Using data to better understand members

Buoyed by an ageing demographic and a new trustee duty known as the Retirement Income Covenant, superannuation funds are gearing up to meet a growing need for retirement income products to help members reach their post-working life goals.

However, getting people into a retirement product that is right for them could be a tough ask given the sparse information available on their membership base.

The good news is that Canberra is taking a principles-based approach to retirement strategies. This allows super funds to tailor retirement products to the characteristics of their members and their families.

Yet super funds, as it stands today, are facing yet another hurdle. By virtue of our compulsory system construct, Australian workers have historically been funnelled into a super fund by their employer, with funds operating a very clear mandate in the accumulation years – safely maximising wealth for retirement. In principle, little intervention is required from members in the earlier years. It’s not until it’s nearly time to switch strategies from delivering investment returns to providing sustainable retirement income, that there is a heightened need to innately ‘know your customer’ (KYC) – and have them actively engage. The concept of ‘KYC’ – takes on a new and critical meaning. 

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Members will, of course, be required to provide explicit consent prior to commencing any retirement income stream and will not be defaulted into any particular product.

They’ll be provided information or indeed tools that can help determine whether a strategy is the right option for them. But without an optimal data set, it’s difficult for trustees to design and deliver products over and above the fund’s broad membership needs.  

This is a source of frustration for many super funds, all looking to do a good job for their members. If the onus to design and deliver the right products sits with them, it is essential they can access the key profile information to help them better understand and design solutions for their members. 

As we all know, it is possible to achieve this through member segmentation. Categorising members by demographics, investment understanding, homeownership, non-super assets, marital status and level of engagement helps identify cohorts with similar risk tolerance. Much of this information is needed to help determine if the member is eligible for the means-tested Age Pension, to what extent and how that entitlement might change over time. Its complex for super funds.

The trouble is, it’s difficult for funds to build such meaningful cohorts without access to more information about the member’s situation than they can currently have.

Unfortunately, in the design of sustainable retirement income solutions, this presents an impediment to segmentation.

There are glaring gaps in the information that super funds have a right to use. Worse, many of the necessary data points change from time to time.

Canberra has an opportunity to address the data vacuum since it acts as an enabler for constructing better-segmented cohorts of members. Critically, if a super fund has all the data it needs, the retirement income strategies being designed and presented to a member have far greater odds of being best suited and meeting the members’ needs over the long term. 

TRANSFORMING TIME IN THE DELIVERY OF ADVICE 

The same can be said for enabling data access for financial advisers. With pertinent data sharing comes greater efficiencies to the benefit of their clients, and a potential solution to the challenging and hidden ‘cost to serve’ that advisers face. 

For many financial advisers conveying the ‘perceived’ cost of advice versus the actual cost of implementing advice can be difficult. Much time and effort is spent collecting and capturing data, often duplicated across multiple systems, to meet onerous yet compulsory compliance. All of which is necessary but at a cost that could be viewed to add little value to the end client outcome. 

Harnessing a greater deal of (already available) data – perhaps a push button solution, feeding into planning software – would allow advisers an efficient starting point; speeding up admin processes and winning back time better served in the provision of strategic advice services. 

As things stand, getting the right amount of useful data on clients is time consuming, and for super funds members, notoriously difficult. So, getting the Government involved in data that feeds into segmentation is not only smart but brings some distinctive benefits to bear.

In the context of our compulsory super system, it is easy to argue that the optimal policy response from the government is to support the retirement and advice industries by allowing members to benefit from the mass of rich data being collected on them. 

In turn, the retirement industry has a responsibility to lobby Canberra to make this a priority at what is a critical juncture in the construction of a decumulation or retirement income system for people in retirement. 

Interestingly, the Australian Institute of Superannuation Trustees noted in a submission to Treasury that some super funds are investigating the possibility of obtaining banking data using the consumer data right (CDR), or ‘open banking’ as it is widely known. An opportunity that was identified as a recommendation by the Productivity Commission into Superannuation. 

Obtaining data through MyGov is an efficient way to supply super funds with the data they need to build more detailed cohorts. With the Morrison government’s say-so, super fund members could consent to have MyGov data preloaded into their super fund as they approach retirement. 
 

SHARING DATA SAFELY

The timing could not be better. More than ever before, people may be ready to share data.

The CDR or ‘open banking’ law creates a general right for consumers to control their data, including who can access it and how it can be used. Bank customers understand that they benefit from sharing their data with an accredited third-party knowing that privacy safeguards are in place. 

And, it’s not just the banking sector that is sharing data – the energy and telecommunications sectors are next in line.

We should get the most out of our data. So much gets collected, little gets used. Throughout the pandemic, individuals have become accustomed to scanning a QR or quick response code to enter a shop, pub, or other business. As the country continues to open up, data from MyGov acts as a passport to freedom, showing a green light to indicate vaccination status.

If bank consumers are happy to direct the right data, at the right time, into the right hands to obtain better loans, I wouldn’t mind betting that super fund members will also want to benefit from better use of their data in the same way. 

There is a real opportunity for policy makers to enhance the retirement of all members and empower super funds by helping to match members with the right products. Another advantage is that the hard part of choosing a product is done for members.  

The Government has indicated that it wants ‘informed choice’ as the basis of Australia’s retirement system. But a purely choice-based system may not work well for all people approaching or in retirement. There is every chance that a greater degree of choice equates to greater complexity for some.

This is where a superior member understanding and engagement framework is going to form a critical component of delivering better retirement outcomes. Member engagement that is tailored to individual profile or matched to needs and circumstance could certainly smooth the critical decision-making path enabling greater confidence in ultimate choice.   

In many respects, consumer or member expectations will only be on the rise as they engage with products and services outside of their super funds who are harnessing their data, critically at the individual’s say-so, in order to provide personalised and frictionless experiences. Financial services providers, including super funds, will essentially have the same expectations placed upon them. 

Members trust their super fund and many will expect to be guided into an appropriate retirement option. Some will want to have a hand in the decision, depending on how engaged they are. Alternatively, the member could ask their fund to assign them a product. Either way, funds need to be ready and equipped to easily flex to meet member needs and expectations in retirement.  

Designing a suitable range of sustainable products for each segment or cohort is essential if super funds are to deliver on their obligations in providing their members with a secure and dignified retirement. Armed with a richer dataset, building suitable product to match member needs to income stream, may get that bit simpler.  

Fintan Thornton is actuary and head of institutional solutions at Allianz Retire Plus.