In the course of a casual conversation with my husband recently, I had to explain what mortality credits were. He giggled like a pre-teenager. Suddenly ashamed at its absurdity in everyday language and the culture behind it all, so did I.
I’ve spent an amazing six years in retirement income helping super funds and policymakers with their positioning, strategy and product in all things decumulation. In that small amount of time there have been several policy interventions and most recently, the Retirement Income Review.
While my six-years is nothing on the time spent on this area of finance by others of my industry peers and elders, it’s still been a great snapshot in time of the types of conversations we have, the types of decisions that get made by various players in the ecosystem and, in the end, the sorts of things we desperately need to wake up to.
People first, product second
A colleague told me at the beginning of my retirement journey that this is an industry where we like to make products that we want to sell, not that people want to buy.
Ever since, his throwaway line has proven true, and the evidence of it is everywhere. We remain one of the few industries left on the planet that isn’t client centric, most likely because we haven’t had to be. We’ve had compulsion and information asymmetry and general all-round apathy working in our favour. The groundswell against this movement is already everywhere you look – from the surge in ETFs to the recent Gamestop trading event.
The issue is much more acute in retirement strategy. The answer to retirement working in Australia is not the creation of more product ‘innovation’. It is not making them mandatory via regulation, and it’s not forcing funds to create products today that will become tomorrow’s legacy product. It is not attacking account-based pensions when they’ve done nothing wrong in isolation.
The superannuation industry and its policymakers need to turn product thinking on its head. Retirement will only succeed in this country when we genuinely put the retirees ahead of the products we’re trying to build for them. Retirees need very basic help that we neglect to provide- help on budgeting, on the Age Pension, on building their retirement context. Products come after we help them and give them comfort and guidance. Products only help answer aspects of retirement problems, they don’t replace them entirely.
There are some fundamental things that need to change before mandated retirement products will work. Trustees may be required to have a product on the shelf for members, however the take-up may be low at best, or members will mutiny at worst, until some key issues are fixed.
Siloed thinking leads to siloed answers
Retirement isn’t a product problem, it’s also not just an advice problem, nor is it just an investment problem and it’s definitely not just an engagement problem either. In my experience it’s all of them at the same time.
We have a long way to go to overcome this issue. Retirement cannot be solved in silos.
Funds particularly need to bridge internal function lines in order to deliver retiree-centric solutions that work and are taken up over the long term. Until retirement is treated as seamlessly across a super fund as accumulation is, we cannot say that retirement is done well for the members.
Innovation comes at the expense of simplicity
It’s clear we live in an era where the member-investor craves transparency and simplicity. They don’t value things they don’t understand, and there is the meta-trend of the reduction in value placed on experts. Products that present as “black boxes” are now largely mistrusted, and the “smartest people in the room” affliction we have in the finance industry as economists, actuaries and investment professionals, must give way to understanding that no one out there cares how smart you are if you can’t help them in a clear and efficient way.
The problem with most retirement product innovation is that it’s hard to do while still being simple or transparent. Any further pushes for the industry to innovate will drive corresponding legacy product proliferation as products become harder to sell, regardless of how perfect they are on paper.
We really shouldn’t find hard-to-explain products like annuities all that much of a “puzzle” in this day and age. Spoiler alert: much like we’ve discovered that markets aren’t actually all that efficient, just because a product is intellectually perfect for someone, doesn’t mean they actually understand it enough to want it.
Talking about longevity risk means getting comfortable with death
This is not the place to discuss death, or taxes, or death taxes, however until we are comfortable as a society talking about death, we will never understand how to communicate longevity risk, its insurance, or mortality credits.
The actuaries and policy makers of this industry need to find a way to never say these things in public beyond their own modelling. Until society finds a way to talk about death more openly, we will subsequently recoil at longevity risk conversations. Our best-case scenario for engagement on these topics is people devolving to giggles like my husband did.
Capital consumption is a paradigm shift
And finally, the Australian public is not interested in consuming their hard-earned capital. After all, they’ve had generations before them demonstrate that they can preserve their capital and live off the income.
If policy makers want a shift in behaviour in line with changing economic conditions, there needs to be a mass-scale level of education done and awareness raised on this topic, else all policies and products that attempt to tackle it will be rejected.
None of these themes are new of course, and others have raised them before me.
In stepping away from the super and retirement income world in favour of working on some other exciting things, I’m hoping that the industry uses the Review, and the upcoming Covenant, to try to do things a little differently.
Let’s not build retirement products because we have to. Let’s actually put the member at the centre of our systems, our thinking, our regulation and our offerings. Let’s put product last. If we do, this time it could actually stick.
Amara has accepted a new role as chief client strategy officer for Bennelong Funds Management.