Allens partner Michelle Levy is not due to finalise her quality advice review to government until mid-December but it can’t come soon enough for the superannuation industry as it works through just how to match member retirement needs with solutions.
The Retirement Income Covenant is the issue many in the industry are focusing on as it assesses just how to satisfy member needs, which depends in part on any regulatory changes which may flow from Levy’s report. Simplicity is the hope.
Advice is seen as one of the best ways to gather data on member finances but from there the path is tortuous as funds walk the minefield between personal and general advice.
This is a key part of the retirement equation and, as the industry comes to grips with that fact, it also presents a competitive test for the industry with the right products being a potential game changer for the industry. A more engaged membership will know the alternatives on offer elsewhere.
Australian Retirement Trust’s (ART) Teifi Whatley spoke for many saying, “we think the Quality of Advice Review and the Retirement Income Covenant need to come together at some point.” That way the industry gets to know how far it can go.
“At Australian Retirement Trust we genuinely believe in the power of financial advice and the power it has to materially change people’s lives. We know that financial advice directly improves the financial literacy and wellbeing of members and leads to improved retirement outcomes,” she added.
An estimated $1.5 trillion in assets are held by those aged over 50 in Australia and the whole idea of super is to provide retirement income so the issue is central to the industry, or at least should be.
CFS Super’s Kelly Power told Investment Magazine “We are currently updating our analysis of members’ needs across different segments (including age, gender, in accumulation and retirement phases, account balance, product use) as part of our ongoing efforts to better understand our members, their needs and opportunities to enhance our products or services.
“Through the $430m investment we’re making over the next four years, we’ll update our product and service offering. This includes adding new investment solutions, additional digital services and increasing education, and enhancing our longevity product offer.”
This shows the money the retail sector is throwing at the challenge.
Key is early engagement with super by members
Financial advice is seen as the best way to collect information but that assumes people want to get financial advice and the fact is most don’t.
Link’s Duncan Macpherson noted “the biggest challenge is one third of people don’t want comprehensive financial advice either because they are not ready for it or the costs are too high.”
The good news is according to Frontier research is 50 per cent of members are looking for some help from their fund and there is a level trust between the two.
ANU’s Geoff Warren notes 59.4 per cent of accumulation assets are in default products and getting these engaged is the key to knowing whether the person with a $300,000 balance also owns 500 million BHP shares and four investment properties.
Frontier’s David Carruthers told Investment Magazine, the trick is to deliver the best service within the advice guidelines.
Flexibility needed between access to capital and stability of income
When it comes top investment product choices ART’s Whatley agreed on the need for flexibility noting other trade-offs retirees may have to consider included the need for flexibility of access to capital and stability of income.
Whatley said, “retirement has traditionally been viewed as permanent, commencing at the end of continuous full-time employment. Today, however, the work and retirement patterns of Australians reaching retirement age and accessing their super is often far more dynamic.”
“Members’ superannuation balances may restrict their choices between flexibility and control on the one hand, and security, risk-pooling and management, stability and predictability on the other,” Whatley said.
“The need for higher levels of income earlier in retirement can often be a trade-off to income longevity depending on one’s superannuation balance and other investments.
“Members face competing needs in retirement, and decisions around investments and income, and meeting unexpected costs in retirement, may be overwhelming for many of our members.”
Aware Super’s Sarah Foreman told Investment Magazine, “Our members tell us that they can often feel overwhelmed by the complexity of the retirement income system and find it challenging to apply general information to their personal circumstances”.
“Our research shows that a significant proportion of our members are missing out on income in retirement by focusing on the minimum draw down, so for those members heading into the transition-to-retirement phase of life, we encourage them to think about the support and information they will need from their super fund – whether that is access to free online tools, calculators and webinars or contacting our member service centre for general advice at no extra cost, to address their key questions and concerns.”
While personal advice may be the best way of finding the information, it is not the only way.
Digital options essential for many members
Data collection using website calculators and other digital options are used along with seminars and other member meetings
CFS uses internal data and conducts in-depth research with members to better understand how they plan and prepare for retirement and the role we can play in meeting their needs. “Planning for retirement is complex and that’s why, as well as providing better guidance and member education, we are strong advocates of quality financial advice. It’s also why it’s imperative that the quality of advice review addresses the declining availability and affordability of financial advice,” CFS said.
Insignia said, “superfunds can assist members in evaluating their financial and non-financial requirements through education (eg online content, webinars and podcasts), the use of tools and calculators, and referring members to other information sources as ASIC’s Money Smart, ATO and Centrelink websites.”
The trick is to maximise increased engagement as members become older, their balances grow and they are more amenable to sharing information because they see the end use.
Link’s Duncan Macpherson said a well-trained contact centre can be a bonanza. “People call the contact centre for all sorts of reasons and some gentle nudges in the right direction tell you what members are looking for,” he said.
WTW’s Nick Callil noted, it’s still early days in the process and better technology is improving quality. Funds need to ensure their information was both useful and understandable to help members assess risk levels, he said. The industry is in a state of evolution on these issues and just where it lands remains to be seen.
Pensions a complex area
Link is working with Jeremy Duffield at SuperEd to see what approach it can take preparing a white paper on pensions.
SuperED was established a decade ago by Duffield and Hugh Morrow to help super funds help their members get better retirement outcomes by educating, coaching, and advising members on a journey to and through retirement.
The starting point was to digitise aged pension applications so people know if they qualify for the pension on some form and then help with the complicated application process.