So-called “soft default” retirement options are key to unlocking billions of dollars of economic productivity, according to Australian Retirement Trust (ART).

The megafund is taking the idea to the Treasurer’s Economic Reform Roundtable next week and will announce more detail at the Conexus Retirement Leaders Summit on Wednesday, a joint initiative held by Investment Magazine publisher Conexus Financial and its philanthropically funded think-tank The Conexus Institute. 

“There are millions of Australians around the country that aren’t taking up an income stream in retirement, and that’s a squandered economic opportunity for the country because it’s just tied up in savings – it’s just sitting there in an accumulation environment,”  Anne Fuchs, ART executive general manager for advocacy and impact, tells Investment Magazine ahead of the summit.

ART’s idea, contained in its submission to the roundtable, hinges on the introduction of a “suggested product” – an opt-in soft default. It wants the government to pursue reform that prompts or nudges a member with a non-contributing accumulation account towards an age-based conversion to an income generating pension account, and says that reform could obligate funds to offer their members a default retirement solution which includes a longevity solution.

ART chair Andrew Fraser will attend the Economic Reform Roundtable and advocate for legislative reform to make soft defaults possible. While initially the only representative from a super fund, Fraser will now be joined by AustralianSuper CEO Paul Schroder, who will attend the “Capital attraction and business investment session” alongside ASFA chief executive Mary Delahunty, Macquarie Group chief Shemara Wikramanayake and IGCC CEO Rebecca Mikula‑Wright. Also attending from the broader superannuation industry is Cath Bowtell in her role as chair of industry fund-owned IFM Investors.

Many of the challenges associated with members moving from savings and into the income phase result from them being presented with too many complex decisions, Fuchs says. 

“Apathy tends to win the day. We know, at ART, there is no fund that is a greater proxy for Australia than us with our diversity of employers and diversity of membership. And 60 per cent of our members would literally rather do anything else than talk about how to set up an income stream.”

The multiple bouts of market volatility that members have experienced starting from the Covid-19 pandemic mean they’re more aware of and engage more with their superannuation, Fuchs says. But they “only retire once”, and it’s an incredibly complex decision to navigate. The fund currently invests more than $71 billion on behalf of members aged 65 or older, but only around half (57 per cent) of those funds are in pension phase with members drawing down on them.

“The ideal world is that every single individual member engages as early as possible,” Fuchs says.

“The starting point is that funds should be doing everything they can to nudge, guide and advise their members. But if they don’t respond, there has to be a smooth pathway for them. We have the information – we know their age, we know their gender, we know their balance, we know their investment history, we know life expectancies.

“There is a lot of data we can use for the good of our individual members that would result in the income stream for them – that was the purpose of the superannuation system in the first place.”

Retirement has long confounded the profit to member sector, which have historically been stronger in accumulation and steered away from maintaining the adviser networks that their retail brethren have used to significant effect to attract members. While soft defaults would reduce the friction in retirement that can drive members to another fund, Fuchs said that it would actually see ART’s funds under management go backwards as a result of the fact that it was paying out more.

She also “profoundly disagrees” that a soft default would disintermediate financial advisers and that it would serve members who have less financial knowledge and are more apathetic about their retirement savings.

“We know at ART that a soft default is for the members who aren’t engaged or get overwhelmed – these are people that aren’t getting financial advice and are never going to get financial advice. This is money that is sitting in a taxed savings environment up until, potentially, they depart the earth. That’s how much apathy there is; they aren’t getting financial advice.

“If more members were drawing an income stream in retirement, rather than just sitting there dormant in a superannuation savings account, it would stimulate economic productivity because people would be going to their local footy club for lunch or checking out a discovery park at the beach. That would be money circulating in our economy that’s not circulating at the moment – that’s just tied up in savings in super funds.”