centralising sensitive data in secure environments

•   embedding encryption and access controls throughout the data lifecycle

•   providing real-time monitoring and alerts for suspicious activity

•   enabling fast, accurate incident response.

Security as an ongoing commitment

While platform modernisation can improve security, it is not a silver bullet. Cybersecurity requires ongoing investment beyond initial infrastructure upgrades - including staff training, continuous monitoring and regular security audits. Platform consolidation, while offering benefits, can also create single points of failure. Additionally, stronger security measures can sometimes impact user experience, requiring funds to carefully balance protection with accessibility. The reality is that cyber threats continue to evolve, and security must be viewed as an ongoing operational priority rather than a one-time technology fix.

Navigating the transformation landscape

The pressures facing superannuation funds are real and intensifying. Regulatory expectations, operational complexity, member demands and cyber threats are driving many funds to reconsider their data infrastructure.

However, the path forward is not one-size-fits-all. The scale of transformation required depends on a fund's size, member demographics, existing systems and strategic priorities. What's clear is that data will be central to how funds navigate these challenges-whether through wholesale transformation or incremental improvement. fs

Note: This paper was first published in Actuaries Digital 

The high equity tolerance of US defined contribution plans is broadening, while allocations to private markets, particularly private credit and infrastructure, continue to expand - policy initiatives in the Netherlands, Australia, the UK, and Canada are encouraging domestic investment.

Scandinavian pension funds, supported by strong governance and thematic infrastructure strategies - digital and energy efficiency - are likely to further increase private credit exposure and deepen sustainability integration.

Partnerships among pension funds, insurers, banks, and asset managers will grow to reach scale and mitigate talent constraints, especially in private markets. At the same time, operational investment in risk systems, data hygiene, and compliance remains essential to support alternative investments.

Global backdrop

The world's pension assets are concentrated in 22 major markets and total some US$58.5 trillion, as at the end of 2024, with the US accounting for 65%. In all, the top seven markets - the US, UK, Japan, Netherlands, Switzerland, Australia, and Canada - account for US$53.5 trillion.

Assets grew in 2025, supported by positive performance and contributions, though they remain below 2021 highs. The long running shift from defined benefit (DB) to defined contribution schemes (DC) continues - and DC assets have grown faster (6.7% per annum vs 2.1%) and now form an increasing share of totals.

Pension fund equity and bond weightings have gradually declined since 2003 while private markets, real assets, and alternatives rose to circa 20%. Average allocation at end-2024 came in at 45% equities, 33% bonds, 20% others, and 2% cash. Home bias continues to fall. Private credit, infrastructure, and private equity remain the fastest-growing asset classes, supported by outsourcing and partnerships due to capacity constraints. ESG integration has become mainstream as frameworks such as the Corporate Sustainability Reporting Directive (CSRD) and Securities and Exchange Commission (SEC) rules make sustainability risk assessment mandatory.

SAA has been the standard, emphasising a static and formulaic approach to asset allocation. However, just as Dylan's electric guitar was met with scepticism and criticism, the shift towards a total portfolio approach (TPA) has faced its own resistance.

The total portfolio approach represents a more holistic and dynamic approach to investing, one that considers a broader range of factors and allows for more flexible decision making. Despite the initial reluctance, more and more asset allocators are recognising the benefits of TPA and are beginning to adopt this framework.

In the following Q&A, this paper delves into the journey from an SAA-dominated landscape to a more dynamic, TPA-driven future, and discuss steps necessary to make this transition.

TR 2013/5 Income tax: when a superannuation income stream commences and ceases was updated in June 2024, introducing a new approach to processing underpaid pensions, requiring SMSF trustees and professionals to understand these changes thoroughly.

The one-twelfth rule still applies

Before delving into the changes affecting underpaid pensions, it is essential to clarify that the one-twelfth rule remains in effect.

The rule provides limited circumstances in which SMSF trustees can self-assess, allowing an account-based pension to continue. It means that an exception applies only if all the following conditions are met:

• The trustee did not pay the minimum pension amount in that income year because:
  • An honest mistake resulted in a small underpayment (which does not exceed one-twelfth of the minimum pension payment in the income year), or
  • There were matters outside of their control
• If the income stream were in the retirement phase, the exempt current pension income (ECPI) exemption would have continued if the minimum payment was made.
• When the trustee became aware that the minimum payment was not made, they either:
  • made a catch-up payment as soon as practicable (generally within 28 days) in the current income year or;
  • treated a payment made in the current income year as being made in that prior income year.
• If the catch-up payment were made in the prior income year, the minimum pension standards would have been met.
• For all other purposes, the catch-up payment is treated as if it were made in the prior income year.

Most importantly, the rule applies at the fund level (not per member or per member interest) and can only be used once. It ensures that the exception remains a special provision for genuine errors or circumstances beyond the trustees' control, rather than a routine allowance.

Where the exception has previously been used, the trustee can write to the ATO to ask whether the Commissioner will make an exception.

When a pension ceases

A superannuation income stream is taken to have ceased for income tax purposes if the requirements for paying the pension are not met in a financial year.

Some of the reasons include exhausting the capital, transferring the pension to another fund without the member's consent and the death of a member (unless there is a reversionary pension in place).

The most common reason a pension ceases is the failure to satisfy the minimum annual pension payment requirements. When these requirements are not met, the pension is deemed to have stopped from the beginning of the income year for income tax purposes.

As a result, any payments made throughout that income year, or in subsequent years, are classified as lump sum payments. This classification means that the fund is not entitled to claim exempt current pension income (ECPI) in relation to those payments.

While there has been no change to the treatment of underpaying a pension for tax purposes, the new approach applies for superannuation purposes, which will impact SMSF trustees and professionals.

Previously, where the minimum pension was paid in the following year, the pension effectively continued for superannuation purposes.

This is no longer the case.

Commuting a pension

Starting 1 July 2024, when the pension fails, it cannot be reinstated or continued in future years to meet the SIS requirements.

Any income stream payable from the pension must cease, and a new income stream must commence. The only way that can happen is by commuting the pension.

Commuting a pension cannot happen automatically. A commutation can occur only if there is an agreement between the member and the trustee, with the trust deed playing an essential role in determining the appropriate course of action.

It means that checking the trust deed's requirements is critical. For example, the trust deed may state that a commutation will take effect upon the trustee's acceptance of the commutation request.

Starting a new pension

In line with the definition of "commencement day" under Reg 1.03(1), a new pension commences on the first day of the period to which the first payment of the pension relates.

The commencement day is determined by the terms and conditions of the pension contract between the trustee and the member, the trust deed rules, and Schedule 7 of SIS.

While the commencement day may occur before the due date of the first payment, the commencement date cannot precede the date of the member's request or application.

The result is that until the trustee identifies that the pension was underpaid in a prior financial year, it sits in limbo without the ability to claim ECPI, which may take several days, months or even years.

Any future payments are treated as lump sums under those circumstances.

No backdating documents

It also means that the documentation to commute a pension and start a new one cannot be backdated, because neither action can occur before the member actively learns of the underpayment.

It is not until afterwards, when the member and trustee agree on a course of action, that the necessary documents are commenced to commute the pension and start a new one.

Backdating documents to a date before the underpayment has been identified is fraud and illegal. It carries severe penalties for the trustee and the SMSF professional assisting them. The ATO can also disqualify trustees for serious breaches and refer an accountant to their professional body for disciplinary action.

TBAR event

Given that ceasing a pension is also a transfer balance account reporting ("TBAR") event, the SMSF will need to report a debit to the ATO through the TBAR.

As the TBAR event occurs at the end of the income year in which the pension failed, i.e., 30 June, the TBAR will generally be lodged after the due date.

At the time of writing, the ATO has not imposed any penalties for failing to lodge a TBAR on time.

The best practice is to lodge the 'failure TBAR' manually via the ATO Portal based on the pension's value. The value must also include the amount of ECPI the fund would have received had the pension not failed during the year.

Commuting a pension that failed to meet the minimum is not a TBAR event, but starting a new pension will require the assets to be valued at market value and a TBAR to be lodged.

Consequences of underpaying a pension

An underpaid pension has different effects on everyone in the SMSF ecosystem.

For an SMSF trustee, the inability to claim ECPI for an undetermined period can adversely affect retirement savings. Additionally, the tax components of the failed pension are mixed with the member's accumulation account from the start of the year.

SMSF accountants, on the other hand, will have to undertake significantly more work to process an underpaid pension. It will require several complex steps due to the difficulty of processing it through SMSF administration software.

It is also critical that pensions are routinely reviewed before the end of the financial year and in early July to help identify failed pensions sooner. Implementing data feeds in the SMSF administration software can go a long way to mitigating this risk.

Luckily, the ATO has confirmed it will not apply compliance resources to reviewing underpaid pensions before 1 July 2024 if they were commuted correctly in line with TR 2013/5.

SMSF auditors must address the timing issues of when the underpayment was detected and whether the commutation and pension documents were backdated.

They will also need to consider the impact on both financial statements and member reporting, including ensuring that all necessary adjustments have been made to reflect the pension's cessation accurately.

Moving forward, members may choose to create multiple pension accounts to ensure that pension failures affect only a small portion of their balance, rather than the entire balance, thereby increasing the workload for all SMSF professionals.

Conclusion

Regardless of the complexities and risks associated with an underpaid pension, SMSF trustees and professionals need to remain vigilant and proactive in monitoring pension payments and compliance requirements.

