There is so much packed into the ‘retirement challenge’ that it can sometimes feel overwhelming. One can easily add layers that compound the scope and complexity of the challenge to the point where it can feel unachievable. It is important to distinguish between present and future retirement challenges so that the sector has clarity and can focus on delivering in the present.

There are important connections between the two. Aspirations for the future are effectively ‘pitches’ for the future shape of the system. Where those pitches are made by super funds, they would carry much more credibility if funds made them from a position of delivering on present challenges. However, the industry is currently falling short, which curbs its voice. That tension will be front and centre at the Retirement Leaders Summit on Wednesday.

The present challenge – applying super savings to retirement

There are nearly three million super fund members aged between 55 and 64, and a further 2.6 million super fund members aged 65 and over. The changing and complex nature of retirement does not alter the fact that a significant number of people will be retiring over the next decade and they will need more assistance than is currently on offer.

The present challenge is building integrated retirement solutions and the pathways to get all members into a solution that is suitable for their needs. The trade-off between scale and quality needs to be navigated, with quality closely related to the degree of personalisation. Multiple pathways are required, leading to more complex operating models than encountered in accumulation.

Super funds need scalable solutions that account for personal circumstances, in particular Age Pension eligibility, and are efficiently implemented for members, while engendering member confidence. There is a need to serve not just members approaching and entering retirement but also address the ‘back book’ of existing retirees.

There are many difficulties in meeting the present challenge, but the primary ones are:

1. Industry readiness – Four years after the Retirement Income Covenant took effect, there are some leading funds, but many laggards. Systems and process integration seems to be a foundation that is often not in place. Some funds are moving slowly because they haven’t strategically prioritised retirement.
2. Policy enablement – Further policy enablement is required, especially around facilitating pathways that assist all members into suitable solutions. Some funds are of the view that they have reached the limit of what they can implement under existing policy settings, although not all. This may be due to varying interpretations and degrees of regulatory risk aversion. Regardless, a large part of the industry feeling inhibited is a troubling situation. Reforms to support scalable advice are of central importance. Unresolved issues include the scope of trustee-provided advice, use of personal information, role of defaults and/or pre-sets and use of nudges.
3. Roles and responsibilities – An alive and often tense debate continues around the roles and responsibilities of super funds in assisting members with their retirement. For the present, the unresolved debate inhibits business cases and makes policy design more difficult. Looking forward, this issue will be fundamental to the future shape of the retirement system.

Future system far less resolved

It is entirely unclear what the future retirement system will look like. Indeed, it is all up for grabs! Consider some of the following suggestions related to the scope of super’s role, all of which have merit:

• Greater integration between the Age Pension and super;
• Going further still by integrating housing, aged care or even health care; and
• Access to government data made readily available to super funds.

All of this raises the question of who will be the central coordinator of retirement. This is a fundamental system design question which has always played on our mind.

Super funds are a strong candidate. However, that view is not shared by all including some funds that are concerned about breadth of scope, fit with sole purpose duties and potential loss of focus on core areas such as investment management.

The shape of the future – possibly more integrated – system will have significant impact on the super industry. Super could either be central or a component part.

Time for the super industry to pat head and rub tummy

The size of the present retirement challenge and the potential uplift is too large and too important not to be the primary focus of the superannuation ecosystem. Here the ecosystem includes not just super funds but other sectors like financial advice, service providers, policy makers and regulators. All need to deliver, and in good time, to look after the significant wave of people approaching retirement while being mindful of uplifting existing retirees.

It is healthy and merited to consider what the future could look like. There should always be opportunities for visions and aspirations and for a sector to make its pitch of the future. It is an important issue to discuss, and we should all want to see a competition of best ideas.

Whether super ultimately plays the role of a central integrator or a component part within the retirement system will be pivotal. Either way, the weight of any pitch will be strongly influenced by how the system is delivering on the present challenge.

Through the lens of the present retirement challenge, the super industry is crucial to the outcomes of millions of retirees who are currently receiving little or no assistance. Through the lens of the future retirement challenge, the credibility of super’s pitch will be heavily linked to what they deliver in the present. If the industry wants to occupy a central position, it needs to demonstrate that it is deserved.

Leading funds: keep going and show the way.

Laggard funds: either get moving or consider stepping aside.

Retirement Magazine is exclusive media partner of the Retirement Leaders Summit, a joint initiative of The Conexus Institute and Conexus Financial.