Breaking down the complexity of retirement for super funds

By Craig Cummins, Gabriel Harris, Nathan Bonarius, Sara Afaghi, Steven Kavallaris, Jorden Kelly, Niamh Carey

Compared with previous generations, Australians’ expectations of retirement have fundamentally changed – but many super funds aren’t keeping up to help members plan and make the most of their retirement. In recent conversations with 12 major funds, a third told us that retirement strategy had been forced down the priority list as they juggled budget constraints, mergers, regulatory reform and more.

Indeed, regulators remain unequivocal that “helping fund members achieve good retirement outcomes is the core business for a super trustee”, and that this should be part of all decision-making around strategy and investment.

For super fund trustees, the challenge lies in balancing numerous demands while advancing efforts to better meet the retirement needs of members. In our view, the most effective approach is to treat retirement as a “whole-of-life” engagement with members, not just those who are retired or approaching retirement.

Clear accountability is required to mobilise teams across the business to achieve RIS outcomes together. This can be accomplished by creating a dedicated team or function that spans across all relevant areas and is empowered by senior leadership. Instead of solving parts of the puzzle in departmental silos – and rather than seeking perfection – a cross-functional team given the resources and authority to continuously test and adjust offerings will better meet the diverse needs of members.

Below we pinpoint some considerations and questions to help unite a super fund around a single-minded focus on retirement outcomes.

In tackling the RIS, many funds have been actively working on member engagement. However, it’s difficult to measure the ultimate impact on retirement outcomes due to the timeframes that need to be considered.

Investment in education is vital to ensure members are aware of the implications of their actions for retirement at all stages of their journey. Member engagement should commence long before – and continue during – retirement, to ensure members understand the options available to them during accumulation and decumulation and what this means for their specific circumstances.

For example: Over one-third of Australians retire involuntarily – i.e. circumstances force their retirement, rather than them choosing the timing of it. Yet most funds offer little tailored support for people in this situation. Funds could address this gap by monitoring member data (e.g. cessation of contributions) and tailoring communications, website information and offering personalised support such as education, advice, product options and broader assistance, to help members in this situation.

Good retirement advice is not dependent on regulation. So, while some super funds are waiting on the Delivering Better Financial Outcomes legislation Tranche 2, others are proactively developing their advice strategy. A great initial step is to determine when your members may require advice and establish a fund perspective on the appropriate sources for this guidance depending on the type of advice you are planning to offer.

In so doing, early movers should challenge assumptions about what constitutes advice “need” and consider how to engage with members throughout their lives, not just when they are nearing or entering retirement. These funds can think afresh about delivery models (be they in-house or external, adviser-led or digital-led); they could also enhance analytics and modelling to better understand how members’ financial positions and retirement spending needs may evolve over time. And they should continue to test assumptions, adjusting their engagement and advice model in the spirit of continuous learning and improvement. Further, robust monitoring and evaluation processes will allow them to track quality of advice.

There’s been no shortage of new products coming to market lately (we estimate 48% of members are with a fund with a current or upcoming longevity product option). However, many are falling short in terms of sales and engagement. Members are being overwhelmed with the complexity and choices associated with longevity products. Without proper education and a customer experience that empowers retirees to manage their retirement savings confidently, many are not opting for these choices. It’s a vicious circle:

Stepping back, super trustees already have some of the raw materials and tools they require to elevate their RIS. Some investments have been made in “enablers” such as technology, data, channels, and workforce. But, in many cases, these capabilities are not being combined across the business to maximise value for members’ retirements.

Much of this comes back to measuring the right things in the short, medium and long term. Capturing and monitoring data is important for measuring the achievement of member goals and facilitating an effective RIS. And that’s easier said than done, given the challenges with gathering member data.

Barriers to data gathering

We recommend funds and trustees take a fresh look at the data they generate, collect and store. They might not be fully utilising the data they possess, as it may not be extracted or consolidated effectively for organisational use. Understanding data collected across all functional areas may prompt ideas for how to apply certain data points in different contexts. For instance, member contact information that can potentially be used to enrich member profiles and segmentation. This process will also highlight any gaps that require innovative solutions, attentive listening, and proactive measures. For example, focus groups and surveys can help gauge whether members understand super fund initiatives. And new methods can be introduced to track whether the assistance being offered is genuinely contributing to improved member outcomes.

Faced with unprecedented levels of demographic, social, technological, and regulatory change, it is no surprise super funds face significant challenges in delivering on their core purpose to improve retirement outcomes for members.

We believe the most effective way forward involves empowering a dedicated cross-functional team focused on retirement outcomes. This team can employ a ‘test and learn’ approach to address challenges across engagement, education, advice and product breaking down the complexities of retirement and finding effective solutions.

In the months ahead, we’ll publish more articles explaining how to put this approach into practice.

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