Complex member communication could deter people from engaging with their retirement savings, but for super funds, maintaining simplicity in their messages has become one of the most difficult things to do.

In building more comprehensive retirement guidance, funds find themselves grappling with the dual challenges of conveying nuanced financial information in a personalised way and keeping it accessible to the average consumer.

In an Investment Magazine roundtable, sponsored by AIA Australia, world-renowned behavioural economist and UCLA Anderson School of Management professor Shlomo Benartzi reminded funds that their average member will not be a technocrat or a finance professor.

“When we build products, we have to be experts to be able to build it, but then we stay in the expert mode, and we forget that the users have a very different mindset about it,” Benartzi told the roundtable, attended by major super fund representatives.

Shlomo Benartzi

“Everyone at this table, we’re dealing with numbers all day long – and charts and percentages. The idea that the typical person is struggling to know that 0.1 is 10 per cent, is one out of 10 – we can’t relate to it.

“Those are the people we will need to put our heads inside and figure out what’s the app that they would need. And it’s not just the math and the numbers, it’s also the emotional part [of retirement], it’s the entire thing.”

Alongside Nobel Laureate Richard Thaler of the University of Chicago, Benartzi created the Save More Tomorrow (SMarT) initiative, which is designed to “nudge” employees to increase their retirement savings rates gradually over time.

It aims to help people avoid some behavioural biases such as present bias (asking people to commit now to saving more in the future), while make use of others like inertia (employees remain in the program unless they opt out).

Choices not always helpful

Benartzi said one bias that’s not getting enough attention is that many consumers do not want too many choices. He believed one of the main reasons why ChatGPT is taking business from Google search is because the former usually offers one answer, instead of a list of results.

“The analogy is that a lot of the apps we build in financial services have too much complexity for the typical person,” he said.

UniSuper chief marketing and growth officer Danielle Murrie echoed this view. She referenced the famous jam experiment by psychologists Sheena Iyengar and Mark Lepper in 2000, which found that consumers are more likely to purchase a jar of jam when they were offered fewer flavour options.

“I’ve been outside of the industry for about a dozen years. I’ve come back here and do see technocrats. I keep saying to my people that we’re going to make the complex simple, and the simple compelling,” Murrie said.

Danielle Murrie

UniSuper’s messaging around retirement is mainly done through nudges. Members approaching retirement are split into three groups: 15 to 10 years until retirement, 5 years till retirement, and in retirement. Then the fund has individual conversations with members, with an advice component.

“In terms of language, we try and make everything simple…even though we have a very highly educated membership,” Murrie said.

“We just talk to people in everyday language because that’s what they want.”

Colonial First State executive director of retirement and growth, Marissa Powe, acknowledged the roles of nudges and financial education, but said having a simple message about retirement is still easier said than done.

“If you don’t know all members’ preferences and needs and know everything about them, how do you give them one message that’s not financial advice?” she said.

Biases in considering life expectancy

Another behavioural bias lies in how people consider their life expectancy, which Benartzi said has effect on the perceived sufficiency of their retirement savings.

“There’s been studies by John Payne and Duke University, where [it says] you either think about longevity or morbidity [when it comes to life expectancy],” Benartzi said.

Marissa Powe

“If you ask people how long when they’re going to die, they will generally tell you 75 [years old]. If you ask them how long they’re going to live, they tell you that they’re going to live to 85.

“That actually makes a difference, at least on intentions to annuitise. Because if you think you’re going to die, why would you annuitise? If you think you’re going to live long, maybe you do need the decumulation plan.”

AIA Australia general manager of shared value partnerships Alison McLean added that encouraging people to think about retirement early and come up with a concrete goal can have significant impacts.

Research by the insurer found that of the one-third of people surveyed who have a retirement savings goal, 80 per cent have a good idea of how much is needed and 60 per cent changed their behaviour to as a result.

“[There is] a bit of the ostrich effect [for people without a goal] where I kind of know that I’m not on track, but I’m just not going to think about it, because I don’t know how I’m going to get out of it,” McLean said.

Australian Retirement Trust (ART) head of asset liability management Brnic Van Wyk said the fund’s focus on pension products is providing security for members no matter how they think about life expectancy. It has conducted similar studies with focus groups on the morbidity versus longevity perception during its pension products’ design phase.

Alison Mclean

“We’ve found that people are not worried about when they’re going to die, they’re not worried about how long they’re going to live. They’re worried that they don’t know. They’re worried about uncertainty, not longevity,” he said.