Using SMSF administration software with a data feed will help detect and transparently handle discrepancies promptly. Also, ensuring the minimum is paid before June each financial year will safeguard members' retirement outcomes, minimise administrative burdens, and avoid regulatory penalties.

Ultimately, adopting a proactive approach that combines careful oversight, timely reviews, and reliable technology will help ensure pension payments are managed accurately and efficiently.

The regulator's view revealed that some superannuation funds, collectively responsible for millions of members' savings, lacked urgency in improving how they communicated with retirees, despite over 1.5 million members already in the retirement phase holding approximately $575 billion in assets. With more than 2.5 million Australians set to enter retirement over the coming decade, the stakes are significant.

ASIC commissioner Simone Constant delivered a clear message to the industry, noting that only one-third of Australians approaching retirement felt confident about their financial future. The review found that some trustees offered one-size-fits-all retirement communications aimed at pre-retirees, thus missing critical opportunities to engage with members throughout retirement. Most concerning was the absence of specific retirement communications for vulnerable members across all reviewed trustees.

The regulatory scrutiny arrived more than three years after the retirement income covenant obligations commenced in July 2022, yet some funds had failed to address identified gaps. This represented not just a compliance failure, but a fundamental breakdown in serving members at their most vulnerable life stage.

Redefining vulnerability in Australia's retirement system

The traditional understanding of vulnerability in superannuation is far too narrow, according to experts who have studied the system's shortcomings. Katja Hanewald, Associate Professor in the School of Risk and Actuarial Studies at UNSW Business School, said retirement circumstances vary significantly from individual to individual.

"People differ widely in wealth, health, and family situations and must navigate complex decisions as they enter and move through retirement," explained Hanewald, who explained that this complexity extends beyond simple demographics. Retirees, for example, need to coordinate superannuation with the Age Pension, aged care, or family transfers, while she noted that unexpected health shocks or cognitive decline can make these decisions exponentially harder.

Research from the Conexus Institute has found that unexpected health shocks, such as hospitalisation or the onset of chronic illness, can rapidly undermine financial decision-making capacity, particularly for retirees with declining cognitive ability. Furthermore, cognitive decline significantly increases the risk of suboptimal investment and withdrawal decisions as early impairments reduce confidence in managing finances.

Looking to 2026, the outlook is shaped by ongoing geoeconomic uncertainty. The gold price broadly reflects macroeconomic consensus expectations and may remain rangebound if current conditions persist. However, taking cues from this year, 2026 will likely continue to surprise.

If economic growth slows and interest rates fall further, gold could see moderate gains. In a more severe downturn marked by rising global risks, gold could perform strongly. Conversely, a successful outcome from policies set by the Trump administration would accelerate economic growth and reduce geopolitical risk, leading to higher interest rates and stronger US dollar, pushing gold lower. These alternative scenarios are depicted by Figure 1 in the attached paper.

Additional factors, such as central bank demand and gold recycling trends, could also influence the market. Most importantly, gold's role as a portfolio diversifier and source of stability remains key amid continued market volatility.

From 1 July 2026, employers will need to pay superannuation guarantee (SG) contributions on payday, with contributions reaching the employee's fund within seven business days.

The government first announced payday super in the 2023/24 Federal Budget, followed by design rules, a consultation paper and then draft legislation. The Bill formalised these proposals and set the framework for implementation.

The Australian Taxation Office (ATO) released Practical Compliance Guideline (PCG) Draft PCG 2025/D5 alongside the Bill, outlining its compliance approach for the first year of payday super. The PCG was open for consultation through November 2025. In its guidance, the PCG acknowledged industry concerns that employers may not have sufficient time to deploy, test and embed changes before commencement. This recognition is important, but the timeline remains tight and key difficulties raised during the consultation process remain unaddressed in the new law.

Key features of the new rules

• Introduction of 'Qualifying Earnings' as the base on which superannuation is to be paid, essentially replicating 'ordinary time earnings'.
• Superannuation must be in employees' accounts within seven business days of pay day - with some exceptions, such as for new employees and out-of-cycle payments.
• Annual maximum contributions base will apply instead of quarterly limits, that is, superannuation is paid on all Qualifying Earnings until the cap is reached and then stops.
• Updates to Single Touch Payroll (STP) and SuperStream reporting will be required to accommodate payday super and Qualifying Earnings - this means payroll systems will need configuration changes. Employers must report both QE and super liability in STP.
• Shortfalls in superannuation payments will match the amount that was paid late or underpaid, rather than being calculated using the separate formula formerly in place. SCG is now calculated on QE and assessed by the ATO.
• Interest on shortfalls will apply until superannuation is paid, rather than when disclosure is lodged. Interest now compounds daily at the general interest charge rate.
• There will be changes to the manner in which penalties and the general interest charge may apply or be remitted.

Last year, we predicted that 2025 would see continued US economic exceptionalism while the rest of the world stumbled out of their doldrums. We also warned that Donald Trump's policies would increase volatility, as investors wrestled with the question: Will growth trump inflation?

This largely played out, with the US experiencing exceptional above-trend growth, while Europe, emerging markets and Australia saw growth recover from its 2024 lows. However, as Trump's focus oscillated between his pro-growth policies and protectionist agenda, we witnessed significant swings in both equity market performance and economic outlook following Liberation Day. Investors keep asking us: Is the wild ride over? Unfortunately, we believe it is not.

A new market protagonist

As governments around the world shift from a decade of fiscal constraint, we're truly in a regime where fiscal policy plays a leading role in economic outcomes. This is a 180-degree change from a period of fiscal austerity - where loose monetary policy was doing everything it could to boost inflation up towards central bank targets - to a period of fiscal largesse, where central banks will be forced to keep rates higher for longer to bring inflation back down towards their target.

Governments will be forced to spend on defence, upgrade infrastructure, realign supply chains, and secure access to critical resources, on top of dealing with increasing inequality and delivering on the populist policies they promised in order to get into government.

This fiscal spending will lead to higher debt levels, requiring higher growth and inflation to inflate the debt away. Higher inflation will likely lead to higher economic volatility, but also positive equity-bond correlations, leading to more asset price volatility.

We've been warning about a more heavy-handed approach from governments since we published our regime shift work a few years back. The invisible hand of Adam Smith has morphed into the very visible hand of policy makers. 2025 saw more of our signposts ticked, for better or worse. Fiscal expansion has continued with the passing of Trump's One Big Beautiful Bill, which will add U$3.3 trillion (tr) to the national debt over the next decade. This is not a US-centric shift. Germany has lifted its fiscal brake and allowing for an additional €1tn in borrowing for defence and infrastructure. The US also expanded its industrial policy by starting a 'nuclear renaissance' but also directing capital towards preferred industries, buying direct equity stakes in Intel and MP Materials.

These regimes are inherently more unstable, so we do not believe the volatility of 2025 will disappear in 2026. Policy driven economies are far more susceptible to economic or market jolts, as the economy realigns with the will of the government. However, the good news is that we believe global growth will remain resilient in 2026, with policy makers doing everything they can to keep the economy humming along. Our updated global growth and inflation forecasts for 2026 reflect this outlook.

We've spoken about tariffs ad nauseum, but critical mineral access is a key part to the current China negotiations.

We also saw the erosion of central bank independence, with Kugler unexpectedly resigning to be replaced by a more dovish Miran, along with Trump's continued efforts to fire Lisa Cook and even oust Jerome Powell. This has also seen the Federal Reserve (Fed) prioritise their employment mandate, cutting rates on job concerns, while inflation has remained above target for over five years. I do not highlight these points to criticise these decisions, but more to highlight the fact that we're continuing to tick off the checklist for a higher inflation world.

Most of these factors vary from one superannuation fund member to another, leading to answers that are inherently personal and unique. To help simplify this complexity, some organisations have developed general guidance to help inform and educate members - the most publicised figured being those published by the Association of Superannuation Funds of Australia (ASFA).

In addition to the standard figured provided by ASFA, many superannuation funds also provide personalised super forecasts to their members - through annual statements or access to superannuation calculators - that may help answer the question: "How much super will I have at retirement?"

As actuaries that specialise in helping superannuation funds answer this question, we have observed that the assumptions underlying super forecasts provided by funds and the widely publicised ASFA guidance can differ significantly.

When these differences are not clearly explained, they may lead to confusion and undermine the confidence superannuation fund members have in their retirement estimates, potentially discouraging engagement with the adequacy question.

In this paper, we explore ASFA's approach to estimating the lump sum value required to maintain a certain spending level in retirement. We consider how this approach compared with industry practices and discuss opportunities to improve alignment and transparency.

The government has listened to criticism of the two most egregious features of their original proposal:

• the taxation of unrealised gains
• the lack of indexation of the threshold

and changed both.

If legislated as announced, the new version will also be delayed until 1 July 2026 and the first important date will become 30 June 2027. While actual legislation is not expected to be passed until early July 2026 it had better be quick though - even 1 July 2026 is not that far away.

What does the new approach look like?

Philosophically some things have not changed. The Division 296 tax (Div 296 tax) is still proposed to be an extra tax over and above normal superannuation taxes. Again, it looks like it will be a personal tax - albeit based on things that are happening in the member's superannuation fund(s). And again, it will be up to the member as to whether they pay it personally or withdraw it from their superannuation.

