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’s
inaugural 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

US.

The
conference also heard
from
Andrew Robertson,
chief
executive of Ingevity who
agreed
that innovation will
come,
however he urged funds
to
consider the issues now.

“Innovation
will come and
impact
your fund and your
market
share. Do some low
cost
fact-based decision-gathering
now.”
One
fund that has already
moved
down the path is Paul
Souter,
AustralianSuper and
product
manager, marketing
and
communications at
the
fund, said setting up a
retirement
division had been a
long-term
strategic decision for
the
fund.
It
launched an accountbased
pension
in January 2008
after
a period of debate over
insourcing
or outsourcing (it
previously
used Industry Fund
Services’
IRIS product).

People
over the age of 55
account
for roughly 110,000
members
and more than $6
billion
in funds under management
(or
25 per cent of the

fund),
and with the age profile
shifting
in that direction the
decision
to insource was made.
“With
those statistics
we
thought it was remiss not
to
provide for that,” he said.

“The
IRIS product was not
well
taken up and had a lot of
attrition
to other providers. We
had
no control over the cost
and
quality of the product and
matching
it to our membership.
We
were confident in our
own
ability.”

However
Souter said
funds
can not underestimate
the
organisational challenges
involved
in the product shift
as
at the moment all functions

are
set up for the accumulation
phase.
AustralianSuper
built
new
technology systems to
deal
with retiree needs such as
lump
sum withdrawals, and the
desire
to avoid members cashing
out
from the accumulation
account
and moving across to
the
pension.

Coupled
with that is the
financial
challenge of managing
issues
around cross-subsidisation,
to
make sure accumulation
members
do not pick up
too
much of the tab.
Souter
said AustralianSuper
had
factored in a payback
period
of five years for its
investment.
At
the end of December,
2008
the AustralianSuper pension
had
2506 members and
$626
million under management,
or
about 2.2 per cent of
the
fund’s total.

In
future Souter said
the
fund was looking at the
introduction
of a specialist
team
dealing with transition to
retirement
and would bring a
lot
more functions inhouse.
Souter
said: “Administration
efficiencies
will allow
for
product efficiencies and
evolution.”

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