Super systems are struggling to get ready for the transition to retirement, says industry veteran

Setting up a super system for the accumulation phase is easy compared with the demands of supporting members in retirement, says think tank The Conexus Institute’s chief, David Bell.

Customer service failures would worsen as the super system deals with increasingly complex demands of the retirement phase.

The superannuation sector does not have adequate operating systems to handle the generational progression of members into retirement, according to a former industry super chief investment officer, David Bell.

The corporate regulator on Wednesday sued Australia’s largest super fund, AustralianSuper, for failing to process death benefits in a timely manner in almost 7000 cases between 2019 and 2024.

Mr Bell said the current problems with the organisational set-up of super funds leading to customer service failures would worsen as the system tried to deal with the more complex demands of the retirement phase.

“The superannuation sector is not geared up to be able to handle the retirement phase,” he told The Australian.

Mr Bell is the executive director of The Conexus Institute, a retirement think tank; he oversaw investments at Mine Super between 2014 and 2019.

He said he and his fellow researcher at the non-profit, Geoff Warren, “feared” for the industry’s ability to handle drawdowns, which involves more bespoke service. Super funds needed to invest significant amounts to upgrade their systems, which were geared to the accumulation phase when members were working and funding contributions towards retirement.

“The accumulation phase (of super) is reasonably straightforward, product-led with default settings playing a major role,” he said.

“We believe decumulation will be more complex, may involve multiple product types, will need to be service-led, and likely to be more personalised.

“If operational systems are struggling to support accumulation, we fear for the ability of many funds to service retirees,” Mr Bell added.

ASIC chairman Joe Longo criticised super funds on Wednesday for not being sufficiently across their organisational shortcomings, warning that the sector had become a “poster child for what can go wrong when governance fails”.

ASIC chairman Joe Longo has described super funds as the “poster child” of governance failures. Picture: John Feder

The corporate regulator is set to deliver a report in April on the 10 major super funds delaying handling of death benefit claims.

Mr Bell and Mr Warren co-wrote their own report into the superannuation industry, citing “underdeveloped operational infrastructure” as a major concern.

It described a cottage industry growing to become complex financial organisations.

“While the most obvious symptom is the member service failings which ASIC is pursuing, we are concerned that shortcomings in operational infrastructure are hindering the industry from delivering high quality retirement income strategies,” the report says.

The super industry regulator, APRA, has put super funds on notice about stepping up their focus on providing products and services to members starting to draw down their balances. Funds have also been required by law since July 2022 to outline their retirement income strategy.

But the industry is not moving fast enough to keep up with demographics.

Mr Bell said the report, released in January, he wrote with Mr Warren on the systemic impacts of Big Super found “near-universal agreement” about the current shortcomings in industry’s infrastructure.

This included the “plumbing and wiring” of super funds – the systems and processes supporting functions such as member administration. But this was more difficult to automate.

“Super funds need much greater capacity for personalisation in retirement than in accumulation where all members share the common goal of accumulating wealth,” Mr Bell said. “This requires funds to ­deliver a range of retirement products and solutions as well as guidance services to meet differing needs and wants [of individual members].

“Operational infrastructure with substantial functionality is an essential foundation in delivering a quality retirement income system.”

Big gaps were apparent: “Very few super funds have the capability to present integrated retirement solutions,” he said. “A big upgrade in the industry’s plumbing and wiring is needed to get there.”

The delays targeted by ASIC began in 2019, one month after AustralianSuper entered into an administration and custody agreement with under-fire administrator Link, now called MUFG Pension & Market Services, which has found itself at the centre of the member service scandals engulfing the sector.

AustralianSuper said on Wednesday it was hindered by the onset of Covid-19 which put pressure on its staffing and created a backlog. In one case detailed by the regulator, it took the fund more than three years to make a payout.