However, there are some significant changes as follows:

• There will now be two thresholds: $3 million and $10 million
• There will be an extra tax of:
  • 15% on the 'earnings' associated with the proportion of the member's total superannuation balance that is over $3 million
  • A further 10% - so bringing the total to an extra 25% - on the 'earnings' associated with the proportion of the member's total superannuation balance that is over $10 million. This second tier is the new and obviously bad news for those with over $10 million in superannuation.
• Both the $3 million and $10 million thresholds will be indexed to inflation - albeit not every year. Like a lot of other thresholds, they will go up in jumps of $150,000 and $500,000 respectively.
• Earnings will be worked out by the superannuation funds themselves. Once the Australian Taxation Office (ATO) identifies someone who is subject to the extra tax(es) they will contact their fund to ask for more information.
• The earnings amount will be "based on its [the fund's] taxable income" and calculations will be "closely aligned to existing tax concepts". It looks like there will be scope for at least funds to come up with someone that's "fair and reasonable", rather than having to report the exact amount for each member - the exact calculation is difficult for some large funds. But most importantly, earnings for this purpose will not include unrealised capital gains.

This paper explains agentic AI and how it can help superannuation funds elevate operational performance, strengthen regulatory compliance and deliver a superior member experience - all without replacing their existing technology infrastructure.

Australia's superannuation fund assets have reached record levels, fuelled by strong investment returns, increased contribution rates and membership growth. However, with growth comes added operational complexity, increased member servicing demands and heightened regulatory scrutiny. For instance, the Australian Prudential Regulation Authority (APRA) has intensified its focus on monitoring service delivery to improve oversight, fund performance and member outcomes.

The Australian Securities and Investments Commission (ASIC) cites improving member servicing as a "strategic priority" and recently levied a record penalty on a large trustee for breaches of member obligations, citing repeated human errors and inadequate system and processes as root causes.

Clearly, superannuation funds must do more than deliver strong investment returns. It is imperative they modernise their operations, strengthen systems and uplift member servicing, all while satisfying regulators and their boards that they are meeting their fiduciary obligations. Members themselves are accustomed to seamless digital consumer experiences in their everyday live, and they expect the same from their superannuation funds: they expect instant information access, personalised service and deeper insight into their finances.

With funds feeling the squeeze of members expecting better service standards but lower fees, there is little margin for large-scale system upgrades to support the broadening spectrum of delivery needs. Some of this pressure might be alleviated if the funds could make more effective use of their data, but many lack the capability or resources to fully extract its value.

In most cases, the Federal Circuit and Family Court of Australia looks at superannuation separately from the parties' other assets and debts. This is called a "two-pool" approach. In this article, we are assuming that a two-pool approach is being used.

How are superannuation entitlements likely to be distributed in a property settlement?

Case law provides some guidance about how superannuation entitlements are distributed in a property settlement.

When considering whether a super split is appropriate, it is important to consider whether the day-to-day contributions of one party contributed to the growth of the other party's superannuation.

For example, if one party ceases work to be the primary carer of the children, they are indirectly contributing to the growth of the other party's superannuation. By staying home to care for the children they enabled the other party to work and accumulate superannuation.

The length of the relationship will often determine the appropriateness of a superannuation split. This approach is applicable in Victoria. You should seek advice from a family law specialist in your state.

For example:

Long-term relationship (10+ years)

In long-term relationships, an equalisation of the whole of the parties' superannuation (see more on this below) is likely to be considered appropriate.

Short-term relationships (5 years or less)

In short-term relationships, a superannuation split may not be appropriate. If no super split occurs, each party would simply retain their own superannuation entitlements.

Medium-term relationships (between 5 years and 10 years)

In medium-term relationships, an equalisation of the superannuation accumulated by the parties during the relationship (see below) may be appropriate.

The Federal Circuit and Family Court of Australia can determine whether there should be a distribution of the parties' superannuation entitlements. In addition to the length of the parties' relationship, the Court will consider:

• whether the parties have children or dependants;
• each party's respective superannuation balance at the start of the relationship (i.e. their initial contribution of super);
• the age and health of the parties and their ability to accumulate superannuation in the future;
• the nature of the parties' financial relationship (i.e. did they intermingle their finances); and
• whether it is just and equitable for there to be a superannuation splitting order.

These matters can be nuanced, and so appropriateness of a superannuation split will differ on a case-by-case basis. You should seek legal advice about your entitlement to a super split, regardless of the length of your relationship.

Attacks against multiple funds

In April 2025, news broke of coordinated cyberattacks across several superannuation funds, affecting thousands of members. While the funds responded quickly to recure accounts, the incident resulted in member implications ranging from unauthorised financial withdrawals through to anxiety due to uncertainty as to whether they have been targeted.

The primary attack entry point is understood to have been credential stuffing, a common cyberattack technique exploiting compromised usernames and passwords from previous data breaches unrelated to the funds. This was followed by deliberate attempts to change personal details such as telephone numbers and bank information before withdrawing funds.

In the aftermath, there was diversity in communication strategies - whether media statements were made, timing of direct member communication, and channels used.

Maturity of super's cyber posture

Following the attack, various commentators pointed to the super industry's perceived lower cybersecurity posture compared with other parts of the financial system.

There are opportunities for funds to continue their investment in defences such as multi-factor authentication (MFA) and extend into newer capabilities such as phish-resistant password less/passkey authentication, which are beginning to become more prevalent in other industries.

There is also a trend beyond user authentication - traditional checks based on password credentials - towards enhanced identity verification at key transaction points to make sure that a person really is who they appear to be.

While this risk-sharing model helps superannuation funds manage long-term obligations and is the fundamental basis of insurance, it does raise ethical concerns in price discrimination, particularly around the socio-economic factors influencing life expectancy.

When considering the drivers of life expectancy/mortality risk, there are a number of broad groups of driving factors as described in Table 1. These categories can intersect and compound each other, adding complexity. For instance, lifestyle choices may be influenced by demographic factors, or environmental risks can be compounded by occupational exposure.

A question to consider is which of these risks should be pooled?

Perhaps a more nuanced question would be, in the context of lifetime income products, which of these risks should be pooled without commensurate adjustments to pricing for cohorts with different risk profiles?

In some countries, it is already prohibited to charge gender-specific annuity rates, while there has been increasing activity globally and within Australia regarding the use (or otherwise) of generic screening results in the pricing of different insurance products.

But here is where it can all come undone. That dream project comes with hidden traps that can quietly erode retirement savings - or worse, trigger penalties that undo all your good work.

Too often successful business owners and high-net-worth individuals are led astray by seemingly simple property development deals that fall foul of complex compliance rules.

This paper will walk through how to build wealth through property development in an SMSF the correct way - not through a checklist of rules, but through the story of how smart planning protects your future.

Can an SMSF really undertake property development?

The straight answer is yes - but only under a strict set of rules designed to safeguard members' retirement savings.

SMSFs investing in property development is considered a legitimate investment, provided it is carried out in compliance with superannuation law and regulatory requirements.

By law, an SMSF exists for one purpose: to provide retirement benefits - or benefits in cases of ill health or death - to SMSF members. Every property development project must satisfy this sole purpose test, and fund trustees have a responsibility to ensure all decisions are made in the best interests of SMSF members.

This means the SMSF's involvement in property development cannot provide you, your business, or your family with present-day benefits. There can be no cheap rent, no favourable deals, no use of the fund as a personal finance vehicle.

Every dollar spent, every contract signed, every deal done must be an arm's length dealing and conducted strictly on arm's length terms. That means everything happens on commercial terms, supported by independent valuations and proper documentation.

The rules are strict for good reason - they protect retirement savings from unintended risk, and SMSFs invested in property development must always comply with these principles.

This shift marks a recalibration from historically underweight positions, with insurers increasingly targeting alternative assets, private markets and differentiated fixed income strategies.

This strategic pivot highlights a broader narrative unfolding across the Australian insurance industry: a search for yield, diversification and inflation-resilient investments in an environment riddled with geopolitical risk, policy uncertainty and changing regulatory landscapes.

From risk mitigation to re-risking

During the height of the pandemic, risk mitigation was paramount. Insurers significantly de-risked their portfolios, reducing exposure to volatile asset classes in favour of cash, sovereign bonds and short dated defensive corporate bonds. However, the investment environment of today presents a different picture.

Now, insurers are facing persistent inflationary pressures, rising claims costs and margin compression - all of which require more innovative and returns-generating capital allocations. The industry's move towards risk-neutral weighting is not merely a reversion to pre-COVID norms but part of a broader structural trend.

This broad drive towards risk-neutral weightings is largely focused on alternative assets - especially private markets, as well as a spectrum of fixed income strategies.

Major Australian insurers have been ramping up exposure to:

• private credit
• infrastructure debt and equity
• absolute return strategies.

This preference aligns with global institutional investment trends, where the search for uncorrelated, illiquid premium-bearing assets is shaping asset allocation decisions across pension funds, insurers and sovereign wealth vehicles.

Infrastructure, for instance, offers long-dated, inflation-linked cash flows, making it attractive to insurers with long-term liabilities. Meanwhile, private credit continues to gain favour due to favourable borrower dynamics, the retreat of traditional bank lending and higher yields across direct lending strategies.

The top seven companies paid over half the dividends in calendar year 2024, which is pretty much the case most years. This included the four major banks, BHP, Fortescue and Woodside Energy Group.

That is, this local 'magnificent seven' paid more in dividends than the other 193 companies in the S&P/ASX 200 combined.

Majority of the dividends are paid by a small group of companies.

