Buoyed by an ageing demographic and a new trustee duty known as the ‘retirement income covenant’, superannuation funds are gearing up to meet a growing need for retirement income products to help members reach their post-working life goals.

First published in Money Management, 29 October 2021

However, getting people into a retirement product that is right for them could be a tough ask given the sparse information available on their membership base.

The good news is that Canberra is taking a principles-based approach to retirement strategies. This allows super funds to tailor retirement products to the characteristics of their members and their families.

Many super funds are highly frustrated because they want to do a good job for their members. But, if the onus to design and deliver the right products sits with them, it is essential they can access the key profile information to help them better understand and design solutions for their members.

As we all know, it is possible to achieve this through member segmentation. Categorising members by demographics, investment understanding, homeownership, marriage and level of engagement helps identify cohorts with similar risk tolerance. Much of this information is needed to help determine if the member is eligible for the means-tested Age Pension, to what extent and how that entitlement might change over time. Its complex for super funds.

The trouble is, it’s difficult for funds to build such meaningful cohorts without access to more information about the member’s situation than they can currently have. Unfortunately, in the design of sustainable retirement income solutions, this presents a huge impediment to segmentation.

There are glaring gaps in the information that super funds have a right to use. Worse, many of the necessary data points change from time to time.

Canberra has an opportunity to address the data vacuum since it acts as a conduit to constructing better-segmented cohorts of members. Critically, if a super fund has all the data it needs, the retirement income strategies being designed and presented to a member have far greater odds of being best suited and meeting the members needs over the long term.

The same can be said for enabling data access for financial advisers. With pertinent data sharing comes create greater efficiencies to the benefit of their clients.
As things stand, getting the right amount of useful data on super fund members is notoriously difficult. So, getting the government involved in data that feeds into segmentation is not only smart but brings some distinctive benefits to bear.

In Australia, superannuation is compulsory. Therefore, it is easy to argue that the optimal policy response from the government is to support the retirement and advice industries by allowing members to benefit from the mass of rich data being collected on them.

In turn, the retirement industry has a responsibility to lobby Canberra to make this a priority at what is a critical juncture in the construction of a decumulation or retirement income system for people in retirement.

Interestingly, the Actuaries Institute noted in a recent submission to Treasury that some super funds are investigating the possibility of obtaining banking data using the Consumer Data Right, or open banking as it is widely known.

Obtaining data through MyGov was also cited as an efficient way to supply super funds with the data they need to build more detailed cohorts.

With the Morrison government’s say-so, super fund members could consent to have MyGov data preloaded into their super fund.

Sharing data safely

The timing could not be better. More than ever before, people may be ready to share data.

The open banking law creates a general right for consumers to control their data, including who can access it and how it can be used. Bank customers understand that they benefit from sharing their data with an accredited third-party knowing that privacy safeguards are in place.

And, it’s not just the banking sector that is sharing data — the energy and telecommunications sectors are next in line.

We should get the most out of our data. So much gets collected, little gets used. Throughout the pandemic, individuals have become accustomed to scanning a QR or quick response code to enter a shop, pub, or other business. Next month, when the country opens up, data from MyGov will act as a passport to freedom, showing a green light to indicate if they are vaccinated.

If bank consumers are happy to direct the right data, at the right time, into the right hands to obtain better loans, I wouldn’t mind betting that super fund members will also want to benefit from better use of their data in the same way.

There is a real opportunity for policy makers to enhance the retirement of all members and empower super funds by helping to match members with the right products. Another advantage is that the hard part of choosing a product is done for members.

The government has indicated that it wants ‘informed choice’ as the basis of Australia’s retirement system. But a purely choice-based system may not work well for all people approaching or in retirement.

Members trust their super fund and many will expect to be guided into an appropriate retirement option. Some will want to have a hand in the decision, depending on how engaged they are. Alternatively, the member could ask their fund to assign them a product.

Designing a suitable range of sustainable products for each segment or cohort is essential if super funds are to deliver on their obligations in providing their members with a secure and dignified retirement. Armed with a richer dataset, building suitable product to match member needs to income stream, may get that bit simpler.

This material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559. (Allianz Retire+). Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited.
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