A silver lining for superannuation?
As Australians begin to tackle the vaccination phase of COVID-19, our economy is emerging with some optimism. Australia’s $3 trillion superannuation sector remains a pivotal asset for the nation, and the Federal Government continues to focus on the superannuation sector with transparency, efficiency and member-outcome programs. There are significant changes ahead, at a time where the whole ecosystem, including financial advisers, are weary of constant change and challenges.
Recent, important discussions include:
- Since 2013, superannuation has been on a journey to reduce the cost of administration across the employee to member lifecycle. This included policy and programs like: MySuper – low fee financial products, SuperStream – standardisation/digitisation; and the Future of Financial Advice – fees for service.
Early release of super
- Administering the early release of member funds in accordance with an integrity framework developed by the Australian Taxation Office (ATO) to assist hardship through COVID-19.
Super reforms – Your Future, Your Super
- This includes the newest package of policy changes that focus on making sure every dollar spent by a super fund in the best interest of members. There is also a framework to staple members to their initial fund so that duplicate accounts are minimised in the future, with super following an employee through their job changes.
- Corporates across Australia face increasing scrutiny on social and community expectations. The Financial Services Royal Commission is a not-so-distant memory for participants in the industry dealing with conflict and standards.
- In the future, those with flexible work arrangements such as gig workers, carers and part-time workers may find themselves disadvantaged when it comes to retirement if the super industry struggles to innovate for them.
Whilst the $36 billion (c.1.2% of total super assets) early release of super generated significant media attention, there is perhaps a positive impact for fund member engagement, albeit through a relative lens of negativity. Almost five million applications for early release of superannuation were made, and of that, 1.4 million were repeat applications. Is this unexpected engagement with superannuation a silver lining to the COVID-created drain on member’s long-term retirement savings?
Effective member engagement is one the longest unmet challenges for superannuation funds as many members in default funds simply ‘switch off’.
Anecdotal evidence would suggest that millions of Australians now know what their retirement balances are and which superfund/s they are invested in. Looking at Google statistics, the week of 22 March, 2020, saw a significant spike in search volume for superannuation or fund-specific names. Can funds build upon these engagement moments to create a lasting positive impact?
The superannuation sector should be commended for responding to an unprecedented crisis having achieved an average of 3.3 business days to make payments, but much work will need to be done to repair the retirement savings of Australians who have had to access it early.
So, has the experience of engaging with members with early release of super, in an earlier phase in their lives, helped to prepare the super sector for new Your Future, Your Super changes that are set to commence on 1 July, 2021?
Let’s refresh the intention of this reform:
- Your superannuation follows you, preventing the creation of unintended multiple superannuation accounts.
- Empowering members, by making it easier for you to choose a well-performing product that meets your needs.
- Holding funds to account for underperformance, protecting you from poor outcomes and encouraging funds to lower costs and fees to boost Australians’ retirement incomes.
- Increasing transparency and accountability for how superannuation funds use members’ savings.
Noble intentions, and the detail for which create significant challenges and opportunity.
Australia’s superannuation sector has traditionally worked in a B2B model interacting more with employers than individual employees. Notwithstanding the COVID-19 anomaly discussed above; super is mostly front-of-mind for people when they begin a new job or are thinking about retiring.
Presently, the nation has approximately 13 million working Australians and around 15% change their job every year. Many job changes have historically resulted in duplicate accounts resulting in $13.8 billion in lost super. These job changes are key moments where super funds can drive greater engagement and help workers make informed choices relating to their retirement savings.
So, in the face of reforms, how might the sector evolve its innovation and thinking to take advantage of the opportunity? I believe there are key pockets of opportunity that can make a material difference.
EMPLOYERS HOLD THE KEY
Employers will be challenged to solve for an efficient process to address ‘stapling of members’ (your superannuation follows you). Today, many people experience the super choice task as purely a compliance form that needs to be completed to start a job.
This is an opportunity for super funds and service providers to think innovatively about their greater relevance in what will remain a major life moment for an individual. As with most life decisions, if presented with the right information at the right time through a more immersive experience, humans are much more likely to engage.
Super funds can maximise their investment in their digital and direct to workforce channel. This will help them to define and control an engagement pathway for digital placement.
BE COLLEGIATE ACROSS THE ECOSYSTEM
The tax office also plays an important function and proactive engagement with the ATO to help enable digital services for member stapling when a member changes jobs is a clear area of opportunity. This experience should stay within the natural payroll process to achieve maximum efficiency, usability and minimise burden to the employer.
MORE RELEVANT ENGAGEMENT
The way super funds spend member money will be under increasing scrutiny by the regulator in the future. Super fund administration fees and costs will be benchmarked and underperforming super funds will be restricted to take new members.
Traditional marketing, advertising techniques (and sponsorship) that have attempted to capture our attention for a delayed gratification product may need to be re-tested and the investment focused to maximise member engagement at moments that matter, e.g. changing jobs.
CHANGE RESILIENT CAPABILITY
Super funds should also look to increase their capability, capacity, and level of innovation to deal with the changing landscape, regulation and increasing community expectations. Incremental and efficient change can make a genuine difference to the superannuation sector that is seeking to become more relevant to their membership. Advice is another important area, particularly with a potential increase of super contributions moving from 9.5% to 12%.
INFORMATION AND EDUCATION
As superannuation becomes an even larger proportion of an individual’s wealth, the importance of access to relevant and timely information increases. Analysis by the UWA Public Policy Institute suggests that whilst Australians are relatively financially literate compared to international peers, approximately 45% of adults (8.5 million) would be considered illiterate and there are further gaps relating to gender, birthplace, education, and employment.
Was COVID-19 a silver lining for superannuation? Time will tell whether the industry makes good use of this crisis. The optimist in me is hopeful that the industry tackles the new ‘Your Super, Your Future’ changes with courage and innovation beyond just the letter of the reforms. Ideally, this will position the superannuation industry as a leader in the financial wellbeing of Australians, help advisers give sound and certain ‘best interest’ advice to their clients, allow employers to efficiently fulfil their obligations and lastly, enable the Government to set policies that increase the quality of our lives.
Joe Brasacchio is chief technology officer at InPayTech.