Super funds are suffering an identity crisis in the face of the growing scale of the retirement challenge. Despite the regulators’ insistence that funds get better at engaging with retiring and retired members, many remain stuck in the mindset that they are a product, not service provider.
However, nailing this transition will be biggest and most challenging task for many super funds if they want to retain members as they head into their golden years, according to David Bell, executive director of The Conexus Institute*.
“It’s the number one thing,” Bell told the Fiduciary Investors Symposium at the Blue Mountains. “To do retirement, funds will have to become services firms in the way they help those members transition from accumulation to retirement along different degrees of complexity and proportionally different degrees of price.
“But that’s far from… a single, low engagement type, system-level and contribution-level of default, which are really conditioning members not to be engaged, but also conditioning funds not to go overboard on engagement…and to keep tight cost models.”
Changes that the Labor government has proposed in its advice bill are “quite significant” and will help funds change their views when servicing retiring members, Bell said. The government’s March update on the protracted reform specified what intra-fund advice topics super funds can collectively charge members for and gave funds more flexibility to nudge members to engage with their retirement circumstances.
“But the message there is that you’re actually being not just given the ability to provide this advice, you’ve effectively been given a soft directive that you have to go down this pathway and provide that advice,” Bell said.
“And if you don’t, you’ll really start to run into some challenges.”
Bell acknowledged that funds may be destined to lose some members along the decumulation journey – for example, their personal circumstances might be too complex to be catered to by a fund’s retirement solution. But many members also have a high trust in their fund.
“I think they are quite likely to work with their fund [on retirement issues],” he said.
“That’s where advice in super is going to help you – it will give you the opportunity to help many of those members, rather than losing more of them, and help you do a better job for your retirees.”
T. Rowe Price’s global solutions portfolio manager Richard Coghlan said Australia’s progress on the solving the retirement issue is in line with other major pension markets, but the challenges here are somewhat unique.
“Partly because of the way super is structured, advice is not so easy to give, especially comprehensive advice, whereas in the US with T. Rowe Price, we can offer comprehensive advice [via a subsidiary],” he said.
But Coghlan echoed Bell’s sentiment that “scaled advice” is the more critical channel.
“It’s not the $5000 to $7000 type of advice. It’s the either the in-house advice that some of you are capable of delivering right now, or maybe outside advice where the advisers are looking to scale up their business or move down market,” he said.
T. Rowe Price identified that members’ post-retirement experience hinges on five common considerations: unexpected balance depletion, liquidity of balance, volatility of payments, level of payments and longevity risk hedge.
“If you ask investors what they really value when they address what they want in a retirement scheme… it’s about maintaining lifestyle. It’s about not running out of money. It’s about not running out of money,” Coghlan said.
“What they value the most is what they got in a DB scheme, and they’re not getting that anymore. They’re in a DC scheme and somehow, we’ve got to address these needs. So I think we can do a lot better.”
*The Conexus Institute is a not-for-profit think tank philanthropically funded by Conexus Financial, publisher of Investment Magazine.
