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Super Funds: Keys to the Castle or a Looming Responsibility?

Australia's super funds hold the keys to our retirement security, but many are complacent. Disturbing trends suggest that funds are not doing enough to support their members in retirement. With the superannuation system now at a crossroads, whatever the outcome, the implications will be felt by every Australian retiree. 

Australia's superannuation system was envisioned as a means of securing a dignified retirement for every citizen. Given that super funds now hold the keys to this proverbial castle, one would expect these institutions to be at the forefront of ensuring the security and prosperity of their members in their post-working years. However, disturbing trends suggest otherwise.  

The Retirement Income Covenant may have been a well-intentioned move to ensure super funds took their role seriously, but the stark reality is that many funds seem complacent. They appear to have been sitting on their hands, hoping for more comprehensive guidelines from the Quality Advice Review (QAR). Meanwhile, a sizable number of their members are in or are approaching the drawdown phase, a situation that urgently calls for proactive measures. 

Indeed, member engagement is an area of significant concern. Astoundingly, 50% of super funds do not offer any substantive guidance on retirement spending. An additional 30% seem content to redirect their members to generic platforms like Money Smart. The current one-size-fits-all approach, predominantly based on the ASFA standard, is a glaring oversight. It is a standard that does not account for the changing face of retirement, where among 55-64 years olds, the proportion of mortgage holders in the past two decades, has more than doubled from 15.5% to 35.9% and among retirees, the proportion has tripled from 3.2% to 9.6%, according to data from the Australian Bureau of Statistics.

Moreover, it is baffling that the default option for most retiring members is a pre-retirement accumulation fund. Not only is this a potential oversight of the Design and Distribution Obligations (DDO) regulation, but it also puts retirees at a disadvantage. Simply put, a product designed for an accumulating member is not apt for a retiree.  

Engaging with today's retirees requires a different approach, especially as it necessitates a psychological shift from saving to spending. This is not merely about transitioning from employment to retirement. It is a profound shift in life stage, from a structured working life to a multifaceted existence of work, leisure, and community involvement. 

Addressing these challenges demands a multi-faceted strategy. While it is heartening to see funds starting to personalise their outreach, with tailored videos and case studies, these are mere starting points. Funds need to harness data to create a “people who look like me” experience, providing a relatable roadmap for those unsure about their retirement journey.  

There's an undeniable opportunity here for super funds. The wave of members transitioning to retirement presents both a challenge and an opportunity. Personalised communication, better default options, and more tailored product features should be the order of the day. While the role of third-party advisers will be critical, the chronic undersupply of such advisers means that they are just one, yet important, piece of the retirement strategies of super funds.  

Super funds are standing at a crossroads. The keys to the castle have been handed to them, but with great power comes great responsibility. These institutions can either continue their current path, which resembles the Titanic's ill-fated voyage, or they can choose agility, innovation, and responsiveness, switching to a speedboat to navigate the challenging waters ahead. The choice is theirs, but the implications will be felt by every Australian retiree. 


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