Minister for financial services Stephen Jones didn’t mince his words in setting out his key challenge to the super fund sector: deliver an excellent member experience. This built on similar sentiment he expressed at this year’s Retirement Conference.
Jones referenced the work undertaken by ASIC on internal dispute resolution arrangements and complaints he had received directly as a member of parliament. He was likely informed by survey research undertaken by market insight specialists, and it wouldn’t surprise if he received anecdotes from funds who believed their member experience was far greater than some peers but that was not recognised or valued. Jones also flagged concerns about basic consumer protections like two-factor authentication.
This was a strong call out, well made. However, Jones also placed faith in competition to drive improvements. This is concerning as we see little evidence of an effective model of competition, and nor did the Productivity Commission. In the absence of effective competition − competition based on the quality of services provided − improvements will need to be motivated by other parts of the super ecosystem.
Jones’ member experience challenge shines a light on the scale of the retirement challenge. Many funds have suggested, with good reason, that member engagement will form the foundation of their retirement income strategies. But retirement is a complex, multi-faceted problem making member experience more difficult.
For those funds struggling to provide a quality member experience in the present setting, which is largely based on default settings, the delivery of a quality member experience in a highly personalised, heterogenous retirement setting will be far more difficult. The nature of the retirement challenge, where we focus on retirement income with multiple sources of uncertainty, products and decisions, is at least one order of complexity above current settings. Engagement in retirement is unlikely to be a one-off activity. Member experience services will need to be more sophisticated and provisioned to be ongoing.
Perhaps this explains why some funds are suggesting that retirement defaults have a role to play. While this might assist from an outcome’s perspective, it could make the member experience challenge more manageable.
Improving member experience difficult
The challenge of uplifting member experience is likely to be difficult and slow moving. Significant legacy issues often exist at funds in the form of systems and processes. Some legacy challenges are the result of mergers, and more mergers are likely to occur in the future. Industry experience has shown that projects to improve the systems and processes which underpin member experience are often large, costly, time-consuming and carry a high risk of failure. Jones indicated little tolerance for higher fees to accommodate improved service levels.
A fundamental question is where in the super ecosystem is member experience measured and acknowledged? This is important given there is little effective competition in superannuation. Further, we have concerns that there will be an even weaker model of competition in retirement.
There appears little industry-wide recognition of member service levels. The Your Super Comparison Tool doesn’t reference service levels. The regulators don’t publicly differentiate between the service levels of funds, so it is unclear whether they internally measure and assess. ASIC’s recent work on dispute resolution focused on compliance with existing regulations. Jones hinted that further regulation may be necessary.
Maybe the research houses will provide some leadership in this area. It also appears an area where market insight specialists will become more prominent.
Interesting times ahead and another reality check for the retirement segment. Our working view is that industry will take five years to reach a reasonable position against the objectives of the Retirement Income Covenant. Perhaps the reality is even longer.
David Bell is executive director at The Conexus Institute.