Tailoring key to healthy retirement savings

Reitrees could earn more if super funds developed tailored options


By Megan Tran

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Millions of Australians in MySuper are missing out on up to a third of their potential retirement balance because of the lack of competitive forces targeting better retirement outcomes.

Speaking at a media briefing in Sydney yesterday, Trustee Tailored Super (TTS) chairman and executive director Mark Gray said complacency had set in in the super industry because of the limited incentive to do anything differently.

He said it was time for the industry to be more efficient with investment strategies for default funds as the “retirement gap” between actual and expected outcomes in super balances was predicted to grow.

“From a public policy point of view, there’s a significant failure of the superannuation system to achieve its objective of providing retirement incomes for people,” Gray said of the public policy issue.

A new report by the Financial Services Council (FSC) and TTS, “Innovation in Superannuation: Smart MySuper Defaults”, found that significantly higher levels of retirement savings could be attained through reconsidering the traditional design of MySuper products.

These changes included promoting member engagement with super and employing new technology around member data to create innovative product design.

Analysis by TTS shows that adopting innovative products that take into account a member’s individual circumstances, such as their projected retirement balance and time until retirement, could improve MySuper inflation-adjusted returns by up to 1 per cent a year, which amounted to an approximate 35 per cent improvement in retirement savings.

TTS managing director and chief executive Douglas Bucknell, who has worked in the industry for 25 years, said it was inappropriate for trustees to present their members with the same investment option, and that most funds were aware there was a more efficient way of doing things.

“Funding the retirement funding gap is a solution that needs to be found and we have it. It needs to be capable of being implemented by trustees and there hasn’t been sufficient competition for that to occur, so we are somewhat complacent,” Bucknell said.

“We think confidence in the super system requires current contributors to have the expectation that they will receive the retirement lifestyle that they’ve saved for without it being eroded by future taxes.”

FSC chief executive Sally Loane said the 25-year-old super system must be fit for purpose and target the retirement objective.

“New technology has made it possible to deliver superannuation products that are better tailored to members’ individual circumstances, but the current industrial default system means trustees have not had much incentive to innovate, until now,” Loane said.

“The status quo is not providing solutions to the industry’s issues or contributing optimally to the retirement savings funding gap.”

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