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How super funds can better help with retirement planning

APRA and ASIC’s review of the implementation of the retirement income covenant (RIC) had a clear message: super funds need to do better. The report found that “overall, there was a lack of progress and insufficient urgency from [funds] in embracing the retirement income covenant to improve members’ retirement outcomes.”

The regulators’ concern is understandable. While there were only a few months between the deadline for funds to publish their RIC strategies (June 2022) and interviews for the review, retirement has long been a high-profile area. Any superannuation industry conference or Board strategy day agenda will include retirement strategy as a key topic. The regulators have been pressing trustees towards action (albeit without ‘teeth’) for many years. And from a commercial perspective, funds are well aware of the hundreds of thousands of members, and billions of dollars, at stake for those who ‘win’ the retirement game, and the potential penalties for those who fall behind.

Barriers to progress

Many reasons for the slow progress have been well canvassed. For years, funds used the small share of overall fund assets in retirement as a reason for treading slowly. That rationale has disappeared, with the retirement phase share of APRA-regulated fund assets now at 26% and projected to reach 35% by 2032.

Funds believe they are constrained by law from providing more guidance or soft defaults for members in retirement. The Quality of Advice Review seeks to address these constraints, though the Government’s response could take years to be formulated and legislated.

And yet, there is progress being made, even if it is not as visible as the regulators would prefer. An example of this is the establishment by several leading funds of a ‘chief of retirement’ role, focused on developing the fund’s overall retirement strategy.

Such appointments are surely a powerful statement of a fund’s commitment to escalating its retirement thinking. In many cases, the role is at a senior executive level, sitting alongside other ‘heads of’ including investment, member experience, technology, ensuring that the incumbent has a seat at the table when key decisions are made, and resources allocated.

Beyond the ‘chief of retirement’ appointment, however, a deeper question emerges: how does the fund organise its people and resources to develop and implement effective retirement solutions? Which functions within the organisation – often long established – fall under the retirement ‘segment’, and which are better designated as ‘whole of fund’ functions? How do existing member touchpoints and service propositions need to evolve to meet the retirement challenge? In short – what does ‘retirement’ mean, in an organisational sense?

A changing landscape

Even as recently as 15 years ago, funds were much simpler organisations. The predominantly outsourced resourcing model that had existed for decades was still largely intact. Growth, fund mergers and internalisation have led to the mega-funds of today, with hundreds of employees and assets in the hundreds of billions.

As fund organisations have grown, the various business functions (such as investment, operations, technology, member servicing, advice) have become more clearly delineated, with the potential for siloing and even cultural differences between these different functions emerging. Despite these inevitable frictions, the more separate operation of these functions has allowed for a clearer purpose and greater accountability for each at a senior level.

Within this framework, the natural home for the ‘retirement’ segment is not obvious. It does not sit neatly within, or on top of, any of the existing functions. Retirement is a ‘whole of enterprise’ initiative requiring input from virtually all the existing business functions, together with new thinking and resources. How to organise these parts into a successful retirement ‘segment’ is therefore complex, requiring a reimagination of a fund’s current retirement proposition. This task remains a work in progress in most funds.

Retirement segment models

Let’s consider two potential models that could be used to organise the retirement segment:

  • ‘Shared functions’ model – where the various business functions remain ‘independent’ and service the retirement segment as needed, while also retaining their existing role in servicing the fund’s operations (including both operations attributable to the ‘accumulation phase’, and operations which relate to the fund as a whole).
  • ‘Dedicated functions’ model – where business functions are established under each segment (retirement or accumulation/whole of fund) as required, with the focus of the service dedicated to that particular segment of the business.

These are depicted (in simplified format) below.

‘Shared functions’ model*

‘Dedicated functions’ model*

* The business functions shown are illustrative and are not intended to be comprehensive, or representative of any particular fund

Each model has its strengths and weaknesses – for example, a ‘shared functions’ model allows the new retirement segment to remain lean and focused, minimising organisational complexity while drawing on functional resources only as needed. On the other hand, getting the required level of focus and priority from those resources may be a challenge.

Conversely, the ‘dedicated functions’ model enables the development of functions specialising in retirement. A retirement investment function, for example, could explore those aspects of investing specifically relevant to the retirement phase and how the investment component of any retirement solution would be designed. A downside of this model, however, is the more complex organisational structure and the scope for costly duplication of resources.

There is no single ‘right’ model. A fund’s existing resources and structure may well point to a more sensible approach to be taken, at least in the medium term.

In future, it is even possible that the retirement segment of large funds will become separate entities, focusing on managing money safely, getting closer to their members and continually developing innovative solutions for delivering retirement incomes. Accumulation phase entities would remain focused on scale and investing assets for long term growth.

While such a model might be decades away (if it emerges at all), it is an interesting one to consider as the industry matures, and retirement phase assets become more dominant. Meanwhile, funds will need to reimagine their existing structures, and formulate an operating model that allows them to accelerate the development and implementation of their retirement strategies as the pressure from regulators, and competitors, continues to grow.


Nick Callil is Head of Retirement Solutions, Australia at WTW. This article contains general information only and does not take into account your particular objectives, financial circumstances or needs.


