Can super funds adequately ‘know’ their members?
Superannuation trustees are going to have to become far more familiar with their individual members if they are to deliver the full benefits of the proposed Comprehensive Income Products for Retirement (CIPRs) regime, according to research house, Milliman.
In an analysis which points to the need for good advice around the use of CIPRs, the research paper points out that just 20 to 40 per cent of Australians are seeking out the services of a financial planner, something which is often leading to poor decision-making.
It said that, on this basis, superannuation fund trustees will need to get to know their members in the knowledge that placing them in a default accumulation option including default insurance without the member’s knowledge will not be good enough with CIPRs.
“While a ‘safe harbour’ is proposed to protect trustees from claims that a CIPR was not in the best interest of an individual member, the reputational damage could be more extreme,” the Milliman paper said. “For example, what if a small number of members were placed into risk-pooled CIPRs without their knowledge and quickly died, forfeiting their entire super balance? What if a member with a terminal illness was placed into a risk-pooled CIPR?”
The Milliman analysis noted that the Federal Treasury’s CIPR discussion paper had raised such prospects and suggested safe harbour provisions shouldn’t apply in all circumstances, such as terminal illness (or even a low super balance).
“Funds may have a wealth of member information (such as average retirement age, gender, average account balance, occupation, life expectancy of individuals in each occupation and average income during working life), but they need far more,” it said. “There’s only one way a fund can learn it: by asking members. This should include information such as (non-super) average household income and assets, health status and risk preferences.”
The Milliman analysis said that super represented just one slice of household assets.
“Australian households’ financial assets are broadly evenly split across super, property (excluding owner-occupied homes) and other financial assets (including shares), according to the Australian Bureau of Statistics,” it said. “Funds that find out this type of information have an opportunity to become a central retirement hub for members.”
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