The next big challenge for super industry leaders is making the shift from a focus on the accumulation phase to a whole-of-life approach. What is it going to take for leaders to succeed in transforming their funds to best help members prepare for and get the most out of their retirement phase?
Many of us in this industry have a Moses Complex. We want to be leaders. We want to help our members. We want to lead our followers to the Promised Land of retirement income adequacy and security. But to date, we’ve largely acted like it was enough to lead them to the gates of the Promised Land, the day they retire, and stop there. Some large funds lose around 90% of members when they retire.
In a series of articles, I will examine the leadership needed for institutional funds to become the preferred custodians of their members’ assets through retirement.
What’s it going to take?
Industry executives recognise the need for change. In fact, 48% of fund CEOs in the 2014 ASFA/PWC survey identified post-retirement products as their top strategic priority over the next three years. And, the Murray Inquiry recognised the problem in a chapter devoted to Retirement Incomes:
“The retirement phase of superannuation is underdeveloped and does not meet the risk management needs of many retirees.”
Moses was leading his people away from oppression by the Pharaohs. Sometimes our industry acts as if the design imperfections of our super system are an oppression. Often our own efforts at leadership seem overwhelmed by the government’s attempts to pull the control levers. The industry’s innovation budget was consumed almost entirely by regulatory reform during Stronger Super implementation.
So, it’s not surprising we spend a lot of our executive energies lobbying for super reform. On the policy front, it’s good to see the start of the Committee for Sustainable Retirement Incomes. This group wants to provide leadership by influencing government policy settings.
Time to take the lead
Super fund industry leaders must act. The baby boomers’ metamorphosis into retirees is gathering momentum. For boomers still in accumulation, it’s ‘last call’ for retirement readiness. And those hitting retirement – some 250,000 per year – need to make the best use of their super savings.
As over 50s own 60+% of superannuation assets, what members choose to do at retirement is a critical survival issue for funds. With vast numbers of pre-retirees and retirees leaving their super fund at this stage of their lives, we must ask the question “are we failing these members?” Surely the purpose of the super industry is to help members secure a sustaining level of retirement income. If we haven’t earned the loyalty to help them in their retirement phase, what have we achieved?
As I observed in over 30 years with The Vanguard Group, there are many dimensions to leadership and the opportunities vary over time. Sometimes it’s product leadership, other times new markets, operational breakthroughs, team development, IT transformation, ratcheting up service delivery, expanding the service offer or communications. Making the right choice about where to spend leadership energies is the central decision for executives.
Different ways to lead
Judging by the ASFA/PWC survey and encouraged by the Murray Inquiry recommendations for a Comprehensive Income Product for Retirement (CIPR), many funds will start with a product leadership focus and some funds have already moved in this direction.
Beyond product, there’s a host of other initiatives funds can undertake. Some leaders will excel in communications. (One suspects Moses was big on communications; those tablets with the Ten Commandments were an inspiration!) Strong communications are needed to ensure members know, and believe, the fund is there to help them with the retirement phase. A key part of the communication programme is likely to be a shift from the reporting of balances to more meaningful forecasts of retirement income.
Others will try to lead members through advice. It’s a challenging transition from a working life earning a salary to a life dependent on an income stream from a super fund and the age pension. Few people can make this transition without substantial help. And few make it well if they leave it to the last minute and a one-off discussion with an adviser.
Making quality advice available is perhaps the most important step a fund can take to prepare members for retirement and encourage them to take-up a sustainable retirement income option with their super fund. As traditional means of providing advice are expensive and reach only a small portion of the membership, the opportunity to expand access through digital advice capabilities is a current leadership opportunity.
And then there’s the service leadership angle, aiming to make it as easy as possible to move into retirement with the fund. Or providing novel services such as easy access to your accounts, ATM access to income, and ongoing personalised investment management to ensure income sustainability. Service leadership can also extend into product packaging, for example catering for the differing needs of the various life stages of retirees.
I’m fascinated to see how industry leaders take up the challenges in retirement incomes. In future articles, I’ll tackle many of the dimensions of leadership in our industry through profiling successful and prominent industry leaders. In my next article, I’ll focus on one of the greats, an inventive and inspiring leader I know well, Jack Bogle, Founder of The Vanguard Group.
Jeremy Duffield is CoFounder of SuperEd. See www.supered.com.au. He was the Managing Director and Founder of Vanguard Investments Australia, and he retired as Chairman in 2010.