Looking at it another way, if you split the index in half, the 100 highest dividend payers paid 97% of all dividends paid, with the other 100 companies accounting for just 3% of the total.

The concentration of dividend payers is not just at company level, but also at sector level.

Banks make up 30% of the dividends paid, and when the big three miners, BHP, Rio Tinto and Fortescue are included, it is again very close to 50% of the dividends from the financials and materials sectors.

Add in the oil and gas companies in the energy sector, and other metals and mining in the materials sector, and we get almost 60% of dividends by dollars paid coming from just banks and resources.

If liquidity is not managed well, funds may have to sell assets quickly, potentially for a value less than expected. Liquidity management ensures funds can meet their liquidity requirements, including ensuring beneficiaries can redeem investments, when required, in a range of market conditions. If liquidity stress arises to the extent that it cannot be met by a super fund's existing resources, it can also - as a last resort - refuse to honour member requests to switch investment allocations or (with APRA approval) member redemptions.

Prudential requirements

APRA Prudential Standard SPS 530 on Investment Governance outlines key requirements for the management of investments by superannuation funds, with a strong emphasis on liquidity management. SPS 530 requires superannuation fund trustees to establish an appropriate investment governance framework. This includes formulating an investment strategy that addresses various risks, including liquidity risk.

Trustees are mandated to develop, maintain, and implement a liquidity management plan as part of their investment strategy. This plan should cater to the fund's ability to meet both expected and unexpected cash flow requirements without impacting investment returns. APRA expects funds would demonstrate an understanding of the key sources of liquidity, the certainty as to its availability and reliability and the potential for these sources to deteriorate. Funds need to demonstrate adequate liquidity management practices commensurate with the nature, risk and complexity of investments and business operations.

Trustees need to demonstrate how their liquidity risk tolerances are informed by characteristics of the fund and its investment options through consideration of benefit design, member demographics, the range of investment options offered and the level of transactional activity. Liquidity management in SPS 530 also includes requirements for asset valuation governance and stress testing.

Trustees must ensure the accurate valuation of assets and conduct stress tests to assess the impact of various scenarios on their liquidity position. Overall, SPS 530 sets a robust framework for liquidity management, ensuring that superannuation funds are well-prepared to handle cash flow requirements and risks, thereby protecting members' interests and promoting financial stability.

To be clear, there is no indication that a crisis is imminent. The federal government has operated with a deficit for much of its existence, and this has not resulted in significant challenges for wider the bond market or the broader economy.

That said, the increasingly perilous debt dynamics could eventually create problems without some sort of corrective measures, and it is prudent to examine the scenarios that could play out should we ever get to that point.

What is a sustainable level of yields for US Treasuries

Over the past two decades, US debt held by the public has risen from about 60% of gross domestic product (GDP) to nearly 100% tolday, mainly due to the fallout from heightened deficits following the global financial crisis (GFC) and COVID-19. Forecasts like those from the Congressional Budget Office (CBO) project similar deficit spending for at least the next decade.

Deficits are expected to continue at or near current levels

Until recently, the US interest burden has remained subdued, despite the deficit, as the ballooning debt stock has been offset by low interest rates. However, the interest burden has begun increasing as interest rates have risen closer to long-term historical levels. Some projections suggest that by 2050, interest payments on federal debt could double as a share of GDP and take up more than a third of government revenue.

While there is hope that economic growth will outpace real interest rates, this is highly uncertain. If it fails to stay ahead of interest rates, the debt situation could deteriorate rapidly. When the interest burden exceeds nominal growth, this means debt would be unsustainable even if governments run balanced budgets.

Historically, Treasury yields have rarely gone above the interest burden as a percentage of GDP. If interest rates settle modestly below the economic growth rate, that could leave 10-year US Treasuries below 4.5%, absent a large upshift in growth or inflation, although a more significant shock to rates may not be out of the question. That said, a crisis sparked by mass flight from Treasuries seems unlikley.

The US government's ability to issue debt exclusively in its own currency and see predictable demand from investors who utilise Treasuries as the predominant safe asset of the world provides a unique level of flexibility. Outside of Treasuries, the investable universe of large, liquid, realtively safe and convertible debt is small.

• a financial audit (Part A)
• a compliance audit (Part B)

The financial reports generally include the fund's statement of financial position as at 30 June, the operating statement, a summary of significant accounting policies and other explanatory notes.

The Australian Taxation Office (ATO) regulate SMSFs to ensure the financial reports are presented fairly in all material respects, in accordance with the accounting policies described in the notes to the financial report (financial audit) and to ensure compliance with the SISA and SISR (compliance audit).

A SMSF auditor must be registered as an approved self-managed super fund auditor. The Australian Securities & Investment Commission (ASIC) is the body which regulates registration of a person wanting to be registered as an "approved SMSF auditor". The auditor must also comply with the auditing standards made by the Auditing and Assurance Standards Board.

The ASIC website provides a register of approved SMSF auditors.

How often must My SMSF Audit be Undertaken?

The SISA and SISR requires the financial reports and operations of a SMSF to be audited annually. The SMSF annual return (SAR) cannot be lodged until the annual audit report has been issued. The audit report is not required to be lodged with the fund's SAR.

What Happens if My SMSF does not have a Financial and Compliance Audit?

Failure to complete an audit means the SMSF trustee is unable to lodge the SAR which combines tax and regulatory returns.

The SIS Act and the Tax Act can enforce administrative fines for late submissions, which may escalate into more severe penalties and potentially compel the fund to dissolve if it continues to neglect the submission of its SAR. If the SAR is more than two weeks overdue, the ATO changes the fund's status on the Super Fund Lookup site from 'complying' to 'regulation details removed'. The fund's status is updated on the first business day of the following month after the SAR is submitted and is accessible the next day. In the meantime, APRA-regulated funds are prohibited from processing rollovers to the SMSF, and many clearing houses may reject employer contributions. While the status continues to be listed as 'regulation details removed' rollovers between SMSFs or to an SMSF can result in delays or possible rejections.

Example - A self-managed super fund SAR is overdue by 2 months and is audited (no material breaches) and then lodged on 10th June 2024. The ATO will update the SMSFs status to 'complying' on the 1st of July 2024 being the first business day of the following month and the updated status is available on the Super Fund Lookup site on the 2nd of July 2024.

The ATO will reject the lodgment of the SAR if the auditor details or the date the audit was completed are not included. Furthermore, penalties and other sanctions may be applied to a trustee, auditor or tax agent/fund administrator of a SMSF who makes a fraudulent declaration affirming the audit was conducted, especially if they misuse an auditor's registration and other details.

What is Auditor Independence?

A crucial factor when looking for SMSF Audit Services is that they must be based on an impartial external party. The independence of a SMSF auditor is required under the SISA and SISR as well as by the auditor's professional body.

An auditor is required to have independence of mind and independent in appearance.

The code of ethics specifically excludes an SMSF auditor from undertaking an audit in relation to the following:

• a partner with the audit firm is a trustee/member of the SMSF
• immediate family of the auditor is a trustee/member of the SMSF
• the auditor has a close personal or material business relationship with a trustee/member of the SMSF
• the auditor has reciprocal auditing arrangement ie each auditor audits each other's SMSF
• the auditor's firm has a management responsibility for the SMSF
• the auditor, their staff or their firm provides administration services to the SMSF such as preparation of the financial statements or bookkeeping. An exception applies to services which are routine or mechanical with appropriate safeguards put in place.

The ATO are concerned about the following:

• auditor independence
• failure to bring immaterial breaches to the trustee's attention ie separation of assets
• reporting reportable contraventions to the ATO
• insufficient evaluation of evidence obtained ie market valuation of unlisted assets
• unsigned documents and insufficient documentation

The ATO may refer the auditor to ASIC who can impose various sanctions including imposing a condition on an auditor's registration, suspending, cancelling an auditor's registration or disqualifying a person from being an approved SMSF auditor.

Can My Accountant Also Act as My Auditor for My SMSF?

Generally, no except if the preparation of the financial statements, member reports and tax return are routine or mechanical services.

Historically, the traditional model included the provision of accounting services to an SMSF whilst a separate arm of the same organisation undertook the SMSF audit with controls in place to ensure the separation of duties and independence of the auditor.

However, updated independence requirements set out in APES 110 Code of Ethics for Professional Accountants (including independence Standards) changed the auditing landscape. The updated code was effective on 1 January 2020 but the ATO allowed for a transitional period until 1st July 2021 before undertaking enforcement activity.

It is important to understand what routine or mechanical services are.

A SMSF trustee is responsible for all decisions made in relation to the coding of all cash and non-cash transactions undertaken by the fund. Routine and mechanical services would not apply to an accountant selecting the accounting software, setting up automatic data feeds for the trustee, coding of transactions or establishing the general ledger, checking the information has been correctly coded or it is accurate.

Services which are considered routine and mechanical include the following administration services as outlined in APES 110 Code of Ethics:

• Word processing services.
• Preparing administrative or statutory forms for client approval.
• Submitting such forms as instructed by the client.
• Monitoring statutory filing dates and advising an Audit Client of those dates.

Example - Routine or mechanical services

A SMSF trustee sends the accountant/administrator an excel spreadsheet listing all of the cash and non-cash transactions which is coded, and the accountant mechanically feeds it into the specialist SMSF software. The accountant/administrator does not check or confirm the entries are correctly classified or in accordance with SISA or SISR. A data feed is in place which was set up by the trustee who is responsible for the allocation of the automatic data. The accountant/administrator merely inputs non-automatic data and cranks out a copy of financial statements, member reports and tax return. No bank reconciliations, tax calculation review, member contribution caps or other checks are made as this is the sole responsibility of the trustee.

