In combination, complexity and subjectivity form a difficult starting point for effective policy design and it’s my experience that superannuation and retirement are both highly complex and subjective areas.
At their heart resides a complex framework which is not particularly well understood, known to academics as the lifecycle model of savings, investment and consumption.
As an industry we try to simplify, which can often work against us.
For instance, our focus on basic measures like lump sums and returns has a large opportunity cost to consumers not focusing on the range of retirement income through time that retirees will experience.
By not getting on top of the complexity we fight the battles rather than win the wars.
Further, subjectivity within superannuation reigns. Forward-looking investment returns, the value placed on reducing risk (without impacting return), the value of advice, and the benefits of engagement – there are just some areas where there are no clear-cut answers.
Possibly more than any other industry, stakeholders within and adjacent to the superannuation industry need to work hard to address the complexity and subjectivity that defines it, particularly in the policy area where political debate can sometimes be designed to serve the masses.
The key to addressing complexity and subjectivity in my experience is through good engagement. For engagement to work there needs to be a level of trust. Trusting can be difficult when significant agency issues exist.
Know your agency issues
Trust can only be strong when agency conflicts are managed in a way which means the best feedback, focused on system and consumer outcomes, is what is shared.
This industry clearly has plenty of agency challenges, to name a few: size of industry, survival of individual funds, sector rivalry, career risk, and the role of industry bodies.
Agency issues, if left unmanaged, adversely influence policy engagement in multiple ways. At their worst (1) agents only participate if there is the opportunity to improve their own outcome, (2) agents selectively share the insights which benefit them, and (3) agents replace insights with lobbying. To deal with this, policymakers need to apply a sceptic filter, most of the engagement is thrown away and the only thing occurred is a system cost.
One possible interpretation of the process for designing the Your Future, Your Super reforms is that policymakers’ appetites for engaging with industry has hit rock bottom.
But this is where engagement is most valuable. Canvasing a quality, broad collection of feedback can provide valuable specialist insights while also creating a mosaic of views to understand some of the more subjective issues. Good engagement enlightens, informs and ultimately improves policy design.
And therein lies the challenge in two words: ‘good engagement’. I wonder if policymakers feel that, in current form, engagement benefits them.
Where to from here
There are a number of ways industry could improve how it engages with policymakers – it could consciously put its agency issues aside and it could be more respectful in how feedback is provided. Here I find myself reflecting on a submission I once made on CIPR’s which could have been less harsh.
A final reflection is to stick to the brief – I wonder how many submissions to the Retirement Income Review stuck to the brief of assisting the review to establish a fact base?
I’ve recently experienced my own taste of engaging industry through the growth / defensive categorisation project. We have had a huge level of engagement from right across the industry. Taking on all the feedback is a confronting and humbling experience, good for the development of thick skin. But the value of engagement shone through – many of the ideas provided are valuable and will contribute to a better industry-led solution. Thank you to all those who engaged.
Unfortunately, the agency issues are also at play – a few groups declined to engage, possibly with the view that they can lobby directly to APRA at a later date.
Hopefully we will see a healthy level of engagement in the future as good engagement leads to better, more informed policy design. I also hope that the views of policymakers are not so ideologically driven to make engagement redundant – I don’t believe we are in this situation.
Tapping into a large range of expert views could prove informative, especially given the complexity and subjectivity of superannuation and retirement. It’s just up to industry to do its bit to maintain a positive and trustful relationship.
