Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 188

Superannuation needs greater outcomes focus

As the super industry shifts from a focus on accumulation to the full savings lifecycle, with an emphasis on retirement income, the measures the industry needs to gauge progress must change too.

The newly minted government-defined objective of super points the way. The objective of super is, “to provide income in retirement to substitute or supplement the age pension.”

This objective aligns with the views in an excellent paper, Governance: The Sine Qua Non of Retirement Security, by Michael Drew and Adam Walk, which argues that the fiduciary focus of defined contribution retirement plans has to be on outcomes of the process, not just on inputs. They argue the industry has been overly focused on fund returns as the key measure and not enough on the retirement incomes likely to be earned by members. Following Nobel Prize winner Robert Merton, they claim "retirement income is the true measure".

Put it in terms we each can relate to as participants in the super industry: do we care about what time-weighted rate of return the fund earns (or peer-relative performance) or instead the stream of retirement income we can draw down during retirement?

Now, most individuals don’t currently have access to forecasts of what their super savings will likely amount to as income streams during their retirement. And neither do trustees of most superannuation funds have good analysis of the likely retirement outcomes of their members.

What are outcomes-based objectives?

That’s got to change, even with the government’s minimalist definition of super’s objective. Individuals and funds need to get a handle on the likely income streams in retirement. For those with greater ambitions, like having a ‘satisfactory’ or ‘comfortable’ income in retirement, the need to switch to outcomes-based objectives is even more obvious.

What are the right measures for a fund that seeks to help its members get strong incomes in retirement? In my view, funds should be forecasting expected retirement incomes for all members, in effect establishing a baseline set of expectations for its membership. Funds should then set a course which seeks to improve on that baseline and then measure progress.

Expected retirement incomes could be measured absolutely or against relative indicators such as standard of living measures, like the ASFA Standards, or against replacement ratios (the percentage of pre-retirement income earned during retirement). What percentage of our members are expected to meet the ASFA ‘modest’ or ‘comfortable’ income during retirement? Or what is the distribution of retirement income forecasts versus current income levels? (for example, how many of our members will make a replacement ratio of 70% of pre-retirement income?) What percentage of our members will be on the full and part age pension?

Of course, retirement income forecasts are not certain predictions. We live in a stochastic world of unknown outcomes. So it’s important that we think in terms of a range of outcomes and the risk to our members of not achieving adequate retirement income levels. We need to think in retirement income security terms, not only in portfolio risk terms, then members can trade off appropriate portfolio risk and retirement risk decisions.

Some trustees may think it’s too difficult or uncertain to forecast the future for each member, but well-established techniques are available.

Outcomes-based measures change management

Instead of focusing on what the fund does – manage portfolios, administer accounts – executives will drive greater focus on what the member does which impacts their retirement outcomes. The trustee will think more about encouraging beneficial member behaviour to drive better outcomes.

For example, is it most important to offer a single strong MySuper default or better to encourage members to be in an investment option that suits their own needs to produce a target retirement income? Technology exists to give members personalised defaults.

Also, is it better to offer members more expensive actively-managed options or to invest more in passive funds and use the fee savings for delivering individualised guidance to the members on establishing and achieving their retirement income goals? Is there more pay-off or ‘alpha’ in good advice than in active equity management?

And will a focus on retirement outcomes drive a frank conversation about what members need to save to get a satisfactory retirement income? The way the industry tiptoes around the issue, it’s like we’re afraid to tell anyone that the guarantee charge’s 9.5% (6.65% to 8.06% after tax) contribution rate is just not enough.

Moving to outcomes-based measures of success will not only drive alignment with government objectives but ensure that we’re focused on what really matters to fund members.


Jeremy Duffield is Co-Founder of SuperEd. He was the Managing Director and Founder of Vanguard Investments Australia and he retired as Chairman in 2010.


Deriving an effective retirement income

How safe is my super from rule changes?

Super performance test will destroy viability of some funds


Most viewed in recent weeks

Three steps to planning your spending in retirement

What happens when a superannuation expert sets up his own retirement portfolio using decades of knowledge? He finds he can afford much more investment risk in his portfolio than conventional thinking suggests.

Finding sustainable dividend stocks on the ASX

There is a small universe of companies on the ASX which are reliable dividend payers over five years, are fairly valued and are classified as ‘negligible’ or ‘low’ on both ESG risk and carbon risk.

Among key trends in Australian banks, one factor stands out

The Big Four banks look similar but they are at fundamentally different stages as they move to simpler business models. Amid challenges from operating systems, loan growth and neobank threats, one factor stands tall.

Why mega-tech growth are the best ‘value’ stocks in the market

They are six of the greatest businesses ever and should form part of the global portfolios of all investors. The market sees risk in inflation and valuations but the companies are positioned for outstanding growth.

How inflation impacts different types of investments

A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.

How to manage the run down in your income in retirement

The first of five articles on modern retirement income products that aim for an increasing pension that lasts for life and on average should not decline in real terms. They are not silver bullets but worth a look.

Latest Updates


Retirement income promise relies on spending capital

The Government has taken the next step towards encouraging retirees to live off their capital, and from 1 July 2022 will require super funds - even SMSFs - to address retirement income and protect longevity risk.


How retirees might find a retirement solution in future

Superannuation funds need to establish a framework that offers retirees a retirement income solution that lasts a lifetime. It will challenge trustees to find a way to engage that their members understand and trust.

Investment strategies

Dividend investors, your turn is coming

Dividend payments from listed companies, depended on by many in retirement, have lagged the rebound in share prices over the past year. Better times are ahead but sources of dividends will differ from previous years.

Investment strategies

Four tips to catch the next 10-bagger in early-stage growth

Small cap investors face less mature companies with zero profit that need significant capital for growth. Without years of financial data to rely on, investors must employ creative ways to value companies.

Investment strategies

Investing in Japan: ready for an Olympic revival?

All eyes are on Japan and the opportunity to win for competing athletes. After disappointing investors for many years, Japan is also in focus for its value, diversification and the safe haven status of its currency.

Fixed interest

Five lessons for bond investors from the Virgin collapse

The collapse of Virgin Australia not only hit shareholders, but their bond investors received between 9 and 13 cents in the $1. A widely-diversified portfolio can tolerate losses better than a concentrated one.

Investment strategies

The 60:40 portfolio ... if no longer appropriate, then what is?

The traditional 60/40 portfolio might deliver only 1.5% above inflation in future without diversification benefits. Knowing an asset’s attributes rather than arbitrary definitions is better for investors.


Two factors that can transform retirement investing

Retirees want better returns but they have limited appetite to dial up their risk exposure in order to achieve it. Financial advice and protection strategies in portfolios can enhance investment outcomes.



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.