However, the provision of routine and mechanical services by an accountant/administrator would be relatively unusual as their role is to provide accounting and tax assistance and can often also involve tax planning and advice, tax calculations of current and deferred tax liabilities (or assets) relating to the financial statements, assist in tax disputes, investment and strategic advice (if licensed) and advice on what the contribution caps are and the tax consequences of allocating contributions to members.

What is an Approved SMSF Auditor?

An approved SMSF auditor needs to be registered by the ASIC and must:

• be a natural person who is an Australian resident.
• hold prescribed qualifications which can include a degree, diploma or certificate in accounting and also includes studies in auditing
• have prescribed practical experience at least 300 hours of work auditing self managed superannuation funds under the direction of an approved SMSF auditor in the 3 years immediately before applying to be an approved SMSF auditor
• have passed a competency exam conducted by ASIC
• is capable of performing the duties of an approved SMSF auditor
• is unlikely to contravene the obligation of an approved SMSF auditor
• is a fit and proper person

To continue to be fully compliant the SMSF auditor must:

• complete 120 hours of continuing professional education over 3 years
• comply with ongoing obligations of the ASIC competency standards
• comply with the independence standards
• comply with the relevant Australian auditing standards and assurance engagement standards
• continue to hold an up-to-date policy of professional indemnity insurance

What is a Compliance Audit?

The fund auditor has to gather sufficient external evidence to support compliance with the SISA and SISR. The audit report includes specific sections and regulations which must be audited. The emphasis is on related party transactions and to ensure the SMSF's investments are made with the sole purpose of maintaining the fund to provide benefits for the retirement of its members or beneficiaries if the member dies before retirement.

What is a Financial Audit?

When auditing SMSF the auditor has to gather sufficient external evidence to support that the assets and the liabilities stated in the signed financial reports actually existed at 30th June, are materially stated and legally held by the fund. The audit also reviews if the income derived, and the expenses incurred by the fund in a financial year are at arm's length.

When Auditing an SMSF What does an SMSF Auditor do?

The auditor engages with the SMSF trustee to undertake audit services and gathers evidence to support their findings. The auditor sets out the engagement in a formal letter. A SMSF auditor must be appointed by the trustees at least 45 days before the due date of the fund's lodgment of their SAR. An independent audit report must be issued within 28 days after the SMSF trustee or, in practice, their SMSF Accountant has provided all necessary documents.

The auditor issues a management letter to the trustee to notify them of any breaches they found whilst undertaking the audit and requests the trustee to rectify it. If any of the breaches are material and result in a Part A (financial audit) or a Part B (compliance audit) qualification a qualified audit report may be issued. A qualified audit report is provided to the trustees and is not lodged with the ATO, but it is noted in the fund's SAR and the trustee must also include if the Part B qualification has been rectified. Additionally, an auditor must lodge an Auditor's Contravention Report (ACR) for more serious reportable breaches of SISA or SISR identified during the audit within 28 days of the audit's completion directly with the ATO.

It is always best practice for the trustee to work with the SMSF auditor and their accountant or administrator to rectify the breaches identified during the audit. The ATO take into account the actions taken by the trustee which can limit the penalties if the ATO is satisfied that the trustee genuinely made a mistake and puts processes into place to avoid breaches in the future.

Audit Considerations of a Reportable ACR in Relation to Rollover of Member Benefits

One of the major ATO concerns is a member receiving benefits before they are entitled to them. It is crucial that an auditor obtains evidence that a member rollover from their SMSF to another SMSF or APRA fund has been received by the receiving fund and not get diverted into the member's hands. SuperStream must be used to rollover benefits to another fund with some minor exceptions which include rolling to or form a non-complying fund, in-specie rollovers and internal rollovers.

Under SuperStream the payment standards under the SISR dictate that the transfer of a rollover must be done within 3 business days after receiving all the information required to process the request. The auditor must report the failure of the transferring fund to comply with the payment standard in an ACR where any of seven criteria is met. An example of one of the seven criteria includes a financial threshold test where the total value of all contraventions is greater than $30,000. A lot of rollovers would meet this specific threshold and may be reportable.

There is no real mischief when the timeframe fails due to problems with the SuperStream system. However, the auditor has no discretion and must report the breach to the ATO via an ACR.

What Audit Documentation Does the Auditor Require?

The auditor reviews the establishment documents of the fund such as the governing rules and any updates, trustee minutes, declarations, investment strategy as well as the signed financial reports for that financial year. Depending on the specific circumstances of the fund, the auditor may need additional documents as audit evidence, though this is not a complete list.

• copy of signed rental agreements
• external evidence to support the rental terms and conditions when the tenant is a related party
• bank statements to show the title and to confirm the bank balance and possibly any large or unusual cash transactions
• pension documentation
• life insurance certificates
• contract of purchase for a property
• external evidence to support valuation of property
• signed financials of unlisted unit trust or unlisted company
• external evidence of the valuation in relation to the unlisted trust or company
• bank statement for the unlisted trust/company to verify the existence and valuation of the asset
• confirmation of employer and member contributions
• loan contracts and other documents in relation to limited recourse borrowing arrangement (LRBA)
• contract notes or other evidence of listed equities and the shareholder number or the chess number so the existence and value can be verified externally

Key Takeaways

• an auditor who conducts an SMSF audit must be an approved registered SMSF auditor
• a SMSF auditor conducts an audit to ensure the fund is compliant with superannuation laws and regulations as well as ensuring assets and liabilities of the fund are fairly presented in the fund's financial reports
• a self managed super fund audit must be conducted annually
• audit work includes gathering required information to support the findings in an independent SMSF audit
• the financial records of a SMSF include statement of financial position as at 30 June, the operating statement, a summary of significant accounting policies and other explanatory notes
• a SMSF auditor must ensure their independence is not compromised
• accounting firms should ensure they do not conduct audits for their client's SMSF where they also prepare the fund's financial statements and provide tax advice

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.

This paper will examine the consultation papers and what they could mean for superannuation trustees seeking to stay compliant.

The retirement income covenant

Trustees of regulated superannuation funds have obligations (the retirement income covenant) to:

• 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, as part of general continuous improvement expectation.

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.

In 2017, a new category of retirement income products was introduced into the Superannuation Industry (Supervision) Act, known as Innovative Retirement Income Streams (IRIS). These rules were introduced to allow longevity products that have the potential to provide consumers with higher income, greater flexibility, and the ability to participate in investment markets - all while delivering income that cannot run out.

How do the new IRIS products compare for today's retirees and what are the key differences?

To answer this question, let's look at a 70-year-old retiree who is looking at two different lifetime income products. Both options are based on the same lump sum investment of $100,000. The retiree must weigh the benefits of security and simplicity from the guaranteed CPI-linked annuity against flexibility and potential upside (or downside) from the IRIS.

Just as we wouldn't expect a bank account and a share portfolio to deliver the same results - because they serve different purposes and have different risk profiles - comparing lifetime income products is about understanding the trade-offs between security and potential returns.

The basics: two pathways to lifetime income 

CPI-linked lifetime annuity 

Most readers will be familiar with CPI-linked annuities. The income starts at a particular dollar amount per year and increases with inflation each year as reflected in the Consumer Price Index or CPI, providing regular, stable purchasing power for life. The insurer offering the annuity takes on the investment risk, inflation risk and longevity risk.

For retirees, CPI-linked lifetime annuities are typically considered as a secure, guaranteed, inflation-linked income.

To meet the lifetime obligations - which may extend for 40 years or more per customer - insurers must use careful actuarial assumptions and hold sufficient capital, including shareholders' funds, to back the guarantees.

The CPI-linked annuity option in our example uses a $100,000 investment that will pay a starting income of $5,908 per annum. The amount rises each year in line with increases in the Consumer Price Index. It offers unmatched certainty but no exposure to investment markets.

IRIS product 

There is a range of different IRIS products now available in Australia. Unlike CPI-linked annuities, an IRIS can unbundle the longevity insurance from the investment-guarantees. This allows products to be created that deliver lifetime income but still participate in market performance.

A typical IRIS works as follows: at commencement, the retiree's lump sum investment is converted into an income stream. The income level gets increased (or decreased) each year based on the performance of an underlying investment portfolio, which is usually one or a number of investment options - as might be offered under an Account Based Pension or ABP. Just like an ABP, some IRIS products allow switching between these investment options. In fact, an IRIS can potentially be described as an ABP with longevity protection.

The exact mechanics for how income levels adjust are defined in the product rules and will be set out in the Product Disclosure Statement.

The starting income is determined using actuarial factors based on the retiree's age and life expectancy as well as a common feature known as the "hurdle rate".

The chosen hurdle rate plays a crucial role in how most IRIS products operate. Chart 1 shows how a higher hurdle rate means a higher starting income level, but future income will rise more slowly thereafter.

In this paper, we take a deep dive into the convertibles market, looking at the different types of convertibles and their use in credit portfolios - and the potential reasons why convertibles, and particularly the active managers that use them, have underperformed expectations.

What are convertible bonds?