“[The pension products’] value proposition is it doesn’t matter what happens, this is security. Technically, behind the scenes, we know we have to solve longevity [risks], but normal people don’t care, and what has resonated is that proposal of confidence.”

Good or bad engagement?

Benartzi praised the Your Future Your Super stapling legislation, which he said behaviourally helped people to think about super as a lifetime account, and puts Australia “far ahead of the curve” compared to the US and the UK.

“Especially as the workforce become more mobile, you could avoid a lot of small accounts,” he said.

“You’re doing it in a way that is very different from, say, how NEST is doing it in the UK or CalSavers in the US, because you’re not saying that the idea is to have one provider for all the people in Australia.

“You say we’re going to have multiple supers, it’s just that whoever you are starting with would be the default, and the market could still be competitive.”

But Benartzi urged funds not let the member behaviours that the super system fostered turn into disadvantages during the retirement phase. He emphasised that super funds “were meant to be retirement plans. If we don’t solve decumulation, the entire system shouldn’t be there to begin with”.

“If I think about the strengths of a system like you have in Australia, that you have to save and everything is done for you, you got this huge issue later on of engagement,” he said.

“Because suddenly one day people wake up and they are like ‘oh, I have all this money, maybe I can go buy another boat’.

Brnic Van Wyk

“My understanding is a lot of people don’t trust the system and cash out the account, which has significant tax disadvantage.”

With that said, there are conflicting views in the super industry about what kind of engagements are eventually beneficial for members, or if getting members to be more proactive about their super is actually a good thing. A prominent example is that members who actively switched to a more conservation investment option during COVID-19 are left worse off financially compared to those who have done nothing, as those who switched would have missed the market recovery.

In retirement, Conexus Institute* executive director David Bell said the organisation’s working view is that “activity-based engagement” is a safe space for super funds right now.

“Like ‘please have a look at this calculator’, ‘please go to this information hub and so forth,” Bell said.

“But the engagement nudges which embed the financial recommendation – funds are very hesitant to progress into that area at the moment from the regulatory perspective.”

Working with externals

REST Super head of retirement Greg Black said the fund tries not to be overly prescriptive in its engagement with members as it only has limited knowledge of a person’s retirement situation.

“[We do] activity-based nudges essentially saying, find out more information generally – find out a bit more about yourself and your options, or come through to advice; as opposed to [saying] we can see you’ve got $150,000 with us, you’re 65 years old, and your SG has just stopped, feels like you might be retired,” he said.

Another layer of the challenge is that many members are unwilling to think about their super, as Black said for some, talking about their retirement savings is “like getting a tooth extracted”. This unwillingness to engage could be especially disadvantageous for REST members who generally have less savings on retirement, as the average balance for its pre-retiree members (60-64) is only $104,000 and the median $90,000.

Greg Black

“Our older members have a good level of financial literacy, because they are very good at making money last and doing things with it, [but a] very low level of superannuation and retirement literacy,” Black said.

REST is in the process of working with providers to simplify its retirement calculators, which currently have a comprehensive set of inputs but Black said could be ‘bewildering’ for end members. It is also exploring assisted journeys.

“We actually want to have our people sitting there on the phone or video call with our members working with them through those sorts of tools, helping them understand, lifting their level of literacy and confidence,” Black said.

Vanguard Australia head of strategy Matthew Dempster said Vanguard Super, being a new entrant in the market, has its eyes set on the adviser channels. He said a whole of household view is critical when funds are assessing a person’s retirement situation.

“In our recent How Australia Retires report we see about 70 per cent of people do plan [retirement] as a household,” he said.

“There’s a huge amount to be unlocked by super funds being better supported in being able to understand the whole of the person’s circumstance, and that missing personal information.”

Moving forward, the roundtable heard that retirement will be a major area for competition and those funds who are looking to have an edge over their peers will need to answer some big questions.

Matthew Dempster

One of them is how funds can meaningfully measure members’ retirement confidence, which will influence when and how funds communicate about the topic.

“There’s a lot of complexity in retirement, and huge potential for cognitive overload for retirees. They’ve got to make potentially couple big decision – choice of fund, but also choice of retirement strategy,” said the Conexus Institute’s Bell.

“I think if they [members] trust their fund, they’re not going to focus on the choice of provider. They’re going to really – if they do anything – focus on the retirement strategy they [funds] implement.

“Where does that leave competition in retirement? It’s a really fascinating system challenge.”

*The Conexus Institute is an independent think tank philanthropically funded by Conexus Financial, the publisher of Investment Magazine.

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