Product innovation in post-retirement will be the next big thing in the superannuation industry, according to Paul Murphy, executive manager,
marketing and business development at UniSuper, but
Australia is lagging the rest of the world.
Speaking at Investment & Technology’sinaugural conference – ‘Post-Retirement Solutions for Super Funds: Strategies for Keeping Members in Retirement’ – in
Melbourne last month, Murphy said to get up to speed would require a new mindset and approach by fund executives and their service providers, and that not for- profit funds had an advantage as they could re-introduce some mutuality.
“The existing relationships with incumbent members mean distribution costs are lower for funds and they are also good at outsourcing. In addition this presents an opportunity for collaboration between funds as scale and capital will be needed,” he said. With some funds’ postretirement retention rates as low as 10 per cent, according to Andrew Whiley, national manager of marketing and distribution at Industry Fund Services, now is the time to act. (Incidentally he also said that some funds such as Telstra Super, LGSS and EISS had retention rates as high as 75 per cent).
“To keep members past the age of 60 you have to start at age 50,” he said. According to Murphy the strategic questions for funds to consider in product innovation in this space are: the changing demographics of the fund; whether they want to become =cradle-to-grave providers or remain pre-retirement specialists (the answer will be different for different funds); and whether they have the right skills or advisers internally; and what members really need in retirement. He suggested one option would be for funds to consider outsourcing and leveraging skills the same way they have in funds management.
“There is a gap in product and
Australia needs to be open to looking at other markets to address the issues,” he said. “The industry has to move together to find a solution, it might be time to reintroduce mutuality.” The traditional response to post-retirement needs, lifetime annuities, have been unpopular and underused in
Australia, as most consumers prefer not to put all their capital into a product producing modest returns.
Instead Murphy suggested a product that would give similar outcomes. This would require pooling longevity risk so a portion of the retirement lump sum is pooled on an opt-in basis, so the product allows for more certainty in early retirement and hedges longevity risk. In
addition he suggested bringing institutional risk techniques to the individual level via a guaranteed minimum benefits product like in the