Convertible bonds are a type of debt issued by companies as an alternate form of financing to the typical inssuance and debt or equity, with characteristics somewhere in between the two. A convertible bond is structured as a fixed rate bond, with a call option embedded within, allowing the bondholder to covert the security into equity of the issuing company, once the company's stock price moves above a certain threshold (known as the option's strike price). Convertible bonds may be either mandatory or non-mandatory; that is conversion to stock is forced or optional once the equity price reached the strike price.

To compensate for this added benefit within the bond, the fixed yield of the bond component is typically lower than that of an otherwise comparable fixed rate bond issued by the same or similar entity. This is clearly beneficial for those able to issue convertible bonds, as the lower coupon to the investor means a lower cost of capital for the issuer. Typically, these issuers are sub-investment grade companies who are seeking cheap sources of funding - in decades past, this was often after tapping other lines of debt and equity. However, this has changed - with many issuers today being high-growth high-ROE issuers where every dollar reinvested is worth any potential stock dilution, that is, cheaper funding costs allow higher reinvestment which in turn further perpetuates the company's growth (and ROE) despite the stock dilution.

Legislative overview

The Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 (Bill) proposes to insert new Division 296 (Div 296) into the Income Tax Assessment Act 1997 (Cth) (ITAA) to impose an extra 15% on certain member's superannuation balances.

Broadly, from 1 July 2025, the Div 296 tax will apply where a member's total superannuation balance (TSB) exceeds $3 million and there has been an increase in their TSB at the end of the relevant income year (as adjusted for a wide range of withdrawals and contributions) compared to their TSB just before the start of that income year. This movement in the adjusted TSB is termed 'superannuation earnings'.

The proportion of the superannuation earnings that corresponds with the percentage of an individual's TSB that exceeds $3 million makes up the 'taxable superannuation earnings' (TSE). The TSE will be assessed to the individual and subject to tax at the rate of 15%.

The Bill also proposes to make a number of exceptions and numerous other consequential and miscellaneous amendments to the ITAA, Taxation Administration Act 1953 (Cth) and other Commonwealth laws to give effect to this measure.

There is considerable complexity to the new tax and this article provides a simplified analysis of several key aspects of Div 296 that is due to commence on 1 July 2025 for the 2025-26 and subsequent income years.

How this Bill will work

An individual has TSE for an income year if their TSB at the end of that year is greater than $3 million and the amount of their superannuation earnings for the year is greater than nil. (Note that the Greens are seeking to reduce this threshold to $2 million).

Once again, we are in the midst of a technological revolution - this time being driven by artificial intelligence (AI) attracting enormous amounts of capital and generating eye-catching share price gains for companies seen to be at the leading edge like the Magnificent Seven - Apple, Amazon, Alphabet, Meta Platforms, Microsoft, NVIDIA and Tesla.

Privately held OpenAI, the company behind ChatGPT and the trigger for the AI wave, has seen its valuation skyrocket. From around US$20 billion in 2021 to an estimated US$300 billion in March, this year, (following a funding round led by Japanese investment company SoftBank), OpenAI has increased in value fifteenfold in just four years.

A paradox emerges

While these tech giants' investors have enjoyed thumping gains, businesses adopting AI have so far reported underwhelming productivity or profitability improvements.

The Gartner Hype Cycle provides an insight into this disconnect, illustrating a common trajectory for new technologies - from inflated expectations to eventual widespread productivity.

According to Gartner, AI is moving through the Trough of Disillusionment, a phase where early hype gives way to the hard realities of integration and operational challenges.

This phase also intimates that while we may witness a dip in excitement as projects stall or fail to meet grand expectations, the surge in research, investment, and foundations being laid are very real and should eventually deliver meaningful benefits. The next 1-2 years are expected to be critical for AI to deliver tangible returns and begin to substantially lift mainstream business productivity. 5

This pattern mirrors the late 1990s internet boom where early excitement got ahead of practical business applications until companies mastered integration, leading to transformative outcomes. The current phase indicates that while AI's potential is undeniable, businesses must navigate a period of testing and learning, and refinement to achieve scalable impact.

This paper summarises the reforms, the comparative approach internationally - with a spotlight upon Australia - the detail of the proposed changes and their rationale. Finally, we discuss the next steps and further legislation being proposed.

Outline of reforms

The Chancellor of the Exchequer, Rachel Reeves, gave her first Mansion House speech on the evening of Thursday 14 November 2024. Describing the UK financial services industry as "the crown jewel in our economy", the Chancellor outlined several significant reforms to the pensions market.

The key takaways are the proposed changes to the Local Government Pension scheme (LGPS) and to multi-employer defined contribution workplace pension schemes, intended to consolidate the funds into megafunds.

Following the publication of guidance on the pooling of LGPS assets in 2015, the 86 administering authorities came together in groups of their own choosing to establish eight asset pools. The goverbment proposed measures to further consolidate these megafund asset pools.

Additionally, the government will consult on setting a minimum asset value requirement for default arrangements in multi-employer defined benefit contribution schemes, as well as a limit on the number of default arrangements. There are currently around 60 different multi-employer schemes, each investing savers' money into one or more funds.

The government's proposals would likely lead to a reduction in the number of defined contribution master trusts and contract-based defined contribution providers.

Megafunds: The view from Australia

The Chancellor highlighted international evidence to show why consolidation of the LGPS and defined contribution schemes would be positive. References were made to Canadian and Australian pension (superannuation) funds. Canadian pension schemes invest around four times more in infrastructure, while Australian pension schemes invest around three times more in infrastructure and 10 times more in private equity, such as high-growth businesses, compared to defined contribution schemes in the UK.

Representing 19% of all contraventions, SMSF trustees are more likely to raid the fund's bank account when they are financially stressed in either their personal or professional lives.

The Australian Taxation Office (ATO) estimated that SMSF trustees illegally accessed apporximately $250 million in the period 1 July 2021 to 30 June 2022, with an additional $232 million withdrawn as a loan to a member.

While members are allowed to access their superannuation after meeting a condition of release - and there are some legitimate reasons why a member can use their superannuation beforehand - it does not always play out that way.

Unfortunately, there is a fine line between a loan and illegal early access, with SMSF trustees walking the compliance tightrope in the eyes of the ATO.

Illegal early access

Where trustees access some or all their retirement savings without meeting a condition of release, it is considered illegal early access.

The most common conditions of release include when the member:

• has reached their preservation age and retires
• has reached their preservation age and begins transition-to-retirement income stream
• ceases an employment on or after the age of 60
• is 65 years of age (even if they have not retired)
• has died.

There are also special conditions of release before a member reaches their preservation age that include:

• terminating gainful employment
• permanent incapacity
• temporary incapacity
• severe financial hardship
• compassionate grounds
• terminal medical condition
• First home super saver scheme (FHSS).

While SMSF trustees may also be encouraged by promoters of illegal early access schemes to withdram money from their SMSFs, the trustees will still be help responsible by the ATO.

It is essential to note that funds obtained through an early release of money cannot be reimbursed, and any attempt to return these funds will be considered a new contribution by the member.

As we look forward, one of the questions investors continue to ask is whether gold has reached a peak or has enough fuel to push higher. Using our Gold Valuation Framework, we analyse what current market expectations imply for gold's performance in the second half of 2025, as well as the drivers that could push gold higher, or lower, respectively.

If economists and market participants are correct in their macro predictions, our analysis suggests that gold may move sideways with some possible upside - increasing an additional 0%-5% in the second half. However, the economy rarely performs according to consensus. Should economic and financial conditions deteriorate, exacerbating stagflationary pressures and geoeconomic tensions, safe haven demand could significantly increase pushing gold 10%-15% higher from here. On the flipside, widespread and sustained conflict resolution - something that appears unlikely in the current environment - would see gold give back 12%-17% of this year's gains.

Just 3% of SMSF assets are allocated to offshore investments while a massive 16% of assets are allocated to cash. In comparison, larger superannuation funds allocate 38% of their assets to offshore investments and hold 9% in cash.

Given the strong performance of global equities in recent years, it is reasonable to assume that returns in SMSFs would have underperformed the larger - and presumably more professionally run - superannuation funds.

The data, however, tells a different story:

• As at end of the December 2024 quarter (most current data available at time of writing), SMSF net assets totalled $981 billion, having risen an impressive 38% over the prior four years.
• Compared to APRA's superannuation statistics for large superannuation funds (large super), total net assets stood at $2,986 billion as at the end of the December quarter, having also increased 38% (in this case, over the prior five years).

There are more than 80 countries spread across the economic development spectrum, providing ample diversification in terms of credit risk. This translates into a fundamental resilience at the asset class level, as most global shocks are positive for some countries while negative for others. The fundamental diversification in terms of credit risk is consequently very high, providing an anchor for credit risk over the medium term.

Most of the somewhat more fragile high yield (HY) countries are in IMF programmes, with funding being conditional on programme execution, providing a strong policy anchor for the coming years. Default losses are expected to be close to zero after a round of EM restructurings completed in recent years after the pandemic.

How important is the US dollar for EMD HC?

USD moves are generally considered to have a significant impact on EMs, but we believe not only has the direct impact on the EMD HC asset class declined in recent decades, but the impact is generally misunderstood. That USD performance drives credit spreads does not seem unreasonable at first. Since the Global Financial Crisis (GFC), in years when the US dollar has strengthened, this has been accompanied by EMD HC credit spread widening more than 70% of the time.

