Australia’s super system is the envy of the world in accumulating defined contribution savings for retirement.

As noted by government reviews and the follow-up to the retirement income covenant (RIC) there is scope to deliver a better retirement outcome for members. There are some advocates who argue that it is better to wait until we get the advice reforms, wait until members have more money, wait until we have 12% contributions, just wait. 

If we put ourselves in the shoes of members that are at or near retirement today, this is not an acceptable course of action. There are many members retiring today that cannot afford to wait and superannuation funds (Funds) that delay their progress could find themselves providing a disservice to these retiring members, and as a result, risk losing a large number of their members at retirement. 

Members’ common objective 

Let’s not forget the core purpose of why superannuation exists. The core purpose of super is to provide income to members in retirement – this does not have to be complicated. 

In fact, we have learned from experience that retirement income can be simple and can be delivered in scale. To be successful, a Fund needs to ensure that members can get the most retirement income from the savings they have accumulated – we call this “doing the best with what a member has”. 

This is the essential requirement of the RIC, noting that the risks to members, specifically longevity, investment and inflation risks need to be managed. This requires an efficient return of capital as well as good investment returns. 

Keeping it simple: the essential ingredient for success 

Managing an efficient return of capital over an uncertain horizon is a complex problem even for financial professionals. Members need (and want) a simple solution that does the job of what is being asked. They don’t need to be spending their time in retirement managing complex financial decisions that they haven’t done their whole life. 

Furthermore, with the volume of members moving into retirement, it is disingenuous to expect all retirees to receive ongoing advice to fine tune their desired annual income. This is not scalable, adds complexity, and is unnecessary in light of the intelligent blended retirement income streams that Fund trustees can offer that contains an appropriate mix of account-based pension for flexibility and lifetime income for certainty. 

Members will engage with things that are of genuine interest, and a solution that is simple, easy to understand and helps members attain a pre blended income stream, is attractive. Members that want to engage further, could opt up for additional forms of guidance to help tailor the blended offer as well as additional retirement advice. 

Research has shown that a blended solution of an account-based pension and a guaranteed lifetime income stream produces better results for retirees¹. A blended solution will provide income that can benefit them with positive market returns over time as well as having some secure income that will always be there when the member needs it. It also provides confidence to members by managing the risks that Funds need to manage under the RIC and can ensure that they enjoy a lifestyle that always exceeds the Age Pension safety-net. 

Funds can deliver better results to members by providing: 

• Simple, fit-for-purpose blended solutions that offer immediate benefits; 
• Flexibility to adapt these solutions as member needs evolve; and 
• Education about their options and the benefits of regular engagement. 

Engaging on their own terms 

It is practically impossible for a Fund to know the perfect solution for each member. Not everyone will need or want a completely tailored solution. Funds can utilise a range of options to guide members to their right solution. 

These include: 

• Direct options for members capable of making a fully-informed choice independently. 
• General advice to provide guidance and enable members to self-select. 
• Trustee-guided outcome where the member accepts a Fund’s recommendation. 
• Comprehensive advice for those members who want the fully-tailored option. 

Funds can use these approaches today. The pending second tranche of advice reforms might make the guided outcome easier to implement which can and is being utilised by Funds today. Funds that are already acting are putting their members in a better position. 

Better retirement outcomes for members 

By acting now, Funds can deliver better outcomes for their members already in retirement and be prepared for the wave of members that will be reaching retirement in the coming years. Success in retirement with super means maximising the income that members get (once they have built their nest egg). 

This is no longer a future pipe dream. Funds can and some are, already delivering these better retirement outcomes to members. 

¹ For example, see: Chen, W., Minney, A., Toscas, P., Koo, B., Zhu, Z., & Pantelous, A. A. (2021). Personalised drawdown strategies and partial annuitisation to mitigate longevity risk. Finance Research Letters, 39, 101644. or Guided Choice Retirement Solutions (challenger.com.au) 

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