Australia’s superannuation system is one of the most effective in the world in the accumulation phase, but the challenge now is to carry members into the retirement journey – which is a more complex proposition than initially meets the eye.
By all measures Australia’s superannuation system can be considered a great success. Australians have wholesale access to a vast array of super fund providers, with high participation across the labour market in one of the strongest retirement saving systems in the world.
However, while our system is an effective accumulation tool, there is immense potential for it to develop as a retirement income service. As explored in our recent KPMG report, Super Insights 2017, super funds have the challenge, and the opportunity, of developing retirement income products to cater for the increasing number of Australian’s expected to enter retirement in the coming years.
While the potential is great, the task of implementing retirement income products is not simple. Even for Australia’s brightest superannuation and investment minds, it is a multi-faceted issue that cannot easily be solved by improving investment performance and cost reduction alone.
Most funds have answered the questions of the accumulation phase in similar ways, but there is likely to be a significant divergence in how funds respond to decumulation.
Trustee’s need to consider countless factors – sequencing risk leading up to and within the drawdown phase; structuring payments to provide confidence in income source and regularity; a level of income which offers dignity in retirement; and putting the member first with the flexibility to make changes based on personal circumstances.
Funds will have multiple audiences across generations, members will have higher average ages, and more funds will have outflows that exceed inflows. They will also need to involve themselves more actively in the process of financial advice, to help people ‘ease down the cliff’ and manage their money well as they age.
When you add these challenges to a low inflation, low return global environment, and the diverging needs of accumulation members (who will benefit most from higher annual returns and lower costs), it is clear that being a superannuation trustee of the future takes innovation, deep experience and powerful foresight.
At present, more than 200 APRA regulated super funds exist, however many offer extremely similar products and services. This lack of differentiation, combined with low levels of member engagement and the industry reviews underway by the Productivity Commission, makes it no surprise that KPMG’s interactive superannuation dashboard shows that the bulk of APRA regulated funds are very close to, or in, net outflow.
The most proactive funds are developing and implementing member engagement and retention strategies, and harnessing new and emerging digital capabilities to reach as many members as possible in an economic way. They are striving to appeal to the new ‘mobile’ generation to be more actively involved in accumulating their super. These strategies build upon existing member education, intra-fund and financial advice programs that many funds have in place already.
However, taking consumers on the road to retirement is one task. The complexity of catering to their needs post retirement is another. Succeeding in the decumulation space is the next big challenge, and powerful opportunity, for the super funds bold enough to lead the way.
The KPMG Super Insights 2017 report and accompanying interactive dashboard are based on 10 years of APRA and ATO-published statistics. The dashboard contains interactive charts and graphs which can be filtered to view industry and fund metrics for a particular year or segment of the market and to view metrics for an individual fund in comparison to a peer group.