However, the relevant question is whether a causal relationship exists, or if this relationship is driven by something else. We take a closer look at some of the channels through which USD moves impact EMD HC and try to uncover the possible misconceptions around how USD impacts the broader asset class. The direct impact of the USD on EMD HC returns is more muted than for EM local currency debt (EMD LC), as FX moves for the latter account for a significant proportion of total returns. EMD HC is thus more resilient to swings in the USD as this does not flow directly through to daily returns. In contrast, EMD LC and EM equities have tended to perform better in a weak dollar environment.

Looking now at hard currency, the most direct impact of the USD on sovereign credit risk (the ability and willingness of issuers to pay debt) is via its impact on EM sovereign balance sheets and repayment capacity. Specifically, the USD affects the external debt burden. A stronger dollar increases the costs of interest and principal payments in local currency terms, worsening debt dynamics. However, there are also some indirect effects that can be meaningful. USD performance influences growth prospects via the effects of currency pressure on inflation, which impacts monetary policy. Most EMs have in recent decades transitioned to traditional inflation-targeting regimes so central banks can respond to any pass-through from currency moves.

A stronger dollar therefore - all things equal - translates into tighter monetary policy in EM and thereby weaker growth prospects. This in turn can add to fiscal challenges and social pressure on policies, both from higher inflation and lower growth. EMs with the most credible policy frameworks can manage this at lower economic costs than those EMs with less credible policy frameworks. For EMs that have fixed exchange rates, persistent USD strength can also lead to pressure on FX reserves (or impetus to tighten monetary policy), which in extreme cases can translate into liquidity and financial stability concerns if reserves are depleted. Moreover, the effect of the USD on credit prospects is not linear. It often only really becomes a credit issue if the country faces a large depreciation of its currency and large debts that must be repaid in USD in the short term. This is rare but can happen.

A positive effect of USD strength (if happening in an orderly way) is that competitiveness broadly improves in EMs, while specifically for commodity exporters there is a relative gain from direct USD revenue. There is, however, a tendency for a stronger USD to be accompanied by lower commodity prices (we will get back to this later as this goes to the heart of causality), which can challenge some commodity exporters more directly.

Key regulatory and industry bodies such as the Australian Prudential Regulation Authority (APRA),¹ the Australian Securities and Investment Commission (ASIC),² the Actuaries Institute,³ and the Australasian Life Underwriting and Claims Association (ALUCA)⁴ have stressed the importance of robust financial controls in maintaining the viability of TPD insurance.

This article explores the central role that financial controls play in ensuring that TPD benefits remain relevant and sustainable, drawing on insights and recommendations from these leading institutions.

The Sustainability Challenge of TPD in Australia

Since the 1960s, TPD insurance has been a cornerstone of Australia's financial safety net, providing crucial support to individuals unable to work due to severe disabilities. Traditionally, TPD benefits are designed to provide a lump sum which can be used at the recipient's discretion. The retail TPD insurance amounts are calculated based on estimated future income loss and are intended to cover expenses such as debt, living costs, home modifications, and rehabilitation.

A primary concern in TPD insurance today is the provision of benefits that exceed the necessary replacement of estimated future income loss. In 2022, the industry recorded its first loss for individual lump sum payments in many years.⁵

APRA has been actively reviewing TPD insurance to address sustainability issues within the industry.⁶ Similarly, ASIC has highlighted ongoing gaps, despite the progress in strengthening the TPD safety net.⁷ The Actuaries Institute's Disability Insurance Taskforce has also urged life insurers to consider the interaction between lump sum and income protection benefits.⁸

In July 2024, ALUCA published a consultation paper addressing the ongoing sustainability of TPD insurance. This paper identifies five key challenges:

1. the attraction and finality of a large lump sum;
2. over-insurance especially when combined with other solutions;
3. the subjectivity and difficulty in determining the permanency of a condition;
4. management of occupation;
5. and the constraints on TPD product evolution.⁹

Excessive benefits play a major role in the sustainability issues facing TPD insurance. This requires a comprehensive re-evaluation of the current benefit structures to secure the long-term viability of TPD insurance within the financial system.

Decoding Today's TPD Benefit Calculations

TPD policies typically align with the policyholder's working life, usually up to the age of 65, resulting in a policy term ranging from 20 to 40 years, depending on when the policy is taken out. The underwriting formula for calculating the appropriate amount of TPD cover primarily relies on an age-dependent multiple of the insured's gross annual income.

The rationale behind determining the suitable income multiple is straightforward: it considers the future earning potential based on the number of active working years remaining and assumes that the individual's income will remain stable. Most insurers further consider any mortgage and future educational expenses for dependent children. The TPD cover is further adjusted for inflation and added as an optional rider to the policy. Generally, the TPD benefit is calculated using gross annual income, without accounting for personal income tax.

While this method is generally well-founded, it has some potential gaps. The following example underscores the shortcomings of current financial underwriting methods.

Let's examine a case study of a 35-year-old applicant with an annual income of AUD 80,000 seeking TPD insurance. Table 1 outlines the underwriting calculation for TPD.

Of course, with enhanced regulation comes greater scrutiny from the prudential regulator, Australian Prudential Regulation Authority (APRA), leading to boards facing ever increasing challenges, particularly in respect to the standards of competence currently required of directors under the 'fitness and propriety' test. Ensuring boards have skilled and dedicated directors in place to meet these challenges is the key to driving leading practice governance and providing quality management of funds for members. The question of independence is a natural consequence of this enhanced regulation.

In fact, section 10 of the Superannuation Industry (Supervision) Act 1993 (Cth) contains a definition of independent director and APRA provides guidance on the benefits of independent directors for super fund boards. In its Prudential Practice Guide SPG 510 -Governance (July 2013) supporting its Prudential Standard SPS 510 (November 2012) on governance, APRA suggests super boards might consider independent directors, or 'non-affiliated directors' for the board, for the chair and for relevant committees. So, with the regulator providing guidance on independence; with APRA-regulated institutions (other than super funds) having a requirement of an independent chair and a majority of independent directors at all times; and with the Australian Government providing its position on independent directors for your board; it is prudent in my view to review policy and consider how you might ensure 'gap-free' boards in terms of both skills and independence.

However, why am I not surprised by the negative responses from the industry funds to enhanced governance and an attempt to harmonise prudential regulation across the financial services sector? With the reform of the industry still fresh in our minds, I am reminded of APRA's belief at the time as pointed out by the then Deputy Chairman, Ross Jones who said, 'historically, there has been a resistance in this industry...to regulation. I must say, the government's approach is also difficult to reject, other than on an emotional and self-interest basis, and how do you argue with Assistant Treasurer Josh Frydenberg who points out, 'If independent directors are good enough for listed companies, for general insurers, for life insurers, for banks, then they should be good enough for super funds.

Super boards, like all boards in the financial services sector, are required to have a board charter setting out the roles and responsibilities of the board, ensure that directors have the requisite skills, conduct board performance reviews annually and have a formal policy on board renewal. Assessing the independence of directors will now be added to this list of responsibilities.

How then do boards achieve this level of competence, skill and independence and deliver 'gap-free' boards? The answer is simple; undertaking a board skills analysis, which can be specifically tailored to ensure it is constructive and meaningful for the requirements of the board to identify any gaps in skills and independence and to develop strategies to deliver a diversity of skills and the requisite level of independence.

It is recognised (as regulators, industry bodies and academics continually point it out to us) that a diversity of skills, knowledge and experience (collectively referred to as competencies) around the boardroom table has a positive impact on the governance of an organisation-this is true of any governing body. A board comprises individuals who can contribute much needed skills, experience, perspective, time and other resources to the organisation. Because no one person can provide all of the qualities required for a successful board, and because the needs of the organisation will continually change, a board should have a well-conceived method to identify the competencies it requires to serve on the board.

Typically, a board skills analysis is designed and managed by an independent governance expert using a number of techniques including surveys specifically designed for the needs of individual boards. Leading practice survey tools will asks directors to assess their own competencies and those of their peers, across areas of technical, industry, governance, director behaviour and independence. The survey also collects data on the maximum number of directors with particular skills and competencies and the number of directors required to possess level of skills into the future. All responses and data are analysed and ultimately reported to the board for discussion, review and action by the board.

We all know that no two boards are the same and it is difficult to assess board performance against individual boards, unless of course boards have common directors. We also know that specific skills and competencies required by boards will differ across industry, but the fundamental skills required by directors remain the same. For example, technical competencies may include legal, accounting, engineering experience and/or knowledge. Clearly, directors will not be strong in all the areas. Although the courts have made it clear that financial literacy is a given, specific technical skills, such as accounting or legal qualifications, are generally not a requirement for a majority of board members. However, industry-specific competencies including experience and/or knowledge of the specific industry sector will always be relevant to the organisation.

Governance competencies are different from technical competencies in that the specific competency refers to developing it in a governance setting. For example, a director may have no formal experiences or training as an accountant, but having served on some other boards, attending director training and then joining the audit and risk committee of the board, the person may feel that they have developed a 'strong' governance competency in accounting. In other words, they feel through governance experience and training that they have developed a competency in the area of financial literacy as required of members of the board.

As a less mature private market sector, infrastructure has not always been a major part of the secondaries conversation; however, this is changing as deal volume has grown markedly in the past few years. While specifics of those conversations vary from one LP to the next, they do share a common interest in understanding the fundamentals, which we explore in depth in this whitepaper.

The opportunity

Like other asset classes, infrastructure's secondary market includes two distinct components: LP interest and GP-led deals.

