In superannuation, four big industry representative bodies are collectively funded to the tune of an estimated $42 million a year. That funding is effectively deducted from members’ accounts in the form of administration and other fees. While those bodies may purport to represent the interests of members, they inevitably serve the interests of other parties as well.
An informed and knowledgeable consumer is critical to competition in any market, but superannuation – outside of self-managed super funds – is an area with which relatively few people actively engage, even though they have a direct stake in the fair and efficient operation of the system.
Interest in super tends to increase as a members age and gets closer retirement, but it can be argued that decisions an individual makes, or does not make, early in their accumulation phase can have a more significant bearing on their eventual outcome than anything they do in the last five years before they retire.
But if members can’t or won’t engage with funds directly early on, then someone needs to do that for them. Super Consumers Australia (SCA) director Xavier O’Halloran says even with the best will in the world of the various stakeholders in the superannuation industry, an organisation that explicitly represents consumers’ interests is still critical. Yet SCA does that on an annual budget that is broadly equivalent to the salary of the chief investment officer of a large fund and is dependent on government funding for its continued operation.
“We were really set up from the start to represent consumers, but particularly consumers from middle- to low-income backgrounds,” O’Halloran says people who are better off were well represented in superannuation debates.
“The other value that we saw ourselves adding is that we could keep regulators, the industry, and policy makers really accountable to consumer needs, when they’re thinking about policy in super, and also the quality of the products that they’re already delivering. And we really just want to drive a more efficient, consumer-focused market, so that all Australians benefit from a strong superannuation system.”
Focus on the member
Treasurer Jim Chalmers and Minister for Financial Services Stephen Jones have flagged two clear priorities in the superannuation areas: defining an objective for superannuation; and improving the member experience with the member front and centre on both issues.
“The need for informed consumers is something that people often miss,” O’Halloran says.
“In a market like super, that is hard to engage with, a lot of people, due to behavioral barriers, will put off thinking about because it is the kind of issue for them in the future, or problem for them in the future.
He says you need to have policies that empower people to engage at times and also look for ways that competition can deliver good outcomes to consumers without them having to be heavily engaged.
“There needs to be a reality check on the extent to which people will be highly engaged with a complex market that they really only tend to see value in at retirement.”
Representing “consumers” as if they are a single, homogenous group of individuals clearly would be an error. O’Halloran says SCA seeks to safeguard against this pitfall, and to protect itself from suggestions that its policy positions are driven by ideology rather than consumers’ genuine needs and concerns, by basing its work on research and data.
“It’s a really good question, and it’s something that we’re constantly thinking about how we can get better at,” he says.
O’Halloran says SCA also has a policy reference committee that includes representatives of consumer groups who have deep experience of client case work and the issues members are encountering in real life as well as undertakes extensive national consumer research.
Getting to the bottom of how much an individual needs to have in retirement to enjoy a dignified retirement – retirement targets – illustrates how SCA’s research and survey activity feeds into its policy development work. O’Halloran says SCA’s work in this area “really shifted the narrative around how much you actually need to save to retire, to be a bit more grounded in what actual retirees experiences are”.
O’Halloran says that setting unrealistic account balance or income objectives can have a disengagement effect for members for whom the target seems unattainable – they’re not going to get there, so why bother?
SCA was established just after the Productivity Commission released its report on superannuation, Superannuation: Assessing efficiency and competitiveness, in late 2018. He argues an organised and adequately funded consumer voice has been an important part of policy developments in that space over the past four or five years.
“That pointed to all the areas that weren’t really working for consumers in the superannuation system, and the reforms that were required to address them. And so we’ve been probably one of the chief advocates, I guess, for a lot of the really consumer-focused positive reforms that were proposed in there.”