A year and a half since taking the lead on delivering retirement solutions to AustralianSuper’s 3.3 million members, the fund’s chief retirement officer Shawn Blackmore has learned that for all its complexity, the accumulation phase of super is a walk in the park compared to decumulation.
“What I’ve discovered in this job in 18 months is superannuation is easy, retirement is hard,” Blackmore says.
The accumulation system is well set up to deliver largely homogenous investment solutions at the lowest possible cost to the greatest number of people. And funds do not need to know very much about their members as individuals.
“But when it comes to then thinking about retirement, it quite quickly shifts to ‘me’: what is my situation?” Blackmore says.“And when you start to think about what are the questions and factors that go into someone’s personal situation, it starts to highlight there’s some data gaps we have that [don’t] allow us to meet the members where they are.”
Blackmore says the fund regularly surveys members through a voice-to-customer program that started in 2016 and initially received about 30,000 responses, but which now routinely receives 120,000 responses.
“That’s complemented with a lot of thorough other research to hear what members want, where’s their pain point, what their expectations that are [including] the richness of even the contact centre and listening to phone calls,” Blackmore says.
“We’re a small domain within the band, but we make sure that we go down the contact centre once a month and just listen to members.What sticks out to me out of all that is just the common denominator of complexity. They just find navigating retirement hard.”
AustralianSuper’s response to a Treasury discussion paper on retirement, made public on Monday, proposed a raft of changes to make the transition to retirement simpler for members, and the provision of effective retirement solutions simpler for super funds.
It proposed an “account for life,” structure within super funds, so members do not have to re-apply to their existing fund when they move into an account-based pension; and it proposed allowing members to draw down an income after they reach preservation age but recontribute their income to their super fund, if they wish.
It proposed greater age pension integration, which would involve allowing members to apply for the pension and then integrating the pension with income streams from super.
It naturally advocated for super funds to be allowed to give more support, advice and guidance to members; and for funds to be able to work more closely with government to share data on members, to help make the transition to retirement smoother.
A longevity solution in the wings
AustralianSuper’s recommendations also included leaving individual funds to develop their own longevity protection solutions for their respective members, noting that a mandated national longevity risk product could increase cost and complexity, and entrench socio-economic disadvantage.
Blackmore says the current complexity of the superannuation system is a factor in most retired AustralianSuper members drawing down the minimum they’re required to each year, with the reluctance to draw down more being rooted in fear of living too long and running out of money.
He says AustralianSuper is finalising a longevity risk solution for members in retirement and will partner with a life insurer.
“We’re in the process at the moment of selecting a partner that should be ready to advise in the next couple of weeks,” he says. “We don’t have any current intentions of getting a life licence license. It’s not our core business. And there’s good partners in the market that that have that that we can work with.”
AustralianSuper’s submission to Treasury notes that if a fund cannot facilitate appropriate [longevity protection] solutions currently, they should be referring members to funds which can”. Blackmore says AustralianSuper’s solution will be offered as an option within its account-based pension.
“We don’t expect members to put 100 per cent of their money in it, but what we’ll see is members over time, if it meets the right risk profile, they might put 10 per cent in it, they might put 50 per cent in it, because they want a proportion of their money guaranteed for life,” he says.“We’ll look at a longevity solution and we’ll continue to look at the toolkit to see if there’s any other solutions that are available to members.
“But it is our job to give members confidence that we’re investing to ensure that they receive a stable income, we’re making enough money that they can draw down between 6 and 7 per cent, which they should be drawing down, and give them confidence to draw down on the capital.”
The curse of scale
Super funds across the board are scrambling to find better ways to support members as they retire, and some are more evolved in their thinking and their offerings than others.
But almost all of them have no line of sight into their members’ financial situation outside their super balances. Whether an individual owns their own home, for example, makes a material difference to their standard of living in retirement.
Blackmore says gathering more data about members, their financial situation and their expectations of retirement will underpin the solutions the fund brings to members “so we can design a process that is more personal to members – but it has highlighted the personal uniqueness of an individual’s retirement is going to be one of the challenges of scaling”.
AustralianSuper’s size is both a blessing and a curse. Its size has allowed it to harness immense scale to maximise efficiency in accumulation; but it now faces the task of developing far more tailored solutions to a huge number of members as they retire.
To put it into perspective, in the current year an estimated one in every eight Australians who retires will be an AustralianSuper member. Its response to the demands of meeting retirement expectations will affect the greatest number of individuals of any single fund.
It already currently has around 106,000 retired members, whose $42 billion in assets represent about 3 per cent of the fund’s total, and it paid out about $3 billion in retirement income in the year to June 30, 2023.
The fund expects another half a million members to move into retirement in the next 10 years. Currently the average account balance for a retiring member is about $150,000 – slight more than that for males, and slightly less for females – and Blackmore says making as many of them as possible ready for when that day arrives is a key objective driving the fund’s strategy.
Qualification in retirement
A new content hub, called the Elements of Retirement Guide, has been launched to take members through the retirement planning process so that as retirement nears they at the very least are better informed and more confident about the steps they need to take. The guide covers five elements: super and investments, planning for retirement, moving into retirement, income in retirement, and lifestyle and wellbeing.
Blackmore says the concept for the guide came from “a little bit of an out-there idea to say, actually, can we give someone a certificate in retirement?”.
“If it was an education course, and you were getting a certificate in law or accounting, you’d have subjects and modules in order to complete that qualification,” he says.
“If we can give members a ‘qualification’ in retirement, what would that look like? Well, you break it down to say, there are modules or subjects in order to complete.I don’t think a ‘qualification’ was the right way to engage members, and [we] came up with there’s elements of retirement. The content at the moment is the starting position.”
Blackmore says the main retirement income solution for AustralianSuper fund members now is an account-based pension. But even for what should be a relatively simple task – transferring a member from an accumulation fund to a pension product – is fraught with complexity. A member must, for example, reapply to become a member of their existing fund so they can open an account-based pension. This would be significantly simplified by the account-for-life proposal in its AustralianSuper’s Treasury submission.
Even delivering advice on whether an account-based pension is an appropriate retirement solution can get messy, because it is a separate financial product from the accumulation fund and advice may not be possible within the boundaries of intrafund advice.
Even so, Blackmore says the provision of retirement solutions will inevitably involve help, advice or guidance of some sort.
“The ability to have advice available and obtainable to all members is going to be really important,” he says.“Some members have quite simple needs and want education. And some members will want full personal advice and their hand held. Again, members are telling us how do you make it simple for us to understand where to go to get advice? How do you make it more attainable and affordable?”