For almost 25 years, Australia’s superannuation industry has been focused on maximising wealth accumulation throughout members’ working lives. Now the industry is shifting focus to maximising income throughout their retirement.
Since the advent of compulsory superannuation in 1992, the industry, while in the business of retirement, was focused on serving members throughout their working lives.
Funds delivered fairly basic products to members by virtue of the compulsory nature of superannuation. Coupled with the seemingly endless time to retirement, members were largely disengaged despite the best efforts of funds to jolt them into action by calling out the inadequacy of their retirement savings.
Until recently, most superannuation account balances were so small there wasn’t much point doing much more than retirees taking a cheque for the full amount and putting it towards the remainder of the mortgage, a new car, home renovation or holiday.
Wind forward to 2016 and the average balance at retirement has significantly increased, with much higher stakes for the retiring member. Now members ask, “How should I invest it? How much can I spend? Will I outlive it? What if markets go belly-up?”
With far more significant balances at retirement and consequently more engaged members, guiding members safely down a path in retirement demands much more of fund managers than simply offering a payout. A cultural shift is needed, impacting everything from traditional models of member engagement and advice to organisational structure.
And with around 50 percent of superannuation funds reporting more money going out the door than coming in, they have a pressing need to retain the bigger-than-ever balances of members at retirement.
A new report, Guiding members safely down a path in retirement by KPMG and Challenger recommends action in three key areas to expedite the delivery of better outcomes for their members in retirement.
Move away from negative messaging
Current messaging around retirement income presents a seemingly insurmountable adequacy target, the great heights of which many members fear they will never reach. Refocusing the message to providing an income in retirement – the fundamental purpose of superannuation –– builds members’ confidence in their superannuation and what it can provide them in retirement.
Appoint a Chief Retirement Income Officer
Establish a Chief Retirement Officer to strengthen the focus on and alignment of activities to create and deliver better retirement income packages.
Enable members to enjoy retirement
The industry has a duty to ensure members are not unnecessarily sacrificing their retirement lifestyle to maintain capital. At the moment, fearful retirees are paralysed at the thought of running out of capital and are failing to spend their retirement savings, foregoing the lifestyle they could be enjoying.
This situation is not surprising when the unique circumstances and retirement goals of each member demand a tailored solution to ensure the very best outcome. Yet the provision of personalised guidance and advice remains constrained by cost, accessibility, regulation and scalability, with the rate of member take-up of advice in its current form very low.
A shift to mass-personalised digital advice seems an obvious antidote to this problem – allowing funds to deliver individually relevant and appropriate advice to their members. Easily accessed, efficient, and at scale. – with funds being able to deliver advice to many more of their members with the advent of more accessible and efficiently delivered digital/robo advice.
The superannuation industry is facing the most significant inflection point since the inception of compulsory superannuation. The right actions by the industry will ensure the Australian superannuation system remains the envy of the world for another 25 years hence.
Read the full report