A super step-up in service: funds under pressure to do more for members

The superannuation industry is under increasing pressure to step up its investment in customer service to help members handle retirement.

The shift now is the expectation that the funds have an obligation to help their members make the shift from saving to retirement and should be around to help them through it.

A year after the start of the Retirement Income Covenant requiring super funds to develop a strategy to help their members handle retirement, industry is under increasing pressure to step up its investment in customer service.

A scathing joint review by the Australian Prudential Regulation Authority and Australian Securities & Investments Commission has criticised the lack of action and urgency by super funds in coming up with strategies and services to support their members moving into retirement.

The report argues that super funds now need to incorporate their retirement income strategies into their business models – code words for saying funds need to take the challenges involved more seriously, including being prepared to spend more money on it.

The review and other critical comments from regulators and Financial Services Minister Stephen Jones make it clear super funds will need to step up their game in general in customer support.

Many funds have appointed chief retirement officers and offer basic account-based pension products, but the report showed few have much detailed information on their members approaching retirement.

The net impact will mean super funds will have to invest more in staffing to cope with more queries from customers approaching or in retirement, and wholesale IT systems upgrades to digitise their ­operations – as well as looking at developing new products for members to manage their retirement income.

ASIC and APRA executives say this will require a big shift in the mindset of funds that have hitherto been focused on attracting and managing money from members in their accumulation phase. But they argue that this is part of the business of a super fund. And they are prepared to back up their argument with more regulation and other action to get their way.

This represents a significant shift. The compulsory part of the system, which celebrated its 30- year anniversary last year, has been focused around people saving for their retirement. By and large, super funds have done a good job of helping them do that.

Financial Services Minister Stephen Jones. Picture: NCA NewsWire / Gary Ramage

But the shift now is the expectation that the funds have an obligation to help their members make the shift from saving to retirement and should be around to help them through it.

The compulsory system has meant funds – particularly industry super funds – could enjoy continuous streams of income without having to be bothered with too much demand from members who were focused on their jobs and managing families.

In more recent years, there has been a focus by funds and regulators on getting costs down, which has prompted more mergers to allow for a rationalisation of costs.

Industry super funds in particular, which have not had the big legacy issues or older cohort of members as retail super funds, have been able to boast about their low-cost structure.

With net returns to members (investment returns minus fees) now becoming part of the competitive landscape, and annual fund performance under the scrutiny of the Your Future, Your Super tests, funds have been pushing for ways to reduce costs.

But a shift is coming that will put super fund trustees under pressure to make big decisions. As more members retire, it is clear that funds will need to gear up to provide the kind of faster customer service they get from banks and a range of other companies – meaning more investment in digitisation and IT systems.

But how much do they start spending on the retirement side of their business – and how much of those costs are effectively levied on members in the accumulation phase and who may or may not want to stay with the fund once they have retired?

The regulators have effectively signalled that they do regard this as part of the general business of a super fund – focusing on members approaching and in retirement.

The regulators have also rejected arguments that the strict rules around providing personal financial advice have made super funds reluctant to take more steps to provide more support for individual members who all face different situations in retirement.

Jones has outlined proposals that could make it easier for super funds to provide more specific advice to members – a move that will pave the way for more focus by funds in this area.

As super funds digest the comments made in the report, it would help if Jones could get a move on with these proposals, which would clear the air for trustees about what they can and can’t do and ­encourage them to make more ­investments in this area.

Providing account-based savings services and insurance to a working member is one thing.

Helping them in retirement where their specific circumstances – mortgages and other debts, families and other assets – can make a big difference is a big leap forward in terms of the relationship of a member with their super fund.

Interestingly, the report notes that, while there are some funds that offer “longevity” or annuity-type products for retirees, they remain largely unpopular.

The report also continues the observation that many people die without spending all their super (it would be interesting to see up-to-date figures on that) – as if this is evidence of some moral or intellectual shortcoming.

The reality is that retirees know that costs are rising, events such as illness, home repairs, retirement and aged care accommodation fees and unexpected problems cost money and – once retired – it can be difficult to generate more income. Having a savings buffer is only prudent.

But there is scope for super funds to provide more help to members approaching retirement. The issue is how fast they move and how much money they are prepared to invest in doing so.

The easy, low-cost days for the sector, when members just put money in their super fund and forgot about it, are over.