• In an LP interest deal, LPs sell their stakes in private market funds to another investor. LPs may seek to exit their positions owing to reasons including portfolio rebalancing, liquidity requirements and strategic allocation.
• In a GP-led deal, the fund manager initiates a sale to offer liquidity for existing LPs. The GP retains control of the asset(s), which are often transferred to a new vehicle. Existing LPs are typically given the option to either liquidate their position or reinvest. GP-led deals can take many forms, for example, single-asset or portfolio continuation vehicles (CVs), tender offers or strip sales.

While each type of deal has different characteristics and drivers, common tailwinds are propelling the market in aggregate.

The key challenges that are holding the industry back can be summarised as follows:

• Legacy systems & manual processes: Many super funds operate on decades-old technology, causing transaction delays, incorrect balance calculations and poor customer service.
• Regulatory pressures: Compliance requirements have grown significantly, but funds with inefficient processes struggle to keep up, which can lead to penalties and increased operational costs.
• Industry consolidation challenges: Fund mergers have created integration issues as funds attempt to combine different IT systems, leading to service disruptions and data inconsistencies.
• Rising member expectations: Members increasingly expect a more personalised service, proactive engagement, and real-time access to information and advice, but many funds lack the digital capabilities to deliver this.
• Cybersecurity risks: With increasing digitisation, super funds are becoming prime targets for cyber threats. For instance, a number of high-profile funds were targeted in April 2025. Many still rely on outdated security frameworks that leave them vulnerable to fraud and data breaches.

These inefficiencies create operational burdens that directly impact members. Higher fees, slower processing times, and a lack of proactive engagement lead to frustration and disengagement, weakening trust in the system. Without meaningful reform, the industry risks falling further behind at a time when regulatory scrutiny and member expectations are higher than ever.

This paper explores the transformative change that can be achieved through the implementation of smart technologies, highlighting how this has been achieved by some financial services entities overseas.

What a tech-enabled super industry looks like

The future of the superannuation industry will be shaped by automation, artificial intelligence (AI), and digital experiences. In addition to solving inefficiencies, an AI-enabled super industry will be built around proactive, personalised service experiences, real-time decision-making, and stronger cybersecurity. Funds that fully embrace innovation will be well-positioned to achieve compliance standards, transform member engagement, reduce costs, and enhance trust in the system.

The transition from legacy systems and manual processes to real-time, AI-driven solutions can redefine the industry, making it more accessible, personalised, and future-ready.

The transformative potential of AI is already evident in global financial services. Bank of America, one of the world's leading financial institutions, faced overwhelming volumes of routine customer inquiries-balance checks, transaction lookups and subscription tracking. In response, it launched 'Erica', a virtual assistant that now handles over two billion interactions, resolving 98% of inquiries within 44 seconds, and serving more than 42 million customers.

Automation as the backbone

In a fully tech-enabled industry, manual processes will be replaced by AI-driven automation, allowing funds to operate with greater efficiency, accuracy, and speed. Automation can streamline fund rollovers, benefit payments, and account updates, eliminating processing bottlenecks and reducing errors. By minimising human intervention in routine administrative tasks, funds can process transactions faster and allocate more resources to strategic initiatives rather than being bogged down by operational inefficiencies.

AI-driven compliance monitoring can expedite alignment with regulatory requirements in real-time. Rather than relying on manual compliance tracking and reporting, AI can continuously assess regulatory change, flag potential risks and generate accurate reports, relieving some of the burden of compliance management.

A clear example comes from US financial services provider Capital One, which deployed 'Eno', an AI virtual assistant that delivers real-time alerts and proactive fraud detection. By using natural language processing, Eno now handles over 50 million interactions annually, reducing staffing needs by up to 20% and helping the bank maintain compliance and service quality at scale.

Adopting AI in administrative functions can also allow super funds to become leaner, more responsive, and scale more efficiently without compromising service.

Proactive, personalised advice

Superannuation funds focus heavily on meeting compliance obligations. However AI-driven insights can enable funds to take a more active role in guiding members through their financial lifespan.

Capital One's Eno also exemplifies this shift, sending timely alerts about bill changes, expiring subscriptions, and unusual transactions. These proactive communications reduce inbound queries and help members make more informed decisions-enhancing satisfaction and trust.

In Australia, funds that proactively engage with members, providing timely and relevant guidance based on individual circumstances will have a clear advantage over those that continue to simply react to member inquiries. With AI-powered personalisation, members can receive tailored retirement planning guidance, taking into account their past actions, income levels, savings behaviours, and risk tolerance. By analysing real-time financial data, AI can help members make better investment decisions, offering predictive insights and scenario-based projections that allow them to plan for different retirement outcomes. This shift in approach increases member trust and satisfaction, better positioning super funds as partners in financial well-being rather than just service providers.

Real-time member interactions

Instantaneous AI-powered interactions can significantly reduce the long wait times, paperwork-heavy processes, and slow response rates that are the basis for so much member frustration. AI-driven virtual assistants, trained on individual superannuation history and data, could potentially provide immediate answers to queries, offering fast, accurate, and contextually relevant information to members.

Bank of America's Erica has automated more than 1.7 million routing number requests and 900,000 bill payment tasks per month-each handled in seconds. This frees up human resources for higher-value activities.

Similarly, Nordic-Baltic-based banking group Swedbank introduced conversational AI virtual assistant 'Nina' who now manages over 30,000 customer interactions each month. Nina fully resolves 55% of queries on first contact-this enabled the bank to redeploy 700 contact centre staff to other roles such as sales and advice. This change saved the bank the equivalent workload of 35 full-time agents annually.

AI-powered predictive insights can further empower members to make informed financial choices in the lead-up to significant life events, such as transitioning to retirement or changing jobs. By removing friction from member interactions, AI can enhance engagement and encourage individuals to take a more active role in managing their financial future.

Cybersecurity and data protection are non-negotiable standard

As the industry moves toward fully digital operations, strong cybersecurity infrastructure will be essential to maintaining trust and protecting sensitive member data. AI-driven security systems can identify and mitigate cyber threats in real time, preventing data breaches before they occur. Rather than reacting to security incidents, funds will adopt AI-powered monitoring tools that continuously scan for anomalies, strengthening overall data protection and regulatory compliance.

Capital One's Eno includes built-in fraud detection functionality that proactively alerts members to suspicious activity, helping reduce the volume of fraud-related inquiries and supporting regulatory compliance efforts across multiple channels. This also helps to minimise system downtime by detecting vulnerabilities and proactively addressing them before they escalate into significant disruptions. Cybersecurity will be an integrated, AI-driven function that ensures superannuation funds remain resilient in an increasingly digital world.

Superannuation funds at a crossroads: The need for urgent reform

The superannuation industry stands at a defining crossroads. For decades, funds have concentrated on investment returns and regulatory compliance, often at the expense of operational efficiency. However, as the industry has grown in complexity and scale, its supporting infrastructure has failed to keep pace. Legacy IT systems, fragmented processes, and rising member expectations are straining the system, demanding urgent transformation.

The risks of inaction are rising costs, declining service quality, regulatory pressure, and the erosion of public trust. Members increasingly expect seamless digital experiences, instant access to their accounts and proactive engagement from their providers. Meanwhile, regulators are increasing scrutiny, and competitors who embrace automation and AI will gain the edge. The industry can either seize this moment to evolve or continue down a path that leads to inefficiency, dissatisfaction, and growing irrelevance.

The contrast is already playing out. Bank of America and Capital One, through early adoption of AI tools like Erica and Eno, have reduced support costs while lifting service performance and member satisfaction-providing a competitive edge in digital engagement.

The call for leadership

Real change is not just about upgrading technology-it requires vision and leadership. Superannuation leaders must commit to a strategic overhaul of how funds operate and serve their members. Technological transformation must become a core strategy rather than an afterthought, forming the foundation of a modern superannuation ecosystem.

Investing in AI and automation will be critical to streamlining administration, enhancing compliance and delivering a seamless member experience. At the same time, a culture of adaptability must be fostered, ensuring that funds can respond swiftly to regulatory changes, technological advancements, and evolving member needs.

Both Swedbank and Bank of America demonstrate how strong leadership catalyses AI transformation, by prioritising automation to reduce service load and improve engagement-well ahead of the curve.

Funds that embrace this shift will not only future-proof their operations but also set a new standard for service, security, and efficiency in superannuation. Those who resist it will fall behind, struggling to keep up with regulatory demands and member expectations in an industry that will no longer tolerate inefficiency.

The superannuation sector must act now-not just to meet today's challenges, but to build a system capable of serving future generations.

A superannuation benefit can be accessed under the PI condition of release in several ways, with each option having different tax implica- tions which can result in very different outcomes. This paper outlines the process to meet the PI condition of release and the tips, traps and pitfalls when helping your clients decide how they access their benefits.

Meeting the PI condition of release: Superannuation regulations and interaction with the tax rules

A superannuation disability benefit payable on meeting the PI condition of release can comprise of the member's superannuation interest and insurance proceeds from a total and permanent disability (TPD) policy-if any-held in that superannuation fund.

Where a TPD insurance policy is held within superannuation, the proceeds of the claim are paid to the fund. Generally, from 1 July 2014 only TPD policies that align with the PI condition of release can be held within superannuation. Individuals who can claim under grandfathered policies that commenced before 1 July 2014 may not subsequently access their super benefits as they may not satisfy the PI condition of release - for example, own occupation TPD policies.