Randall K
August 07, 2023

In a similar vein, I recently read an article in the Financial Review where AusSuper also adopts a paternalistic way of looking at a citizens retirement needs ('Why AusSuper wants to revolutionise your retirement”). So my difficulty is that, as a nation we have known now for over 40 years that retirement is way more than getting an age pension and then waiting life out. So what hope has the Government going to have in leading us towards a better financial retirement if their performance to date in super evolution means anything. The record to date is dismal. I suggest the outcome of a covenant will ramble along in a similar dismal way.
But this is as it should be as the super industry should focus on maximising financial returns and leave the critical planning to others.. Governance efforts should be to encourage and focus on building and sustaining a financial advice industry that we can confidently use and pay for. One that is separate from and not beholden to the super industry.
As pointed out in other comments, funds have no knowledge of individual non super finances and nor should they as we are individuals responsible for our financial destiny. Sure give us more financial education but the emphasis needs to move from the industry to the citizen. And not in a paternal fashion as being planned now.

Bec Wilson
August 05, 2023

Very interesting indeed and a great place to watch as the industry morphs to meet the customer

August 04, 2023

In moving towards a member-centric retirement income model, regulators, academics and the industry appear to have ignored the elephant in the room: for the actual and therefore the potential retiree, meeting the financial obligations as they arise must consider super and non-super assets as money is fungible across this artificial divide.
Trustees have no knowledge of non-super assets. More critically they have even less knowledge of the member’s twilight time liabilities. Existing retirement needs models are by necessity based on the average retiree, at the basic, intermediate and luxury levels. Statistics has not yet figured out how such average templates could be reliably cascaded down to the individual retiree. The position is complicated by expected and unexpected changes in health, relationships and retiree wants and needs.
The way forward is to holistically assess super and non super assets, and periodically reassess the liabilities they are supposed to finance. Easy for regulators and the authorities to exhort trustees to do better, but bloody impossible to show how to do it given the current silo approach of super funds being required to achieve good outcomes without insight into non super assets and tailored individual circumstances.
This is more a policy failure than mere fund incompetence. Start again!

August 17, 2023

Agree. FOFA was flagged to have this exact impact making as it virtually impossible to provided scaled advice for anyone under $500k super balance. Such is the policy failure and industry incompetence over the real need for longevity protection that that circumambulation is sure to prevail.

Pooled longevity risk will continue to have a negative IRR when compared to almost any other investment options available. The people pumping it don't understand the real needs of the most retirees who will still rely heavily on the Age Pension. Indeed, super fund trustee's that have set it up as part of their detail are finding that most of their members regret what it entails (i.e. less access to lump sums to pay for unexpected expenses).

In sum, the industry needs to do better as it's clear as night and day as the policymakers haven't the slights clue

August 17, 2023

*Default and not detail

I meant to throw in the flawed concept of "maximising retirement income" as part of the RIC. Could only be described as the brainchild of group of individuals removed from the cold hard realities of daily life and human nature. Many people achieve just as much satisfaction from not spending their money, given otherwise it tends to attract the wrong type of interest.

David Williams
August 03, 2023

It's valuable to put the strategy for super funds under the spotlight in this way. Increasing longevity and the post-war baby boom are creating major social change, but our responses are piecemeal and lack an overarching strategy. We are failing to make the best of the opportunities increasing longevity is creating, largely due to a focus on 'retirement' as the core rationale for change.
The proper starting point is our longevity – the time we have left. Most of us simply want to make ‘the best’ of it – whatever that is personally. Once we better understand our own time frame and its key drivers, with support we can plan our whole future, including our financial and other decisions. Properly informing people about longevity and building their ability to make a difference is the first major improvement we need. Personal longevity planning is the ideal service to provide this.
Personal longevity planning only requires simple education, non-regulated learning for advisers, and reliable support processes and technology for delivery, all of which are already available. It should begin well before what we currently call retirement and is a ‘rest of life’ skill. From this foundation, a range of decisions are harmonised, including preventive health management, employment and financial and estate planning shoices along with effective preparation for dependency and aged care.
As well as providing challenges for superannuation funds, many government silos that oversee some of these elements are not fulfilling their potential because they are stuck in the same paradigm of retirement being the core issue. It’s time we moved on and grasped the true opportunities of increasing longevity with a national longevity strategy that empowers both the service providers and individuals with a much more realistic approach to the future.
In the meantime, super funds could kick the ball in the right direction by providing longevity planning to all members (and their partners) from midlife – which will prepare them much better for ‘retirement’ decisions anyway.

August 05, 2023

"super funds could kick the ball in the right direction by providing longevity planning to all members ":

In addition to the retiring phase, preparing for the dying phase.

Super funds are funds - their primary function is 'managing money'.

In addition to the retiring phase, the dying phase needs funding.

At present that is largely funded by the Age Pension.

Hence fund focus on retirement phase.

Alternate longevity insurance to the Age Pension, a form of tontine, might be relevant for funds.

August 03, 2023

A thought provoking article.

“Design thinking” requires an organisation to put their customers’ needs first. If there are two distinct customer segments, there may be many (profitable) reasons for better serving those customers through two different organisations. Outside the super fund environment, there are many listed companies that decide to demerge disparate businesses for better value delivery. Why should super funds be any different?


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