Following the government’s announcement of important policy changes relating to post retirement, leaders of the superannuation industry, policy, academic and community circles converged at the CSRI Leadership Forum in Canberra on 30-31 May 2018 to discuss the ramifications of these proposed reforms.
The Forum brought together a broad range of perspectives in debating the role of super funds in implementing these policy changes to serve the needs of consumers. The highlight of the forum was Nobel laureate economist Robert Merton’s presentation of a feasible blueprint for funding retirement.
These discussions also provided a timely perspective on the broader implications of the recently released Productivity Commission report on superannuation efficiency and competition.
Some important themes were evident in the discussion. First, the importance of changing the framing of superannuation from wealth creation to retirement incomes in communications by government and industry. Rather than a singular focus on maximising returns, super funds and advisers should reframe the goal for consumers to achieve a given income replacement rate at retirement. Risk in this context is reframed as not meeting that required income level. Jeremy Cooper showed the reasons why we have a “burning platform” and need to get moving.
Second, the member is not an investor and should not be treated as such. Rather, she is a consumer that needs to be empowered, as urged by Patricia Pascuzzo. This is achieved through simplified choices, communicated through non-technical language that focusses on outcomes that the consumer understands. Engagement with the member needs to be a whole of life process not just at retirement. Consumer income needs become more diverse in retirement and that means they need a greater degree of customisation.
Third the importance of learning from the problems experienced in the superannuation accumulation phase while also recognising the unique differences of the drawdown phase. The need in the future for regular monitoring and recalibration of the post-retirement system to make sure it remains true to its objectives so as to avoid the cost and instability of a major overhaul further down the track.
Broad areas of agreement among participants at the Forum included:
- Importance of a retirement income framework to require funds to have a strategy for supporting their members in retirement.
- Benefits of pooling for achieving higher and more stable incomes for retirees.
- Need for comprehensive income products in retirement (CIPRs) to be simple enough for the member to understand and make a choice without necessarily requiring financial advice. Those consumers with peculiar needs and circumstances or seeking more tailored solutions would have access to advice.
- Role of fintech and robo-advice as change drivers that will help empower consumers in the context of diminished trust in institutions.
As would be expected from a gathering of such wide perspectives, there were also many points of contention. There was divergence as to the degree of specificity in the design of CIPRs, whether it was necessary to mandate super funds to provide them and, if so, over what timeframe.
At the heart of the issue is the wide divergence among funds in their capability to provide retirement income solutions to their members. For those funds who are in a position to provide their members with a greater degree of customisation than is feasible with simply three flagship CIPRs, a requirement to provide a CIPR would impede the ability of funds to develop a more tailored approach for their members.
Drawing on the forum discussion, Jeremy Duffield suggested five or so action items for delegates to consider to move a retirement income focus up the industry action plan agenda:
- Put in a (supportive) response on the Retirement Income Covenant Consultation paper, by the June 15 deadline.
- Organise for success and develop a retirement income strategy – make an organizational commitment to Retirement Incomes by creating a retirement “agenda” across the organisation and by appointing a senior executive to oversee Retirement. First task would be to work out the Fund’s retirement strategy.
- Identify the fund’s preferred approach to retirement income strategy for members. Work out your product solution in the anticipation of CIPRs coming through. Anticipate CIPRs, don’t wait for it.
- Work out member engagement and advice strategies. Develop customer journeys for pre-retirees through retirement. Remember the second principle of the Retirement Income Covenant and develop engagement approaches to get members retirement income solutions which meet their needs.
- Note and support CSRI Sustainable Retirement Income Scorecard approach to benchmarking best practice in retirement solutions.
- Develop the right metrics to motivate the focus on great retirement services and great retirement income outcomes for fund members.