Not every fund member gets to retire how or when they expect to, even if they’ve planned it out carefully. It is especially true for individuals employed in relatively high-risk occupations such as mining and transportation and poses a particular challenge for a fund like Team Super, which draws its members from those sectors.
The finishing touches will be applied to the merger of Mine Super and TWU Super over the coming week or two, creating a fund of about $21 billion in assets and more than 150,000 members. Two months ago, Team Super appointed Sarah Forman, formerly Aware Super group executive in charge of advice, as chief retirement officer.
Forman tells Retirement Magazine that delivering a dignified and fulfilling retirement starts well before a member’s last day at work and involves more than just maximising returns in accumulation and providing access to advice and guidance on retirement options.
“What’s really important in our industry, because members can be working in more dangerous professions – similarly with transport coming in with TWU Super – is that we have the right protection available for members,” Forman says.
“Retirement can be brought on someone at a time in their life where they actually never anticipated they would be retiring, so we see having the right protection cover in place, particularly where we’ve got members that won’t be able to get that affordably elsewhere, as an important part of preparing for retirement.”
Forman says how a member feels about retirement can be as important to them as the final balance of their accumulation account. While “success” in retirement solutions is still somewhat ill-defined, commentary consistently expresses the view that the industry must do better.
“One of the measures that gets focus is everyone’s not spending all their money,” Forman says.
“I’m not sure if that is the only single measure of [success]. I hear views that superannuation has turned into an inheritance scheme, it’s not focused on retirement income, and people should be spending all their money.
“And I get why people say that, because that’ll be great for the economy, and boost retiree lifestyles. We have to come up with what are the right measures of success to [be able to say] is this system working or not? And that may be something around retiree sentiment, and it may absolutely be about standards of living and quality of life – it should be around standards of living and quality – but it may [also] be around the cost of government age pension schemes.
“It probably has to be multi-pronged, and I just don’t know that today we’ve perhaps got the right measures of the system there.”
Serving members
Forman says the superannuation industry collectively needs to continue thinking deeply about how it serves members who aren’t affluent or high-net-worth.
“Unpacking the retiree fear of spending is important when we’re in a complex system where many focus on a single measure of the system, which is, people need to spend everything they accumulated for retirement,” she says.
In practice, individuals’ objectives in retirement are widely varied, Forman says.
“It could be that they’re happy they’ve worked their whole life and want to die without a cent in the bank,” she says.
“Someone else might be saying, you know, housing affordability is really challenging, and if this is my chance to help my kids get a leg up, I want to do that.
“So there’s this interesting crossover point where super goes from accumulation phase to retirement, and it goes from being something that is very restricted by regulations and government to being something that’s actually theirs. And they get choices, and they need to be enabled to make those.”
Forman says there is a challenge for super funds in collecting the right amount and the right type of data about members to cohort them smartly, and to deliver effective nudges through their working lives so they can make good choices and do have confidence about how retirement will work out for them.
“There’s a lot of fear, I think, still in the industry about how far you can go with nudging,” she says.
“There’s been legal cases where organisations have been challenged [on] using personal insights derived from data to then nudge them in a non-personal advice way to be more informed and take action with their super. [It sometimes] crosses lines [and it’s] often hard to fully understand where those lines are.”
At Aware, Forman worked for a fund with $170 billion of assets and more than 1.1 million members. There’s often an assumption that large funds with large cashflows can just throw money and resources at the retirement income problem until it’s solved.
Forman says she sees it differently, and the intimacy a smaller fund enjoys with its members gives it an edge in tailoring solutions.
“If someone said, why do smaller funds exist – because people do obviously ask that question – we would argue that our scale and size allow us to be adaptive, a little more agile, to try things that may be new or a little bit different, and really build deeper connections with our members,” she says.
Forman says where a fund has relatively high levels of member engagement and potentially members with relatively high balances, it can be easier to engage with them on preparing and transitioning to retirement.
“They see you as part of their industry – that’s how they feel about you,” she says.
“Where you are potentially a larger fund that has a very broad base of membership, I think that makes it a harder challenge to get the connection and an engagement you need to help nurture people through to the best retirement outcome for them.”
System complexity
Forman says a limitation facing all funds that are tackling the retirement challenge is simply the complexity of the system, which “makes it so expensive to administer and so expensive to be innovative in”.
“The bigger you are, I think the more challenging that is,” she says.
Forman says Team Super offers members a comprehensive advice service “where we charge members for that advice, and it’s thousands of dollars, like everyone else”.
Tranche 2 of the government’s Delivering Better Financial Outcomes (DBFO) legislation will doubtless help bring down costs – when and if legislation is passed – but the fact remains that “there will be a cohort of members that may retire with lower balances and just can’t see the justification for paying for comprehensive advice”.
“They will retire with a lesser-personalised experience, and they won’t be able to walk away with the same degree of confidence that they could,” she says.
“I’d love to bring the cost down for members, and I can only do that by simplifying the process and documentation that make it a time-consuming process, without any compromise on best interests.”
If the DBFO reforms are delayed or worst-case, evaporate, Forman says super funds can keep doing what they’re doing now to deliver retirement solutions to members, but the so-called advice-gap may remain unbridgeable.
“As an industry, there’s 15,000 advisers. [But] there’s millions of Australians that need advice,” she says.
“There’s going to remain a gap, and the people that are going to fall into that gap are going to be the middle rump of Australians.”
Forman says super funds can do more for members who retire than they currently are, even under existing legislation and frameworks, but a lot of that has to do with funds having confidence to push at the boundaries a little, and the DBFO reforms would support that confidence.
“I’d like to think the advice profession has moved on from the royal commission that exposed many weaknesses in the financial advice industry and stimulated real positive change“,” she says.
“There is still a lot of good people with the right agenda and the right objective working in that profession that are very passionate about it. The industry just needs to be able to get on with it, but we could do it better if we got some of the DBFO changes delivered.”
Longevity innovation
Forman says the evolution of longevity products is “a great innovation, and they deliver to members’ needs around seeking certainty or [making] money last for my lifetime”.
But they are complicated, and a number of their characteristics make them difficult for members to understand and to use to their full potential unaided.
“Today, I don’t know that many of them are selling successfully outside of a comprehensive advice experience,” she says.
“The ability to get these innovative products to the members that need them feels like it requires advice, and that marries in with the Delivering Better Financial Outcomes piece [and looking] at what the constraints are on a trustee to be able to cohort their members at a deeper level.”
Forman says relaxing some of those constraints would allow trustees to guide and steer more members to the better retirement products that meet their needs. As things stand, already about half of all Team Super members who open a retirement product with the fund also receive advice.
“That’s another one of the foundations we’ve already got in place: personalised guidance and advice. We have high conviction to that. We’ve got in-house advice teams.
“To have 50 per cent of our retirees retiring with the fund having had some personal advice is fantastic, because we think financial advice is absolutely essential at point of retirement.”
